Aradhna Aggarwal Sakshi Chawla

Transcription

1 Promoting Innovation through Public Private Partnership: An Assessment of the SBIRI/BIPP Programmes Aradhna Aggarwal Sakshi Chawla All information provided in this Publication has been compiled from reliable sources; and reasonable care has been taken to ensure that the information in this publication is true and accurate, and sources are duly cited. Such information is provided as is, without any warranty, express or implied as to the accuracy or completeness of any such information.

2 Foreword Innovation is the key to economic development and increasingly a vital ingredient of global competitiveness. It is an established fact that small enterprises, globally, have proven to be the most effective source of innovation leading to the biggest impact on economic growth and job creation of a nation. Leading Governments recognized this potential and have actively encouraged and supported small businesses in turn relishing superior job and economic outcomes. Governments around the world can take a lead from these successes and actively engage in driving small businesses in their own country. Greater use of public-private partnerships (PPP) can increase this responsiveness and enhance the efficiency and cost-effectiveness of innovation policy. Over the past two decades, a plethora of PPP in technology and innovation development has emerged in India. However, in the absence of any systematic reviews, we know very little about the effectiveness of these programmes. This study is an attempt to fill this gap. It examines and assesses the effectiveness of PPP in innovation, with a special focus on the SBIRI and BIPP initiatives of the Department of Biotechnology. The primary purpose of this study is to produce a set of evidence-based recommendations to help policy makers further improve and scale the programmes to fully capture their potential. The impetus for driving scale in Innovation in India through small enterprises came from Dr Romesh Wadhwani, the Chairman and Founder of Wadhwani Foundation. One of the core visions of Wadhwani Foundation is to create and empower thousands of small and medium scale businesses with a vision to accelerate economic development in India. I hope that this study will set the tradition of rigorous impact measurement and evaluation of government supported private innovation projects with the goal of learning from these experiences to further refine and scale such programs where besides economic development, social benefits far exceed private benefit. Ajay Kela CEO, Wadhwani Foundation 1

3 Abstract The purpose of this paper is to evaluate public support of private-sector research and development (R&D) through two complementary grant programmes of the Department of Biotechnology, namely Small Business Innovation Research (SBIRI) and Biotechnology Industrial Partnership programmes (BIPP). Based on online surveys of 80 firms, we conclude that there is ample evidence that SBIRI/BIPP Programs are stimulating R&D as well as efforts to commercialize that would not otherwise have taken place. Further, the benefits associated with the programme- sponsored research are substantial. We strongly recommend further improvements in these programmes and their replication by other government departments. Key words: Innovation, Public private partnership, Small and Medium Enterprises, Biotechnology, Impact evaluation JEL: O31 O32 O38 M13 2

4 Contents 1. THE CONTEXT 2.WHY PUBLIC FUNDING OF PRIVATE SECTOR R&D: A THEORTICAL FRAMEWORK 3. TECHNOLOGY DEVELOPMENT PROGRAMMES IN PUBLIC - PRIVATE PARTNERSHIP IN INDIA: A BRIEF OVERVIEW 4. SBIRI & BIPP SUPPORT PROGRAMMES: AN OVERVIEW 4.1 The Background 4.2. Main Features 4.3 Features of SBIRI/BIPP: An International perspective 4.4 Impact of SBIR-like programmes: International Experience 5. PERFORMANCE EVALUATION OF SBIRI/BIPP PROGRAMMES: THE INDIAN EXPERIENCE 5.1 Performance 5.2 Impact Assessment Benefits Do the programmes have crowding in effect? 6. CONSTRAINTS 7. CONCLUSION AND RECOMMENDATIONS 7.1 Concluding Remarks 7.2 Recommendations BIBLIOGRAPHY APPENDIX 1. PPP based R&D programmes in India APPENDIX 2. Features of SBIR-like programmes in selected countries 3

5 List of Tables: Table 1: List of major innovation programmes based on PPP in India Table 2: Funding Structure of SBIRI and BIPP Table 3: The features of the India s SBIRI/ BIPP programmes and International Best practices Table 4: Sectoral composition of the SBIRI approvals Table 5: Size of the respondent beneficiaries of SBIRI and BIPP Table 6: SBIRI/BIPP Applications and Approvals by call Table 7: No. of product and process patents applied and registered as on 26 November 2013 Table 8: Delays in approvals and release of grant: Distribution of Responses (%) Table 9: Research Budget of government departments for (Rs. Million) List of Figures: Figure 1: Financing innovation intensity and stage of development: Different scenarios Figure 2: Age of respondent firms Figure 3: Distribution of the respondent firms by R&D intensity Figure 4: Quality index of R&D: Distribution of respondent firms Figure 5: Transparency in the selection process: Distribution of responses (%) Figure 6: Distribution of projects by type of research collaboration (Number) Figure 7: Benefits of the programme: Respondents perception Figure 8: Relative satisfaction index of SBIRI and BIPP: Survey responses Figure 9: The counterfactual test: Distribution of responses (%) Figure 10: Constraint-index: Survey responses (%) 4

6 1. The Context There is an emerging consensus among policy makers and development economists worldwide that a strong and vibrant MSME sector, characterized by high growth and continual innovation of products and processes, is a vital ingredient in achieving economic acceleration and job creation (Haltiwanger et al 2010; Hölz and Friesenbichler 2008; Cunningham 2008, Autio et al., 2007). The traditional policy perception that SMEs need support for survival is changing. The strategic focus is increasingly drawn towards its high potential to drive innovation, entrepreneurship, and employment generation. It is however observed that small manufacturers often lack the information and marketing networks, technical skills, and resources available to larger firms, which constrain them from realising their potential. In particular, it is hard for these firms to obtain funds for innovation because of the inherent risk in such projects, information asymmetry, and market failures. There is a growing global recognition among policy makers that public support for financing SME research is critical. An increasing number of countries have introduced and robustly funded a broad array of agencies and programmes to support the innovation capacity of their SME manufacturers. The financing instruments include direct R&D grants, loan (credit) guarantees, third parties investing in MSME manufacturers, and soft loans for innovative projects. In most OECD countries, the share of government-financed business enterprise expenditures on R&D (BERD) to SMEs has increased in the last decade to between 40% and 80% and to over 85% in the Slovak Republic, Estonia, and Hungary in 2011 (OECD, 2013) 1. Since 1992, the Indian landscape for MSME support programmes has also changed, with a greater attention being paid to public support of private research and development (R&D) initiated by small businesses. The Government of India has directed considerable efforts towards providing an impetus to technology innovation in this sector and has initiated several innovation programmes in public private partnership (PPP) mode. The present paper focuses on two of several such programmes: the Small Business Innovation Research Initiative (SBIRI) for early-stage funding of SMEs, and a complementary Biotechnology Industry Partnership Programme (BIPP) for larger and higher-risk projects, particularly in the MSME sector. Designed to encourage small businesses to develop new processes and products through a matching grants system, these complementary programmes have been initiated by the Department of Biotechnology (DBT). While SBIRI was launched in late 2005, BIPP started in late These programmes are modeled on the US SBIR/STTR programmes, which have been replicated by several countries of the world (see, Appendix 1 for their characteristics). Essentially BIPP is open to all enterprises, but 70% of its beneficiaries have been small firms. With US $88 million allocated in public funding and an 1 SMEs are defined as firms with employees, with some exceptions: New Zealand 6+; the Russian Federation 15+, Mexico 20+. For South Africa, firm size is based on turnover 5

