Funding success

Published : Jun 08, 2002 00:00 IST

The success of the Technology Development Board as a mechanism to fund projects in various fields has led to proposals for similar area-specific outfits. The creation of a multiplicity of similar agencies is inadvisable.

TECHNOLOGY development to-wards its successful commercialisation is a complex process that involves a combination of factors - the choice of technology with a correct assessment of its market potential, availability of appropriate financial instruments such as risk capital and soft loans, research and development (R&D) support for the scale-up of the pilot or bench-scale process, initial hand-holding and marketing support, continuous backing in terms of operations and management of the enterprise and financial and infrastructural support until the product becomes competitive in the market and establishes itself.

For big, established players, particularly those with well-funded in-house R&D units, all this is part of their vertically integrated product development chain. For small enterprises, start-ups or public-funded R&D laboratories, which seek the marketplace through commercial enterprises, public-funded technology development with appropriate policy instruments becomes imperative. This is particularly so in a situation where private risk capital is practically non-existent. On the flip side, bringing together within the government set-up the requisite expertise in the varied aspects of technology development could turn into a huge bureaucratic exercise, with its associated hurdles.

In its six years of operation, the Technology Development Board (TDB), established in the Department of Science and Technology (DST) under the Technology Development Board Act, 1995, has demonstrated that even within the government conscious efforts and proper management can keep the flip side at bay. For one, its operations are handled by an outfit that is lean by any standards - four officers and a support staff of two. The TDB has so far handled 103 projects valued at a total of Rs.1,503.12 crores in areas such as medicine and health, agriculture, engineering, transport, chemicals, waste utilisation, Information Technology, food processing and biotechnology. Of the TDB's commitment of Rs.453.47 crores towards these projects, it has already released Rs.307.54 crores.

The TDB's success is acknowledged by the government, the industry and the R&D institutions. Therefore, one would have expected steps to have been taken to widen its financial base and broaden its scope to include R&D projects as well. However, in the last three years three more technology development funds to cater to specific technology areas have been mooted, each to be run by a board "on the lines of the TDB". That two of these funds have been proposed under the Ministry of Science and Technology itself defies logic. As a scientist of the DST said: "It is easy to put up a board, but operating it efficiently within the government system is more easily said than done. It makes sense to strengthen the existing mechanism that is effective instead of creating new bureaucracies, especially when the government wants to trim the bulge."

The first of the three technology development fund proposals came in December 1999, when the Minister for Information Technology, Pramod Mahajan, established a National Venture Capital Fund for Software and IT Industry (NFSIT) as a closed 10-year fund with an initial corpus of Rs.100 crores. With the Ministry of Information Technology (MIT), the Industrial Development Bank of India (IDBI) and the Small Industries Development Bank of India (SIDBI) participating in the ratio 3:2:5, the NFSIT is managed by SIDBI Venture Capital Ltd. So far, it has committed Rs.37.6 crores to 17 IT companies, of which Rs.29.4 crores has been disbursed to 13 companies.

The second proposal - the Pharmaceutical R&D Support Fund (PRDSF) - was the result of a recommendation of the Mashelkar Committee on Pharmaceutical R&D in November 1999. It suggested that the fund be set up by levying a surcharge of one per cent on the maximum retail price (MRP) of all drugs sold. This was expected to yield Rs.100 crores or more a year. The Committee suggested that the fund be administered by a body outside the government called the Drug Development Promotion Foundation.

However, in May 2000, instead of the surcharge the Finance Minister announced that a corpus fund of Rs.150 crores would be set up for R&D in the pharmaceutical sector. It is still to be set up, though. The Pharmaceutical Policy 2002 (Frontline, March 15) entrusted the task of constituting a Drug Development Promotion Board (DDPB) and administering the PRDSF with the DST.

The third proposal is for the creation of a Biotechnology Development Board, for which the Secretary of the Department of Biotechnology (DBT) has been lobbying for the past few years. On February 18, at a press conference in Hyderabad, Minister of State for Science and Technology Bacchi Singh Rawat said the board would be established on the lines of the TDB and that the modalities were being worked out. However, according to Manju Sharma, Secretary, DBT, the proposal is with the Planning Commission.

Such a compartmentalisation of technology development does not make sense. The TDB's area of operation includes all disciplines. Indeed, it has supported projects even in medicine, IT and biotechnology and helped develop products - some of them outstanding successes - in these areas. Besides, the new R&D funds are ad hoc allocations without any assurances that they would be sustained in the long run. Also, involving the SIDBI with government funds does not make sense. The SIDBI can fund projects in IT and biotechnology from its own venture capital funds in the same manner as ICICI and IDBI.

