Research funding through banks in India - The Ethmos view

The Union Budget 2015 has allocated Rs. 41,900 Crores for the overall R&D in the country and that includes all the departments like health, defence, agriculture, earth sciences, renewable energy, space & atomic energy, etc.  If you just consider the Ministry of Science and Technology, then the fund allocation is a measly Rs. 9,500 Crores out of the above.  It is no open secret that R&D is the backbone of development in any civilization.  The Americans, Russians, Germans, Britons, and of course not to forget, our Vedic Civilization ancestors used to give a huge stress on the generation of new ideas and technologies for making our lives easier and more comfy and in the meantime providing more food to people at the same cost of production, giving better quality of life like better houses to live in, better amenities to use, etc.  We appreciate the efforts taken by our present government in boosting growth in our country but what concerns us is the "below-inflationary" increase in the funding for R&D in our country, viz. the net increase in the budgetary fund allocation viz-a-viz last year was only 3.5% as compared to an inflationary increase of around 5-6% in various costs.  So, in simple terms, a major part of these funds will be utilized for paying higher bills, higher salaries due to increase in dearness allowances, higher cost of raw materials like chemicals, equipments, etc. and only a microscopic portion will be really left for conducting the actual research.

We at Ethmos are deeply concerned regarding the sluggishness in the R&D sector and the sorry state of affairs in our country wherein many fine minds are either quitting the R&D sector or migrating to greener pastures in the foreign countries.  And we are strong believers that R&D has the power to transform the lives of billions that inhabit this planet and hence we are putting forth a proposition for changing the way R&D is funded across the world.

First of all, for the sake of background information, let us just inform you that in comparison to the R&D sector, the government has allocated Rs. 25,000 Crore for agricultural rural infrastructural development fund (RIDF) and is targeting the annual credit outflow of a whopping Rs. 8.5 lakh crores (i.e. Rs. 8.5 lakh crores worth of loans need to be disbursed to farmers for agricultural activities).  Regarding the RIDF, it is a fund created by the NABARD (National Bank for Agricultural and Rural Development) wherein the funds from banks are pooled in whenever the banks are not able to reach the minimum lending targets (40% of annual credit to priority sector like agriculture, housing, education, and business loans in case of public sector banks).  For example, if say bank X has got Rs. 100/- with it for lending, it is mandatory for the bank to lend Rs. 40/- to the aforementioned sectors failing which the shortfall in lending (say if it was able to lend only Rs. 30/-, then the shortfall will be Rs. 10/-) will have to kept in the RIDF at 4% simple interest per annum.

Now we put forth our view for the brickbats:

1.  Why cannot banks finance the R&D funding as they are doing for the highly probabilistic and unpredictable agriculture sector? Even if they can finance 10% of what they are financing to the agriculture sector, the R&D sector can get a handsome Rs. 85,000 Crores for the R&D activities.  The loans can be advanced with higher repayment periods and flexible repayment terms as in the case of agricultural loans.

2.  Putting R&D sector under the purview of bank financing will open up an entirely new area and science of financial analysis which will be analyzing the risk-return ratio of various projects and this may lead to weeding out of many "unwanted or repeated" research projects across the country.  If we are not mistaken, then the same research is being carried out by 5 scientists simultaneously across the nation and many more across the globe with varying results (some of which are also fabricated to suit the requirements of the publishing journal or the University guides so as to get the degrees, recognition, and grants).  What is required is the integration of such projects, at least in the form of a central database wherein the results & protocols are shared by the concerned scientists in order to eliminate duplication of work thereby avoiding unnecessary expenditure.  If the banks can create a financial behemoth of a platform for storing zillions of data of accounts of billions of customers, the research database will require hardly a portion of that space - we propose that the government lend a generous helping hand to the research and financial institutions for the same. The research database can be similar to the lines of CERSAI (central electronic database for immovable properties).

3.  The R&D proposals should be routed through the banks and need to be credit rated compulsorily by external agencies like Ethmos, S&P, Crisil, etc.  Special credit rating formulas need to be developed and evolved for the same.  We have already started on the same and will be submitting our proposal to the government regarding the same.

4.  There should be a profit-sharing basis for the R&D scientists involved in the project and the patents or the end result of the work should have practical applications in day-to-day life or at least in other R&D works to make the work feasible.  Many of the Indian Universities have not evolved yet from streaking the same bacteria again and again and testing their resistance to various antibiotics which are already tested by others!  The end-product and practical applications will be the deciding factor for giving the loans since it is the end-product or in some cases, the byproduct, that will be the marketable commodity produced out of the research using which the financial institution can recover the loan amount lent along with handsome commissions and incentives to the scientists responsible for its creation.

5.  And if you are thinking about default on payment and loss of money without getting any definitive results, then we wish to inform that every year, many farmers have to default on their payments due to the totally unpredictable weather in our country and subsequent loss of crops.  What the government does in that case is the rephasement of loans, i.e. extension of time periods for repayments and giving fresh repayment terms and conditions.  We believe that this formula can be applied to research proposals that are not yielding definitive results after say 2-3 years of research.  If no results are obtained, then the research project can be analyzed further and restructured in order to be profitable.  Furthermore, the fundamental law of research is that it ALWAYS produces something - whether it is useful now or later is what needs to be determined.

We at Ethmos believe that R&D is as much a riskier proposition as is agriculture in India since 90% of it is totally rain-dependent.  At least in R&D, we are "brain" dependent and thus the probability of success is better than that in agriculture.  Hence, we propose full-fledged government support in the idea of financial investment-funding methodology of research funding for the betterment of our future generations.  We will be giving more inputs on this seed of an idea that we put forth today.

Till then, 

Happy Ethmos to all!