7 additional $131 million in private investment by recipient enterprises, these initiatives have contributed to a total public-private investment of $219 million and are the largest and most comprehensively managed PPP initiatives in innovation in India (BIRAC website, undated) 2. The present study aims at assessing the impact of these initiatives within the broad framework of their stated objectives and recommending the way forward. The present study will have important policy implications for other PPP based R&D programmes as well. The growth of the MSME sector, which employs million persons in over 36.1 million units, and accounts for almost 45 percent of the total industrial production, 8 percent of the GDP, and 40 percent of manufactured exports (RBI, 2013) 3 is the central focus of the manufacturing strategy of the Government of India in the 12 th Plan document. The 12 th Plan approach paper (GOI, 2011) recognizes the MSME Sector as a priority sector in Indian manufacturing and considers it to be the foundation for a strong manufacturing sector, more employment, and enterprise growth (p. 85). The Plan outlay for MSME sector is nearly doubled and is second highest among the outlays for various industry ministries & departments 4. Against that background, it becomes imperative for policy makers to adopt rigorous impact evaluation of its policies and programmes so as to justify allocation of public funds to privately driven research. An evidence-based analysis would also inform them of emerging challenges and guide them as to how best to address them through successive modifications of programme design, thereby improving the quality of public expenditures supporting innovation policy and providing a more solid foundation for future funding decisions (Vijayaraghavan and Dutz, 2011). Till date, there has been no comprehensive evaluation (available in the public domain) of these PPP based R&D programmes. The Department of Biotechnology (and BIRAC) has compiled Innovators Compendium for both SBIRI and BIPP (GOI, 2012a, 2012b) to demonstrate the impact of these programmes. To the best of our knowledge, this has been complemented only by Vijayaraghavan and Dutz (2011). They have assessed the achievements of these programmes, based on available data, and unstructured interviews of DBT staff and beneficiary enterprises from a set of funded projects. Our study presents a more comprehensive qualitative assessment of SBIRI/ BIPP programmes based on fully- structured, online surveys of 80 beneficiary firms having 97 sanctioned projects. The survey was conducted in two phases. Phase 1 (July- August, 2013) covered SBIRI while Phase II (September-October 2013) was focused on BIPP beneficiaries. The 2 accessed on 2 November, 2013; and revisited on 19 January Annual Report of Ministry of Micro, Small and Medium Industry as quoted in RBI, Steel Ministry has the largest share of almost 41% of the overall Industry Sector outlay. Next comes the Ministry of MSME with the share of per cent followed Textile having a share of per cent 6

8 Secondary data was compiled from relevant official websites and notifications issued from time to time 5. It addresses three questions. First, how well do the SBIRI/ BIPP programme meet the objectives set by the DBT? Second, can the programmes be made more effective? Third, are there international best practices in these programmes that could be extended to SBIRI/BIPP? It assesses the impact of the SBIRI/ BIPP programme with regard to parameters such as the quality of the firms and research projects being funded under the SBIRI program, the commercialization of the research, additionality of R&D investment, satisfaction of the beneficiaries with the programme, and the program's contribution to firms growth with an emphasis on employment creation. The primary purpose of this study is to produce a set of evidence-based recommendations to fully capture the potential of this programme. A rigorous quantitative impact evaluation of these programmes would require data on comparable (rejected, in this case) firms. But since there is no information available on the rejected firms, the analysis focuses only on beneficiary firms and is qualitative in nature. The study observes that the programmes are indeed effective in practice but still require further improvements. It also recommends that these programmes should be replicated by other Departments/ agencies as well after making appropriate reforms. The extended SBIRI/BIPP programme should be coordinated by a single, designated agency but each agency/department should have the flexibility to manage it and adapt it to suit its needs. The study is organized in 6 sections. Section 2 establishes the rationale of public funding of private R&D programmes of small businesses. Section 3 provides an overview of PPP innovation programmes in India. Section 4 describes the characteristics of the SBIRI/ BIPP programmes and analyses their features from an international perspective. Section 5 investigates its performance, and assesses its benefits and constraints. Finally, the analysis concludes in Section 6 with policy recommendations. 5 We would like to thank Dr Renu Swarup for her comments on a preliminary draft and inputs. 7

9 2. Why Public Funding of Private Sector R&D: A Theoretical Framework As greater attention is paid by policy makers to public support of private-sector research and development (R&D) globally, the debate among economists on the economic rationale behind public- private partnership in innovation has also intensified. Theoretically, economists have long held that market failures create a gap between social and private returns to Research and Development (R&D), thereby limiting private incentives to invest in R&D. The argument is that the investment in knowledge and innovation cannot be fully appropriated by innovating firms, as knowledge is a public good that can spill over to others. This means that the private return is smaller than the societal return. As a result, firms significantly underinvest in R&D compared to the socially optimal level of investment. This argument is increasingly being challenged. Recent developments in theoretical literature do not support the existence of systematic underinvestment in R&D by firms (Montmartin and Massard, 2013 for literature survey). This emerging literature argues that public support of private R&D is justified only when and where market failures are strongly associated with the existence of under investment in R&D. In this context, R&D activity of small- and medium sized companies increasingly attracts scholars attention. The contribution of these firms to technological progress through R&D and innovation has been found to be crucial (Acs and Audretsch 1990, Audretsch 2006) but the risk and expense of conducting serious R&D efforts are often beyond the internal/individual investor s means in these businesses. Therefore, firms have to depend on external institutional sources for funding their R&D. However, they face major challenges in accessing external funding from each of these sources. Various sources of funds have been identified in the literature as possible financial support for technological innovations. These include: The internal sources of the company (including the founder); Informal individual investors close to the founder of the company; Conventional financing institutions; and Private equity funding. Of them, conventional financing institutions perceive the financing of innovative projects of MSEs as complex and risky. They do not have the same level of understanding with regard to the technology as companies and, thus are not able to appropriately assess the complex technologies and their associated risks. The intrinsic uncertainty surrounding successful completion of R&D projects puts the borrower s ability to repay in question. While large firms may diversify some risk by having a large portfolio of research projects, small firms have one or a few projects, thereby increasing the risk element. Further, market risk, which is linked to new and innovative products and services, is also difficult to evaluate because market acceptance cannot be verified and is difficult to estimate. The problem is further compounded by the lack of collaterals caused by the 8

10 high share of soft investments, for example, the salary for researchers, and the cost of tailor-made equipment and laboratories. Conventional institutions are thus reluctant to finance R&D and innovation projects of small businesses. On the demand side, small firms also find it rather expensive borrowing from these sources.. Hence, borrowing from these sources is a financial burden due to a long product-development cycle. Private equity funding through venture capital and angel investors does not require small business to keep up with interest payments, but control is a big issue with them. Usually, angel investors and venture capitalists that invest in these projects want more decision-making rights than most business owners are comfortable with. Further, venture capitalists just like financial institutions are skewed in favour of collaterals, which make it less likely for them to make investments in innovation projects of small businesses. Angel investors on the other hand, may not invest in highrisk projects due to lack of capacities. Since small firms face difficulties in attracting investors to support their innovation projects due to information asymmetries, moral hazard, and the herding tendency of investors, they are likely to underinvest in R&D. The level of private R&D investment of small innovative firms is likely to be below what would be socially optimal. Government support can thus, be instrumental in technology development. But nevertheless, the market failures may not always result in underinvestment in R&D activity even by small and medium firms. This is because market failures vary according to the degree of uncertainty surrounding their ability to repay, which in turn is related negatively with the development stage of the company and positively with the degree of innovation intensity. When the two dimensions are taken together, four different categories of SMEs can be identified with regard to their specific problems in financing R&D or innovation investments. These stages are illustrated in Figure 1. Most risky financing: The less advanced the company s position is in its life cycle, the higher are the risks associated. In the early stages of development, companies are not in a position to provide a sound track record to investors and acceptable collateral to financiers. These difficulties in financing innovative projects increase with the degree of innovation intensity and the novelty of R&D/innovation of the project 6. Equity investors, including angle investors and venture capitalists, often cannot appropriately assess the market chances of the novel technology and the growth 6 9

11 potential of a startup in this early stage or it is too costly for them to do so. Therefore, they are unlikely to provide financial support to startup companies with a high degree of innovation intensity. Risky financing: As a company enters the growth or expansion stage (or later stage) its circumstances change. It can generate revenue streams and cash flows from other products in its portfolio and provide collateral for its expansion investments. Nevertheless, banks find it difficult to provide loans to such a company for new innovations because the high share of soft investments and specialised equipment used are difficult to collateralise. The company itself might not be able to offer collateral from other business segments. Or, the company might not be willing to do so as this could endanger its core business. Other equity investors are also unlikely to be interested because the R&D investment constitutes only one part of the company, which may even limit its overall growth potential. Figure 1: Financing innovation intensity and stage of development: Different scenarios Stage of development Innovation intensity Stage 4: Least risky: High degree of maturity and low level of complexity of innovation Stage 3: Less risky: Low level of development and low level of novelty in innovation. Source: Conceptualized by the author Stage 2: Risky: High degree of maturity and high level of novelty in innovation Stage 1: Most risky: Low level of development and high level of innovation Less risky financing: A startup company faces normal early-stage financing problems if it engages in incremental innovation. The lack of collateral poses a problem for banks. But the provision of equity by an investor is more likely than in Stage I or II as there is already a real product or process that is easier to assess than the outcome of a research project. Least risky financing: Finally, a mature company, well positioned in the market, and generating a steady cash flow has access to bank loans. Furthermore, the incremental nature of the R&D project makes it easier for it to seek funding from conventional sources. This implies that for public- support programmes to be efficient and effective, they need to be focused upon and adjusted according to the financing gaps. The conventional SME sector- based approach addresses a lower-risk stage of the business life cycle by providing grants and fiscal 10