If the utilisation of the IT fund is any indication, most of the projects financed by it do not measure up as innovative technologies. Indeed, many of them can hardly qualify as instances of technology development. The NFSIT seems to lack the technical expertise to evaluate the proposals it receives for funding.

The difference between the TDB and the new proposals is that the TDB's operations are governed by Acts of Parliament. There are mechanisms in place to ensure continuous flow of funds - though the Finance Ministry tries its best not to pay the TDB's dues fully - as well as the availability of technical expertise to evaluate projects, assess market potential and monitor progress.

The source of funds for the TDB's operations is the 5 per cent cess levied on all payments made for technology imports - in the form of lumpsum, royalties and dividends - as required under the R&D Cess Act of 1986. This amount is paid into the Consolidated Fund of India (CFI) and the "the Central government may... pay to the development bank (the IDBI's venture capital fund), from time to time, from out of such proceeds... such sums of money as it may think fit for being utilised for the purpose of the fund". The R&D Cess Act came into being after the formulation of the Technology Policy in 1983. Two years later the Technology Policy Implementation Committee (TPIC) recommended the creation of a Technology Development Fund (TDF).

The cess began to be collected only from 1988-89. Imports in the pharmaceutical, IT and biotechnology sectors too contribute to this cess. From this perspective, too, it does not make sense to create separate boards and funds for these sectors. However, the amount that the government thought fit to pay into the IDBI's VCF was only a fraction of the cess collected. For IDBI, funding technology through VCF was not a priority because the VCF was but a small fraction of its overall operations. This suited the Finance Ministry too - over the years it seems to have dipped its fingers into this fund also as part of its fiscal manipulations. Until 1995-96, the government had transferred to IDBI only Rs.27.84 crores out of the Rs.364.88 crores that had accrued as cess until then.

At the urging of the Ministry of Science and Technology, which felt that the money due to industry for technology development was being wasted, the administration of the cess fund was transferred from IDBI's VCF to the DST by establishing the TDB in 1995. The consequent amendments to the R&D Cess Act were made in 1996. Despite the creation of this new mechanism, the government's reluctance to part with the cess is apparent (see Table; the figures for the cess collected for 2001-2002 are not yet available). Budgetary allocations to the TDB have always been less than the amount collected and the actual payments even lesser. For instance, while the budget estimate (BE) for 2001-02 was Rs.63 crores, it was brought down to Rs.57 crores in the revised estimate(RE). The BE for the current year is Rs.58 crores, about the same as last year's RE, 7.9 per cent down from last year's BE. The BE has been progressively coming down from a maimum of Rs.70 crores (see Table). Considering that the Finance Ministry had consumed the Rs.283.47 crores that had accrued until 1994-95, it would have been only appropriate for it to release the entire cess money every year since then. But this is not happening.

The TDB assists technology development through equity capital or financial assistance (grants and loans at 6 per cent simple interest) to industrial concerns and other such agencies attempting the commercial application of indigenous technology or adapting imported technology for wider domestic application; and through financial assistance to R&D institutions engaged in developing indigenous technology or adapting imported technology for commercial application. Funding by the TDB, under the current guidelines, covers only half the estimated project cost and the enterprise seeking assistance has to produce evidence of provision made for the remaining amount.

The strength of the TDB's funding process lies in the thorough project evaluation and monitoring mechanisms that have been put in place. Given the DST's access to expertise in all areas of science and technology, both within the government and in the private sector, its project evaluation committees comprise the best persons in their fields and their assessment of technology is bound to be good. Indeed, financial institutions such as ICICI, IDBI and venture capitalists such as the Gujarat Venture Capital Fund and Risk Capital and Technology Corporation Ltd have begun to realise the benefits of the TDB's evaluation and have agreed informally to provide additional funding to any project that the TDB clears. Already funds in the form of loan repayments have begun to flow into the TDB.

In creating the TDB the government has arrived at a correct mechanism, albeit belatedly, to fund technology development. Instead of consolidating and strengthening the mechanism, the creation of a multiplicity of similar agencies is being attempted. The scope of the TDB's operations can be expanded easily to include R&D projects. This is well within the terms of the Technology Development Board Act. Its sources of funding can be diversified (though this might call for an amendment of the Act) and additional funds can be earmarked for specific purposes. For instance, the corpus fund that was announced for R&D in the pharmaceutical sector can be set apart for the said purpose alone.

But if the government has funds to be allocated in such ways, it is unclear why the cess collected is not transferred fully to the TDB. After all, the TDB operates the TDF, which was created by an Act of Parliament and is meant to be operated outside the government's budgetary mechanism. In fact, as a first step, the sum of about Rs.500 crores that is the remainder of the total cess accrued since 1988-89 after payments made to the TDB, should be transferred fully to the TDF so that the TDB is able to net more promising technologies and R&D projects.

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