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Anand Krishnamoorthy

According to some industry estimates, out of a total turnover of Rs 47,490 crore in financial year 1999-2000, Rs 895 crore (or 1.9 per cent) was spent on research and development activities.

Time to step on R&D gas...

NEW DELHI, May 12

THE Rs 48,000-crore automobile industry has sought a research and development (R&D) "incentivisation policy'' as companies have hiked research spending, triggered by new environmental and safety regulations and higher customer expectations.

The Society of Indian Automobile Manufacturers (SIAM), the grouping of all vehicle makers, feels "there is a need to incentivise R&D expenditure to attract foreign companies to invest in the creation of R&D facilities in India in a big way.''

SIAM, in a recommendation to the Government, has said that companies should get 200 per cent deduction upon investing 1 per cent of their turnover in research and development activities.

In order to incentivise companies to spend more on research activities, 300 per cent deduction should be made available for investment of 1-2 per cent of turnover and 400 per cent deduction for spending more than 2 per cent of turnover on R&D.

"This benefit could be availed by companies making a minimum annual investment of Rs 12 crore in R & D,'' SIAM feels.

As per rule 35 (2AB) of the Income-Tax Act, companies spending on R&D are entitled to a deduction of 150 per cent of their investment.

Driven by tougher emission and safety standards and increased demands by the customer who is well attuned to international developments and trends, Indian companies have started significantly upping their research spending. According to some industry estimates, out of a total turnover of Rs 47,490 crore in financial year 1999-2000, Rs 895 crore (or 1.9 per cent) was spent on research and development activities.

As per these estimates, the spending by companies on research and development as a percentage of turnover in financial years 1997-98 and 1998-99 was 0.91 per cent and 0.81 per cent respectively.

Incentives would help the automobile industry to catch up with the global standards in product technology and also provide product improvements within the life span of a model.

SIAM has pointed out that Indian firms lag behind in engine technology, safety features and use of electronics compared with products in the more developed automobile markets.

"It is estimated that in the near future, about 30 per cent of the value of sophisticated cars would be telematics (combination of telecom and electronic technologies). Due to historical reasons (restrictive policies), the models on offer in India lag behind the global level of product sophistication.''

However, there has been a marked improvement in the last few years with the introduction of new models with substantial improvement in safety, emission and other features, SIAM has pointed out.

Increased spending on research activities will help companies cope up with the changes in customer lifestyle, which has resulted in greater demand for newer and more sophisticated vehicles.

In developed countries, a passenger car model with an average life of 5-7 years goes through 2-3 major facelifts in a life-time. In comparison, until recently, Indian two- wheelers and four-wheelers had remained virtually unchanged, SIAM has said.

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