12 incentives on all R&D investments and to all the registered companies 7. This widely- used approach does not recognise the diversity and the resulting financing gaps within the small- scale sector. This approach needs be complemented by a new enterprise approach. Under this approach, direct public funding is offered to support high- technology entrepreneurship with a focus on stage 1 and 2 projects in Figure 1. This approach focuses on the role of small and young businesses in promoting innovation and entrepreneurship and ensures that a small business with a great idea that is based on innovative technology can use publicly- funded grants to bridge the financing gap. This offers the justification for SBIRI/BIPP like programmes. There is, thus, a growing global recognition among policy makers that public support to MSMEs should be better targeted. In what follows, we assess the performance of SBIRI/BIPP programmes within this broad framework. 7 Of the 33 OECD countries, 26 use fiscal incentives to promote business expenditure on R&D. Among those that do not (Germany, Finland, Sweden), some are discussing their introduction. All the BRICs countries (Brazil, China, India, the Russian Federation, and South Africa) and high income countries such as Singapore also offer incentives for investment in R&D. 11

13 3. Technology Development Programmes in Public-Private Partnership in India: A Brief Overview In 1991, the World Bank in collaboration with the ICICI Bank and the Indian government launched a Sponsored Research and Development Programme (SPREAD). The objectives of this ongoing programme are to stimulate technology development through private investment in R&D, and to strengthen industry & technology institution (TI) collaboration. The facilities include concessional Rupee Term Loans of up to 50% of the eligible project cost. The repayment is structured as per project and programme requirements. Initially, this was part of the World Bank s aim to provide venture finance for technology development in India. In the initial stages, the World Bank also provided US $15 million to the Government of India towards the implementation of the SPREAD programme. Currently, it is being managed by the ICICI Bank. The first PPP programme for technological development initiated by the Government of India was PATSER (Programme Aimed at Technological Self-reliance) 8. This Department of Scientific Research (DSIR) Programme aimed at supporting industry for technology absorption, development, and demonstration; and building indigenous capabilities for development and commercialisation of contemporary products and processes of high impact. There were no specific guidelines for funding structure. The financial support by DSIR in the above areas primarily covered prototype development and pilot plant work, testing and evaluation of products flowing from such R&D, user trials, etc. The financial support was partial, with a bulk of the financial support for the projects being generated from the industry s resources. In 2002, this programme was replaced by The Technology Development and Demonstration Programme (TDDP). Recently, it is upgraded and renamed as the Patent Acquisition and Collaborative Research and Development Programme (PACE) (see, Appendix 1 for more details). In , the DSIR introduced another PPP programme to publicly fund private research called the Technopreneur Promotion Programme" (TePP), which set the foundation of SBIRI- like programmes in India. In Phase I, it targeted students, individual innovators, and startup firms with a turnover of less than 45 lakh. The maximum support for individual innovators was Rs. 75,000; for startup firms it was Rs. 15 lakh. Those innovators who successfully completed TePP Phase-I project could apply for Phase II grant of up to 45 lakh for commercialising the technology. This was the first SBIRI- like programme in India. It is now replaced by the programme called PRISM (as discussed in Appendix 1). In the last decade, several government agencies and departments adopted the PPP mode in early-stage technology development initiated by this programme. 8 Our thanks to Dr Ashwini Gupta for this information. 12

14 Another major development that took place in the decade of the 1990s was the launch of Technology and Business Incubators (TBI) by the National Science and Technology Entrepreneurship Development Board (NSTEDB). There is a lack of information on the number of TBIs in India. However, according to a study there were 120 TBIs by 2011 (Tang et al. 2011). Since , a number of new schemes have emerged to promote R&D, particularly in the small sector. Overall, these programmes cover: Technology development funds Funds for patent protection Technology in-licensing funds Technology scale-up/validation/de-risking funds Market entry funds Expansion funds A list of some of the major Technology Development Programmes in PPP mode classified by operating agencies has been provided in Table 1 (see Appendix 1 for a brief overview). Table 1: List of major innovation programmes based on PPP in India Agency Department of Scientific and Industrial Research Department of Science and Technology National Innovation Council Department of Information Technology CSIR TIFAC BIRAC/Department of Bio-technology Source: Relevant websites PPP programme Startups and MSMEs ( PRISM) scheme Building Industrial R&D Promotion Programme (BIRD) Patent Acquisition and Collaborative Research and Technology Development (PACE) scheme Technology Development and Demonstration Program (TDDP) Drug and Pharmaceuticals Research Programme Technology Development Board Cluster Innovation Centers India Inclusive Innovation Fund Multiplier Grant Scheme New Millennium Indian Technology Leadership Initiative (NMITLI) The Advanced Composites Programme TIFAC-SIDBI Programme Biotechnology Ignition Grant (BIG) Contract Research and Services (CRS) Small Business Innovation Research Programme of India (SBIRI) Biotechnology Industry Partnership Programme (BIPP) (An Advanced Technology Scheme (ATS) ) 13

15 A pertinent question is how these programme have affected a firm s behavior with respect to its R&D activity. Unfortunately, there has been little effort to assess the impact of these programmes. The present study focuses on SBIRI and BIPP so as to assess their impact on innovations in the MSME sector. 14

16 4. SBIRI & BIPP Support Programmes: An Overview 4.1 The Background The SBIRI programme was the first PPP programme in R&D initiated by the Department of Bio Technology. It was started in 2005 and the first call for research proposals was issued by the Department in October It was followed by another programme to complement it, in 2008 namely the Biotechnology Industry Partnership Programme (BIPP). The BIPP was initiated as part of the National Biotechnology Development Strategy that was approved by the Government of India in The first call for research proposals under BIPP was issued in December A major development in the direction of promoting PPP in innovations took place in 2012 when a Biotechnology Industry Research Assistance Council (BIRAC) was launched with a vision to stimulate the strategic research and innovation capabilities of the Indian biotech industry particularly SMEs and promote public-private partnerships to make India globally competitive in biotech innovation and entrepreneurship. BIRAC is a not-for-profit (Section 25) company for innovation management. BIRAC is structured to offer a range of services specially designed to help SME s access key resources, new technologies, testing and validation facilities and financial assistance. After its incorporation, first BIPP and subsequently SBIRI came under the purview of the BIRAC. In addition, two new PPP programmes have been initiated by BIRAC: Biotech Ignition Grant Scheme (BIG) and Contract Research Scheme. Overall, BIRAC operates four major PPP programmes at four different stages of a firms growth curve. Biotech Ignition Grant Scheme (BIG) for startups, incubates and potential entrepreneurs: BIRAC has initiated the Biotechnology Ignition Grant (BIG) in order to support entrepreneurs with an exciting idea that may be in the nascent and planning stage. This scheme is designed to stimulate commercialization of research discoveries by providing very early stage grants for the development and maturation of those discoveries The target groups for the Biotechnology Ignition Grant (BIG) scheme include start-ups, potential entrepreneurs from academia or an Incubatee (PhDs, Medical degree holder or Biomedical Engg. Graduate) who have an exciting idea that can be translated into a product and have an unmet need for mentorship and funding. The Biotechnology Ignition Grant would help to support and nurture these high risk early starters and their ideas. BIG scheme supports only up-to proof-of-concept stage. Funding will be in the form of Grant-in-Aid limited up-to Rs 50 lakh. The period for the study would generally not exceed 18 months. The funding to the BIG Innovator by the BIG Partner will always be in the form of Grantin-Aid. No royalty will be charged on the disbursed fund to the BIG Innovator by the BIG Partner. Funding may also be used for conducting limited market research, patenting costs, working capital during the period, travel, salary etc. The scheme is managed by the BIG 15

17 Partners. They provide mentoring and hand-holding for activities related to mobilizing resources, IP management, legal and contracts and other business development related activities for the BIG innovators. BIRAC invites proposals for Ignition grant at least twice a year. Small Business Innovation Research Initiative (SBIRI) for small and medium entrepreneurs: The Small Business Research and Innovation Programme of India (SBIRI) is a public-private partnership programme that provides public funding support to private R&D projects focusing on early- stage technology development in the small sector. It supports pre-proof-of concept research, validation and commercialization of technology. It is targeted exclusively at micro and small firms in India. Biotechnology Industry Partnership Programme (BIPP) for small, medium and large firms: Partnership with industry for high risk discovery led innovation. BIPP on the other hand is an Advanced Technology Scheme (ATS), envisaged as a government partnership programme with industries for providing support on a cost-sharing basis for high-risk discovery and innovations and for accelerated technology development, especially transformational technologies for futuristic areas. Contract Research Scheme (CRS) for encouraging technology transfers from academics to industry: Under the contract research and services (CRS) scheme, the public or private universities and research institutions can take forward their research leads through validation and translation by industry. It supports academia-industry interaction between research institutes, universities, public funded research laboratories, governmental organisations, research foundations and companies or industries and facilitates technology transfers from academics to industry. Public and/or private universities and research institutions having a well-established research support system, for basic or applied research are eligible to participate in the programme. A registration/ recognition/ accreditation/ certification from a government body is mandatory. The research group should necessarily have an established lead as evident by scientific data ready for validation/outsourced services. While BIG and CRS support nascent ideas, SBIRI and BIPP are early and advanced stage technology development programmes, respectively. 16

18 4.2 Main Features Administrative framework SBIRI: Until recently, SBIRI had been administered directly by the Department of Biotechnology. In June, 2013 the SBIRI programme came under the purview of BIRAC. The Biotech Consortium India Limited (BCIL) is the management agency since its inception (EBTC, 2011, p.99). BCIL coordinates all the activities of SBIRI as directed by DBT and takes necessary steps required for smooth operation of SBIRI scheme. BIPP: BIPP was instituted under the Biotechnology Industry Research Assistance Programme (BIRAP) which was set up to provide support to industry innovation. In 2012, with the transition from BIRAP to BIRAC, BIPP also came under BIRAC. It is being managed by Biotech Consortium India Limited (BCIL) as the BIPP Management Agency (BMA) Aims and objectives SBIRI aims to encourage the existing SMEs to accelerate peer-reviewed, quality research; and create opportunities for starting new technology-based or knowledge-based businesses by new science entrepreneurs. It is observed (BIRAC, 2013) that 64% of the total funds committed in SIBRI projects are for proof of concept. This is followed by validation (31%), product development (20%), and discovery (4%). This indicates that the programme is essentially for proof of concept for early stage of product development. BIPP is targeted at the development of novel, transformational, and high- risk, futuristic technologies, mainly for enhancing existing R&D capacities of Startups and SMEs in key areas of national importance and public good. According to BIRAC (2013), 51% of the funds committed in BIPP is for validation where risk is high. This is followed by proof of concept (38%), product development (8%) and discovery (4%). Areas Covered These programmes cover all areas in biotechnology that are related to health-care, agriculture, industrial processes, and environmental biotechnology; and bio-medical devices and instruments. 17

19 Eligibility criteria for participating firms SBIRI: A single or consortia of Indian "for profit" company(ies) 9 (including Limited Liability Partnerships) with not more than 500 employees and a well-established in-house R&D unit with a good track record of R&D achievements during last 3 years. In-house R&D unit(s) of the main applicant should have valid recognition by DSIR or it should have patent rights (National or International) in the proposed activity. BIPP: A single or consortia of Indian "for profit" company (ies) - Small, Medium, or Large, having DSIR recognized in-house R&D unit(s). While the programme is open to all enterprises, it emphasizes on research capacity building in small and medium enterprises. Mode of conducting research Research may be conducted: Solely by an Indian Company incorporated under the Companies Act, 1956 or Limited Liability Partnership (LLP) incorporated under the Limited Liability Partnership Act, 2008 or Joint Ventures either in the form of Company/ LLP Or, by any of the above entities jointly with other private or public partner(s) (Universities or Institutes). BIPP encourages collaborative research with national R&D laboratories and public institutions. Structure SBIRI: The programme was structured in two phases until recently. Phase 1 involved establishment of pre- proof of concepts of innovations; Phase II covered product and process development. However, w.e.f. 1 st April 2013, the provision of Phase II is no longer there 10. BIPP: It is a single- phased programme. Projects may be implemented in national R&D laboratories, public institutions, or industry sites. BIPP covers four categories of research: Category 1: Areas with major social relevance but uncertain market driven demand Category 2: High risk, discovery innovation research with relevance for making India globally competitive Category 3: Evaluation & validation of already existing products of high national importance through clinical trials ( Category IIIA) and field trials ( Category IIIB) 9 Indian promoters, family & friends, and the general public should, at least, hold 51% of the company s share. 10 Thanks to Dr Renu Swarup for this information. 18

20 Category 4: Shared- cost major facilities, critical for enabling innovation. This category comprises of three models The Review Process The proposals under SBIRI/BIPP go through a stringent evaluation procedure to ensure quality of research and reward for innovative ideas. The proposals received are subjected to a four-step review process: Peer Review by a Panel of area-specific experts called Area Review Panels (ARPs) chaired by senior experts Presentation for technically sound projects to the Technical Screening Committee (TSC), comprising eminent scientists from all over the country, Site Visit for the projects shortlisted by the TSC, and Final review by TSC and scrutiny and decision by the Apex Committee, comprising Senior Technical Experts from various ministries and Government departments as members and chaired by the Secretary DBT ( also the Chairperson BIRAC). The projects are monitored through Project Monitoring Committees (PMCs) and, thus, the industry gets the technical guidance from experts. The Company and other partners are required to submit a detailed Milestone Completion Report (MCR) as per a prescribed format for getting instalments released. Each partner has to submit a statement of expenditure against the Budget available for specific milestones being reported. Funding structure: The matching grants system SBIRI: Phase I funding is based on a slab- system (Table2); and it involves partial grant-in-aid, soft loans, and own resources. Phase II funding: With effect from 1 st April 2013 however the provision of Phase II funding has been withdrawn. It was only in the form of soft loans. It did not involve grantin-aid. Interest becomes due from the date of release of funds to industrial partners. Firms privately could directly apply for Phase II loans and skip Phase I. This means that Phase II funding does not necessarily follow Phase I (Table 2) It may be noted that in the US, this flexibility has been recently introduced in the SBIR programme. Until 2011, Phase II necessarily followed Phase I grant. 19

21 BIPP: Funding varies with the category Categories 1 to 3: This scheme provides upto 50% of project cost; the remaining cost is to be met through the company s contribution. While the grant-in-aid component ranges from 30-50%, the remaining BIPP contribution is in the form of Loan. The contribution of the Government is as per the Apex Committee recommendations based on the Technical Committee s Evaluation. Category 4: Funding varies with the models of partnership. Three models of partnership are identified: Model 1: Projects implemented in a privately- managed facility created within a National Laboratory Model 2: Projects implemented in public institutions in partnership with a private investor Model 3: A single, private- industry project Table 2: Funding Structure of SBIRI and BIPP Phase 1 Phase Phase II* Model of Partnership Categories I-III Category IV SBIRI Project cost Funding Intellectual property (Rs. Million) management and ownership Up to 2.5 Grant-in-aid: 80% Grant-in-aid: 50% (Rs. 2-5 m) Beyond 10 Grant in aid: Rs 5 m Soft loan: Up to 50% of the amount by which the project cost exceeds 10 million (Max. Rs. 5 m) 10 Grants-in-aid: Nil Soft Loans: at 1% interest Soft loans: at 2% interest BIPP BIPP contribution of upto 50% of project cost. The grant-in-aid ranges from 30-50%, the remaining BIPP contribution is in the form of Loan. Model 1: Grant-in-aid: up to 100% Model 2: Grant-in-aid: Up to 50% 20 Since April 1, 2013, the IP rights belong exclusively to the Industry, The IP rights belong exclusively to the Industry, Other benefits Model 1: User charge basis; Differential fee for public and

22 Model 3: Grant-in-aid: Nil Soft Loans: 100% private sectors ; Ownership with Government Model 2: Cost sharing, benefit sharing, Contribution based ownership; Differential fee for public and private sectors. In model 3: User charge basis; Differential fee for public and private sectors; should devote a percentage of time for education and training of BIRAC identified trainees for capacity building. Note: * This provision is no longer a part of the programme Source: Department of Biotechnology The funds are given in instalments under the scheme to participating industry and collaborating partners: the first one on signing of the Agreement, and the subsequent instalments on satisfactory progress of the project. Funding mechanism In general, there are two mechanisms of government funding of private R&D: Contractual R&D mechanism: In this mechanism, awards are linked to public sector requirements. Projects are identified by government agencies and are related to government needs and objectives as customers. The details of the desired outcome are provided in the call for proposal. This form of funding is aimed at the procurement of R&D with a clear-cut planned technical objective of addressing societal needs. Grants or subsidy: Under this mechanism industry driven projects are awarded grants While in the UK and Netherlands, the SBIR funding is linked to public procurement, in the US the SBIR implementing authority has adopted a flexible approach in this regard. While some agencies use the contract mechanism; others use grants (Appendix 2). Department of Health and Health Services is the only SBIR awarding agencies that makes both grants and contracts with winning companies. In India, SBIRI/BIPP programmes are essentially based on grants wherein industry-driven proposals are funded in selected areas through call for proposals. However, BIPP also issues special calls based on the areas identified by the BIPP team through wide consultations with technical experts, academia, and industry, and commissioned periodic studies by external experts. 21

23 IP Management SBIRI: Until recently, the IP generated from SBIRI funding was co-owned by DBT and the enterprise SBIRI: With effect from 1 st April 2013, the DBT has no co-ownership on the IP. BIPP: The IP rights belong exclusively to the industry; in case of other public partners, the IP sharing would be on mutually- agreed terms among the partners through BIRAC s facilitation. Benefit sharing BIPP has two types of benefit sharing arrangements where the ventures successfully commercialize technologies. The first relates to a grant, with a stipulation of payment of 5% royalty on sales with a cap of twice the original quantum of funding by BIPP. The second is a fixed interest loan at 2%, with a specified tenor for repayment of the debt on successful commercialization. With detailed guidelines on almost every aspect of the project, SBIRI/BIPP are the most wellstructured and comprehensive programmes based on competitive calls. 4.3 Features of SBIRI/BIPP: An International perspective The programmes under review are Indian version of the US based -SBIR/STTR programmes. Other countries that have adopted the programme with varying degrees of success are: the UK, the Netherlands, Sweden, Finland, and Russia in Europe; Japan, Korea, and Taiwan in Asia; and South Australia in Australia. A detailed description of these programmes has been provided in Appendix Table A2. Table 3 below presents some of the features of the Indian SBIR/BIPP programmes and international best practices in a comparative framework. Table 3: The features of the India s SBIRI/ BIPP programmes and International Best practices International Best practice Presence of a Legal Framework: SBIRI / BIPP US: The Small Business Innovation Development Act 1982 Japan : The Law for Facilitating Creation of New Business Being run in the programme mode 22

24 International Best practice Multiple implementing agencies/ departments under one umbrella US: SBIR adopted by 11 agencies; and STTR by 5 agencies ( Appendix 1) UK: All Ministries Netherlands and other EU countries : All ministries/agencies Japan: Appendix 1 Flexibility is given to implementing agencies in managing the programme, within the overall framework of the programme A single coordinating agency: US: US Small Business Administration UK: Technology Strategy Board (TSB) Netherlands: Ministry of Economic Affairs, Agriculture, and Innovation Sweden: VINNOVA Finland: Tekes Brazil: FINEP Korea: Korea Small and Medium Business Administration Japan: Small and Medium Enterprise Agency Implementing agencies are prescribed an annual set-aside out of their extramural R&D budget to spend on their SBIR US, UK, Japan, Korea, In India too 30% of the DBT s budget is set aside for the PPP in R&D) No requirement of matching grant US: Block grant UK: 100% Korea: 75% with a partial payback (20-30%) in the case of successful implementation over the period of 5 years Assistance in Matching funding Hawaii has been offering matching grants to SBIR beneficiaries through its High Technology Development Corporation so that the beneficiaries can focus on high- end technology SBIRI / BIPP Single department programme (While most agencies/government Departments have their own R&D budgets and PPP programmes, their features vary widely. Few programmes are based on competitive bids or focus on MSMEs) Each department operates its R&D programmes independently. Few focus on MSMEs DBT has a set aside policy for PPP programmes in R&D. SBIRI/BIPP based on matching grant system. No such assistance is assured. 23

25 International Best practice Grants can exceed the stipulated ceiling in deserving cases: US: Upto 50% A combination of industry-driven and contractual research projects ( Projects in Mission mode): US: US SBIR offers funding for both contractual research mission- mode and privately driven projects) EU based SBIR programmes are in the contractual research mode. All competitions are expressed as a desired outcome, rather than a required specification. Government procurement: The UK SBRI earmarks a share of the government s procurement budget to be assigned to SMEs through competitive R&D contracts Netherlands: The programme is based on the public procurement system Private procurement: Korea: In Korea, demand for various technologies is assessed through an annual survey of demand. SMEs may respond to these specifications and submit the proposals for evaluation. The programme thus connects the private procurer with innovative firms. Further, public organisations are mandated to use 15-20% of their budget in the purchase of new technology products Linking the programme with the financial institutions: In Korea, approved money is deposited with the Industrial Development Bank of Korea. SMEs are issued a special credit card, which they use in making payments. Money is paid directly from the Bank. Payment system is linked to the companies database and work progress. There are no delays and lengthy processes in the payment system. An elaborate mechanism to evaluate the programme performance: US and EU A Regional government version of the programme Taiwan: Provinces are involved in the programme to promote the innovative R&D projects by local industries US: Some of the states in US have been adopting this programme SBIRI / BIPP No such policy provision Most projects are driven by industry. BIRAC issues special calls for BIPP for research in identified areas. However, government procurement not assured. No such assurance. No such assistance Payments made directly through the Departments. Independent evaluation is claimed by the DBT but not available in the public domain Yet to initiate SBIR like programmes at the state level Source: Based on own research 24

26 4.4 Impact of SBIR-like programmes: International Experience There is a large body of literature evaluating the impact of the US SBIR programme. Evidence suggests that the commercialisation success of the SBIR programme is unparalleled in Federal R&D programmes in terms of innovation (Lerner, 1999; NRC, 2000, 2008; Link and Scott 2000, 2001,2009, 2010; Link and Ruhm, 2008; Audretsch et al. 2002; Toole and Czarnitzki, 2007; Schacht, 2011; Qian and Haynes 2012) 12. Further, there is evidence that the programme has made significant contribution to technology and innovation in Netherlands (Roos, 2009), Nordic countries (their respective websites), and the Republic of Korea (Donell, 2012; Mahlich and Pascha, 2012). Tredgett and Codd (2013) do not report significant results for the US SBRI. Eshima (2003) used the quasi-experiment to assess the impact of SBIR in Japan and found that the programme awardees grew faster than the matching firms. Firms that received multiple awards however did not show better performance than firms receiving single award. Hung et al. (2006) and Lee et al (2005) used similar research for Taiwan but did not get significant results. In India, the few assessments (DBT, 2012; Vijayaraghavan and Dutz, 2011) indicate that the programmes have indeed contributed to the generation of new intellectual assets, but they call for a more rigorous evaluation to assess programme impact relative to what would have happened in the absence of these programmes. The present study is an attempt in this direction. 12 Nevertheless, the impact of SBIR on employment creation is ambiguous. Lerner (1999) shows that awardees experienced greater employment and efforts (Lerner, 1999). Wallsten (2000), however, found no evidence that SBIR grants led to increased employment in a simultaneous equation analysis. He further revealed that public R&D subsidies actually crowded out private R&D for those small firms with available R&D expenditures. Similarly, Link and Scott (2012) report that SBIR only play a moderate role in awardee firms employment growth. Most these studies have not taken into account the indirect employment generated due to emergence/expansion of the new/existing firms. 25

27 5. Performance Evaluation of SBIRI/BIPP Programmes: The Indian Experience 5.1 Performance Total awards There is no comprehensive data in the public domain on the total funding committed to these programmes. There is some scattered information which needs validation. SBIRI: We gathered information from three sources; The BIRAC website 13 : A total of 134 projects from small and medium entrepreneurs supported by SBIRI have deployed $38 million, of which $6 million was in grants and $32 million in soft loans, with a debt-to-grant ratio of roughly 5 to 1. Public SBIRI funding had leveraged an additional $40 million in private investment by recipient enterprises. Thus 134 projects totalled investment of $78 million across 134 projects BIRAC (2013): In all, 140 projects involved Rs 425 crores in investment. RTI based information: In 22 calls, the DBT had sanctioned 155 projects. Between and , the total amount given in grants by the government totalled Rs 20.1 crore 14. Assuming the debt-to-grant ratio of roughly 5 to 1 (as provided on the BIRAC website), over Rs.100 crore were deployed in the form soft loans. If public SBIRI funding had leveraged an almost equal contribution of investment (based on the information provided at the website of BIRAC) then the private sector contribution the total investment in SBIRI totalled nearly over Rs 240 crores by BIPP: The website reports that 88 agreements signed with 72 companies involved a total investment of US $ 141m with US $ 50m by Govt. of India with a matching contribution of US$ 91m coming in as private sector contribution. BIRAC (2013) reports 110 projects with the committed fund of Rs 700 crore. Of this, the government contribution is Rs 300 crore while the industry has committed Rs 400 crore. 13 Accessed on 31 October, 2013; Revisited on 18 January, This information is provided by the Department of Biotechnology based on the RTI 26

28 Department related Parliamentary standing committee on Science and Technology, environment and Forests (GOI, 2013): Overall 102 projects have been approved and agreements signed with 85 companies with a commitment of Rs crores, out of which the Department s contribution under BIPP was Rs crores only, whereas the contribution of the private sector companies was Rs crores. Therefore, the private sector contribution is nearly 60% as compared to 40% by the Government. RTI information shows that between and , the amount of government grant totalled only Rs 40.5 cr (net of soft loans). There is thus a wide variation in the information provided by different sources. There is a need for comprehensive data on investment in these schemes. Indeed, the government departments are accountable for the expenditure of public money. The Department of Science and Technology (NTSMIS website) data indicates that extramural R&D support by Central Government Agencies has increased from Rs crores in to Rs.1, crores in Its share in the national gross expenditure on R&D was 2.6% during It is also observed that the Department of Biotechnology (DBT) has been second largest player contributing 15% of the extramural R&D support in the country. Information gaps notwithstanding, the above data indicates that the SBIRI and BIPP are among the most significant components of this expenditure. Distribution of projects by sector Three sectors, namely health care, agriculture, and industrial process account for a majority of the approved projects. Table 4 shows that, of the 134 approved SBIRI projects, 50% have been in the healthcare sector. Agriculture projects are at second position, with 24% share in approved projects. Emerging segments such as bioinformatics solutions, food biotechnology, and nanotechnology represent only 10% of approved projects. While BIPP projects are also concentrated in health, they are relatively more diversified than the SBIRI projects. Companies all over India have shown interest in the scheme. However, Karnataka, Maharashtra, Andhra Pradesh, Tamil Nadu, and Delhi are the top five hubs of SBIRI/BIPP applicants as reported on the website of BIRAC ( Accessed on 31 October 2013; revisited on 18 January). 27

29 Table 4: Sectoral composition of the SBIRI approvals Category No. of applications supported SBIRI BIPP Healthcare & related areas Agriculture Industrial products & processes 21 6 Instrumentation and Devices 9 15 Environment Biotechnology 2 9 Bioinformatics, food biotechnology, and others 3 17 Total SOURCE: DBT website and Parliament report available on %20Environment%20&%20Forests/245.pdf It may be noted that even in the US, SBIR/STTR projects are highly concentrated in the Departments of Defence and Health. These two agencies have been the largest sources of funding since inception, accounting for 69% of the total funding during Their share increased almost continuously to 77% by Impact Evaluation Impact assessment (IA) is a systematic tool used to examine and measure the likely benefits, costs and effects of government programmes/policy. It is an analytical report to assist governments to make their policies more efficient. All government policies/programmes include a statement of their purpose and set some objectives. These provide the basis of their IA. Thus, we analyses the impact of SBIRI and BIPP support programmes within the framework of the objectives of these programmes. The main objectives of SBIRI are as follows: Mentoring innovative small and new entrepreneurs, Stimulating technological innovation and nurturing emerging technologies, Encouraging small businesses to increase their R&D capabilities and capacity, Creating opportunities for starting new technology-based or knowledge-based businesses by science entrepreneurs, Increasing private sector commercialisation derived from Government funded R&D, and Assisting them to forge appropriate linkages with the academia and government. BIPP on the other hand aims at: Supporting and nurturing R&D for high risk futuristic technologies and mainly for viability gap funding, so as to enable IP generation with a focus on small and new enterprises, 28

30 Triggering and transforming biotech start-ups to convert research in public and private sector into viable and competitive products and enterprises, and Encouraging networking among biotech entrepreneurs at national and international levels to maintain the technological and scientific edge. To be able to assess programme results of funded enterprises, we analyse the following indicators of market-based validation of success, including: the type of firms targeted by these programmes quality of research creation of knowledge stock and intellectual assets value addition to technology Strengthening of innovation systems by fostering linkages between firms, research labs, and academic institutions benefits to firms in terms of growth, sales, brand equity satisfaction of beneficiary firms We also draw on the above theoretical framework to establish additionality by testing whether in the absence of support programmes the projects had been undertaken. Our analysis is based on two online primary surveys conducted during July 2013-August 2013 and September 2013-October For SBIRI survey, we contacted all 125 beneficiary firms. Of them, 30 firms involved in 35 projects responded. All of them are in the private sector and include apart 5 R&D oriented firms and 1 academic spin- off. For the BIPP survey, we contacted all beneficiary firms through s 15 ; and received 50 responses to our online survey. These comprise of, in addition to private sector firms, one large private sector R&D institution, 3 R&D organisations attached with international agencies; and one academic institution in the public sector. It is instructed to note that not all respondents have responded to all questions in the questionnaires. Our analysis is based on only those observations for which we have the data. The findings based on these surveys as well as the secondary data are quite encouraging. 15 We thank Drs. Renu Swarup and Kalaivani for providing us the list of beneficiary firms. 29

31 5.2.1 Benefits The type of beneficiaries Beneficiary firms are essentially small SBIRI: Of the 30 firms that have responded, 5 are public limited, 2 partnerships, and the rest are private limited companies. Further, 20 firms have employment less than 60 workers, 5 less than 200, and four between 200 and 450. Only one firm is large, reporting employment of over 4,500 persons (Table 5). BIPP: BIPP is open to all firms: small, medium, and large. The size distribution is relatively skewed in favour of larger firms. Yet, 74% of beneficiaries are small and medium, having less than 500 employees. On an average, however SBIRI firms are smaller than the BIPP firms. Table 5: Size of the respondent beneficiaries of SBIRI and BIPP Organisation SBIRI BIPP Employment SBIRI BIPP Size class Private Limited Less than Public limited Partnership NGO Public sector academic Institution 1 Over 2500 Nil 4 Total Source: Based on our primary surveys Beneficiary firms are new SBIRI: Of the 29 firms that have responded, 17 were incorporated during the period after 2000, 11 firms have come into existence between 1986 and One firm was founded in 1910 though. BIPP: Of the 36 firms that have responded to this question, 7 were incorporated before 1985; the rest were relatively younger. Since BIPP is open to all firms, the firms are found to be relatively more experienced when compared with SIBRI firms. This is not unexpected because BIPP is intended to assist more- established enterprises to address higher-risk research. 30

32 Figure 2: Age of respondent firms Year of Incorporation Programme SBIRI BIPP Percentage After Year 2000 Between Year Before Year 1985 Source: Primary surveys Beneficiary firms are highly innovative R&D Intensity: In all, 25 SBIRI and 29 BIPP companies have reported their R&D expenditures as percentage of sales. Figure 3 presents the distribution of their R&D intensity by the number of firms. Most firms have R&D intensity which is above 5%. According to our estimates based on the PROWESS database, the R&D intensity of the private corporate sector was between in (including the large firms). Even if we consider only the R&D performing firms, it turned out to be Clearly, the beneficiary firms are essentially driven by R&D. It is also observed that five of the SBIRI and three of the BIPP respondent firms are purely R&D firms. In addition, 3 of the BIPP respondents (principle investigators) are research organisations affiliated with international agencies; one is a large Indian research-cumacademic organisation, two are spin offs of the academic institutions and one is a public sector academic institution. 31

33 Figure 3: Distribution of the respondent firms by R&D intensity Greater than 50 % % % 5-10% Less than 5% BIPP SBIRI Source: Primary surveys Figure 4 shows the quality index of R&D activity of respondent firms. The index is based on their responses to the type of R&D activity: new product/new process, or incremental product/incremental process, or new molecule, on a likert scale of 1-5. Their response for each type of R&D activity is then unified in an index-value. For this, the response scale of all respondents was summed up and then was divided by the maximum potential value (total number of respondents multiplied by 5). Indexy = Σi response scale Total number of respondents*5 X100 Where y is a given R&D activity and i stands for an individual company The higher the index for a given type of R&D activity, the greater is the involvement of the respondents in that type of R&D activity. It is found that the SBIRI firms are more likely to be engaged in process-related R&D, while BIPP firms, which are relatively larger and older, focus on product related R&D. As expected, only a few firms reported to be involved in radical technological changes in terms of new molecule discoveries. Overall however, the index of R&D activity appears to be higher for SIBRI firms. 32

34 Figure 4: Quality index of R&D: Distribution of respondent firms Process_specific Product_specific New Molecule SBIRI BIPP Source: Primary surveys Patent: All but 7 SBIRI beneficiary firms have reported some patenting activity outside SBIRI. One of the firms has reported 300 patents to its credit over its life cycle outside of SBIRI grant. Of the BIPP respondents, 8 have applied for new patents and have been waiting for registration; 11 already have patents to their credit outside of BIPP. At least three firms have reported to have registered several (450 in one case) patents. The above analysis indicates that the SBIRI/BIPP programmes are targeting small, young, and highly innovative firms, which have high potential for growth. There is growing evidence that high- growth, high-tech firms are a key driver of net job creation and structural change in OECD countries (see, Bosma and Stam 2012; Kauffman Foundation, 2012). Though they start lean, new, high-tech companies grow rapidly in the early years, adding thousands of jobs along the way. The Bureau of Labor Statistics of the US observes that just 80,000 high-growth startups created 34 percent of all private-sector jobs in a recent three-year period16. NESTA (2009) found that 6 percent of all the UK high-tech, high growth firms were responsible for more than half of the new jobs generated by the UK firms employing ten or more employees. Parsley and Halabisky (2008) showed that hyper- growth firms accounted for 4 percent of continuing businesses between 1993 and 2003, but they were responsible for 45 percent of the net jobs created by continuing firms. Thus, the social returns of public support to these firms are likely to be much higher than the cost. 16 Schelmetic (2013) Which Small Businesses Create the Most Jobs? Dated 8 May

35 ii. The Quality of research The programme is highly competitive The composition of approvals relative to applications is provided in Table 6. This data based on Vijayaraghavan and Dutz (2011) is available for the first 15 calls between October 2005 and February SBIRI: The total number of applications per call fluctuated between 40 and 60. However, the approval rate came down drastically. There was no approval between Dec 2009 and February As a result, the total rate of approval declined to 11%. This rate improved somewhat thereafter. According to the information that we received through RTI, of the 1183 project received by SBIRI, 155 (13%) have been sanctioned. BIPP: The approval rate for BIPP funding is relatively higher. However, the difference is marginal. Between December 2010 and August 2011, 106 applications were submitted. Of them, only one was found suitable for funding under BIPP by the Screening Committee. Between December 2008 and August 2011, the approval rate was 13%. It somewhat improved in the later period. Of the 713 proposals received under the BIPP programme, 108 (15%) projects have been sanctioned. It shows that only high quality projects are sanctioned by the Technical Screening Committee (TSC). Apparently, the programmes are highly competitive and the review process is rather stringent. Table 6: SBIRI/BIPP Applications and Approvals by call SBIRI Total Closing Oct Jun Nov Mach Jul Nov Feb Jun Oct Mar Jun Dec May Oct Feb date Total Approved Ratio The data could not be updated due to non-availability of the call-wise data. 34

36 BIPP Total Closing Date Dec Jun Aug Aug Dec Apr Jul Sep Dec Dec Dec Dec Mar Mar Aug Aug Total: Supported Ratio Source: Vijayaraghvan and Dutz (2011) To gauge the perspective of beneficiaries, we directly asked them how competitive (transparent) are these programmes on a Likert Scale of 1 to 5. Their responses are depicted in Figure 5. Figure 5: Transparency in the selection process: Distribution of responses (%) Cannt say No Somewhat Large Yes BIPP SIBRI Source: Primary survey It may be seen that over 80% of the beneficiaries find them largely transparent. However, 20% of the respondents who are beneficiaries indicate that there is a scope of improvement in the selection/review process of the programmes. iii. Creation of knowledge stock and intellectual assets The programme is contributing to the nation s stock of new scientific and technical knowledge SBIRI: Of the 35 projects, 10 ( 7, phase I; and 3 phase II) are already completed. They have yielded 4 patent applications, 5 product commercialisation, and 5 phase II applications. While examining the ongoing projects we observe that 9 projects are expected to result in Phase II applications (1 is already accepted for the Phase II funding) and 11 will be converted into commercial use. 35

37 BIPP: Of the seven companies with completed 9 projects, 2 have started further research and got funding and 2 are looking for funding for further research, 2 have commercialised the technologies. Of the ongoing projects, 17 projects are expected to result in commercial innovations, 14 projects will result in patent registration, 16 projects will create knowledge base for research in future, and 6 technologies will be licensed to other companies. Most notably, 2 patents have been acquired and 7 already filed. Technology licensing is a rare phenomenon. Table 7 provides information on the total number of patents applied and registered under SBIRI and BIPP programmes as on 26 November Within a short span of 5 years of BIPP, 14 patents have been applied; of them, 3 are granted. Even the early stage SBIRI projects have resulted into 10 patent applications. Table 7: No. of product and process patents applied and registered as on 26 November 2013 BIPP SBIRI Product patents applied 5 10 Product patents granted 2 0 Process patents applied 9 0 Process patents granted 1 0 Source: Department of Biotechnology (acquired through RTI) Value addition to existing technology Of the total SBIRI projects, 18 projects are reported to be based on technologies that are new to India; and 14 are also perceived to be based on novel ideas in their respective fields by the respondents. Very few are claimed to be incremental changes. We directly asked the BIPP beneficiaries how much value addition their BIPP project would make to the existing technology. Of the 22 beneficiaries who responded, 9 reported 20% or less value addition, 7 perceived 20-50% value addition while three believed that their projects would contribute % value addition to existing technology, which is substantial. Others did not have clarity in this regard. Clearly, there is little evidence of breakthrough technological development, but there are some prominent outcomes of these projects for the community (GOI 2012a, 2012b) which cannot be ignored. 36

38 iv. Impact of the programmes on the National Innovation System (NIS) The programmes are instrumental in fostering linkages between academic institutions and industry A critical element of an innovation system is the relationships among a set of components that interact in the production, diffusion, and adoption of new and commercially valuable knowledge (Lundvall, 1992). Many national and subnational governments across the globe have intensified efforts at fostering linkages between various actors of the NIS to ensure knowledge flow throughout their economies. Our analysis indicates that the PPP programmes such as SBIRI and BIPP can go a long way in achieving this objective (Figure 7). Outside of SBIRI, beneficiaries reported a limited number of collaborations with public and private R&D institutions. While 2 firms had reported to have collaborated with public research institutions, four firms were in collaboration with private research organisations. In contrast, 11 SBIRI projects reported having collaborated with R&D institutions or another firms (Indian/foreign). However, more important is the increased participation of academic institutions in innovations development. Outside of SBIRI, only 1 firm reported having developed a technology in collaboration with academic institutions. This scenario changed in the post- SBIRI period. We find significant involvement of universities in the programmes. In 12 of the 35 cases academic institutions are involved, 10 Indian and 2 foreign. This means that the programme has contributed significantly to the transition of university research to the marketplace. The objective of the BIPP programme is to promote networking between private industry and public R&D institutions. Figure 7 indicates that the programme has been successful in achieving this objective. There has been increase in the incidence of R&D collaborations between private sector firms on the one hand, and public and private sector R&D organisations and academic institutions on the other. 37

39 Figure 6: Distribution of projects by type of research collaboration (Number) BIPP-Partnerships SBIRI Academic institutions Other firms Private Research Institution Public Institution Academic institutions Other firms Private Research Institution Public Institution BIPP Outside BIPP SBIRI projects Outside SBIRI Source: Primary surveys v. Benefits for the firms The programmes have assisted growth of firms Survey participants were asked what impact the programmes have had on their growth, annual turnover, R&D activity, and brand equity. They were asked what benefits they perceive from their SBIRI/BIPP benefits. Their responses are summarised in the form of an index and presented in Figure 8. Indexy = Σi response scale Total number of respondents*5 X100 It shows that the beneficiaries perceive enhancement in their brand equity, growth and diversification of product portfolio as the major benefits. A majority of (SBIRI) firms also believe that the programme is instrumental in increasing their R&D activities. 38

40 Figure 7: Benefits of the programme: Respondents perception Increased product portfolio Increased profits Better funding options available Brand building SBIRI BIPP Growth of the firm Source: Primary surveys It is also observed that out of 5 firms that have commercialised their SBIRI products, 3 have reported 10-15% increase in turnover. Of the ongoing projects, 4 are expecting to double the turnover of the innovating firms once completed; and two are expecting to increase the turnover by over 50%. One BIPP funded firm that has developed a new treatment for diabetes has reported 50% increase in its turnover. Other 8 BIPP projects are expecting over 16% increase in annual turnover, on an average. The expansion of the firms expansion will have direct impact on increased demand, economic growth, and net employment creation. We asked the SBIRI beneficiaries if the programme encourages risk-taking and innovations on a Likert scale of 0-3. Almost 82% firms rated innovation promotion at 2 and 3 on the likert scale. We also asked whether new R&D possibilities will be created by their SBIRI research, on a 0-3 Likert scale. Almost all firms responded affirmatively. The response rate fell to 70% for entrepreneurship. Only around 59% firms opine that the programme fully supports the innovation related requirements of a new firm. In other words, the programme in its current format is more likely to enhance innovation activities of the existing firms; it is not expected to encourage the creation of new firms. 39

41 The programme provides significant support for small business We asked firms to rate their satisfaction from different support mechanisms offered by the programmes on a 0 to 5 Likert Scale. Their responses are integrated into a satisfaction index. Figure 9 depicts satisfaction index of the two programmes. These indices present a relative satisfaction level with various features of the programmes. It shows that funding is relatively the most preferred feature of the SBIRI programme. This is followed by technical assistance. The satisfaction level with other features is somewhat low. On the other hand, BIPP beneficiaries are relatively highly satisfied with initial review process. Funding and monitoring support follow. Support for technical assistance and commercialisation need more attention. The relatively high level of satisfaction with SBIRI funding can be explained by the financial constraints being faced by small businesses outside of the programme. Interestingly, over 77% of the SBIRI and 73 % BIPP firms have reported internal funds to be the most important source of innovation funding outside SBIRI and BIPP. Banks turned out to be other important source of funding. SBIRI firms also borrow from financial institutions while BIPP respondents ranked venture capital funds and angel investors as the third best option. Over 20% firms consider them at the most important source of funding (outside SBIRI/BIPP). Private lenders do not appear to be an important source of funding. Apparently, many consider these programmes as a lifesaver. Figure 8: Relative satisfaction index of SBIRI and BIPP: Survey responses Funding Technical assistance Patenting support Other processes Source: The Primary Survey 40

42 5.2.2 Do the programmes have crowding in effect? The additionality of projects is crucial to the integrity of the public support mechanism. An SBIRI/BIPP project activity cannot be considered additional if it would have been undertaken in the absence of the support programme. To establish additionality, we created a counterfactual scenario. We asked the survey participants if they had undertaken the project even in the absence of SBIRI/BIPP support. Their responses are tabulated in Figure 10. It shows that 70% of the SBIRI investors feel that the project in its entirety would not have been feasible in the absence of the programme. On the other hand, 50% of the BIPP beneficiaries would not have been in a position to fully undertake this research. This means that the programmes indeed crowd in investment in R&D. Figure 9: The counterfactual test: Distribution of responses (%) Can't Say Not at All Partly Fully SBIRI BIPP Source: Primary Surveys We asked the survey participants how much BIPP/SBIRI preferred over the alternative sources of funding is. Interestingly, over 82% of the respondents rated BIPP and SBIRI like funding as the most preferred mode of funding in two separate surveys. Some firms, however, expressed their unhappiness with the debt- based BIPP funding. Among alternative sources of funding, firms are divided in terms of their preference. Bank loans appear to have an edge, followed by venture capital and angel investors. We also asked how much SBIRI preferred over other R&D schemes of the government is. Of the 19 firms that responded, 18 find it most preferred. Similarly, over 80% firms feel that SBIRI is instrumental in promoting innovation and creativity. The response is somewhat less encouraging 41

43 when asked about the contribution of SBIRI in promoting new ventures and entrepreneurship. Less than 60% feel that the programme can promote entrepreneurial ventures. Overall, our analysis indicates that the government support for innovation activity is seen by the industry as a critical factor in driving innovation. Nevertheless, participants in our surveys identified a range of possible impediments to the operation of the programmes in question. These relate to perceived deficiencies in the level of funding, structure, and administration of the programmes. The next section focuses on the constraints highlighted by the beneficiary firms. 42

44 6. Constraints Figure 11 summarises the constraints being faced by the beneficiaries. We asked participating firms to rank the constraints on a likert scale of 1-5. Their response for each constraint is then unified in an index-value. For this, the response scale of all respondents was summed up and then was divided by the maximum potential value (total number of respondents multiplied by 5). Indexy = Σi response scale X 100 Total number of respondents*5 Figure 11 depicts the value of this index for each constraint. Figure 10: Constraint-index: Survey responses (%) Lack of Transparency Rigidities of the authority towards changes during Lack of Information Excessive Bureaucracy Cumbersome processes Delays in release of grants Inadequate Funding SBIRI BIPP Source: Primary Surveys Insufficient funding Insufficient funding appears to be the one of the most constraining factors that needs to be addressed. Essentially, these programmes are designed to provide funding support to bridge the gap between social and private returns on private innovations; and most investors indeed find it a highly attractive feature ( as seen above). Yet it is found to be too inadequate. SBIRI: SBIRI offers part grant in Phase I. In Phase II, there is no provision of grant. It is based only on soft loans. Further, there is little support for commercialisation of technology. This restricts the scope of beneficiaries. It encourages only those private 43

45 industrial units where product development is based on in-house, innovative R&D or where they can license the technology to other firms. Our survey shows that SBIRI grants account for almost 47% of the project cost, the rest needs to come from the own resources of the firms. More worrisome is that the grants form only 20% of the total SBIRI contribution, the rest is in the form of soft loans. The funding structure might not be enough to fund a project that is sufficiently innovative. BIPP: BIPP funding is also based on matching grant and our exercise shows that on average 47% is contributed by BIPP grants, the rest is managed by the beneficiary firms. In some cases, the self-funding component may be as high as 75% for the companies. Respondents believe that inadequate funding and severe limits on funding can affect the quality of projects and their commercialisation, thereby defeating the very purpose of these programmes. Many of them find the grants too inadequate to encourage high quality innovations. It is surprising that the budget allocation for PPP programmes has recently been cut down by the Department. In the budget allocation was Rs. 139 crores which was cut down to Rs 106 crores in the revised budget. For , the allocations are merely 90 crores. The reason offered by the Department is that the ( GOI, 2013) the viable high quality projects are not available. However, considering the fact that funding is a major constraint for the firms to bring high quality project, the department may consider revising the funding limits in particular for the deserving projects. We shall further elaborate it later. Delays in approvals The programme is criticized for bureaucratic delays in approving the projects and releasing funds to participants. Table 8 shows that 72% of the SBIRI respondents reported that approvals took upto one year, while for 11% of the respondents the time gap between application and approval had been more than 12 months. Apparently, the BIPP is better managed, but even for BIPP participants, the time gap between application and approval varied between 3-12 months. Though SBIRI processes each of the calls and concludes the review process prior to the next call, there are some carry- over of proposals that remain in the pipeline for approval for up to 2 years or more due to compliances being pursued by the applicants (Vijayaraghvan and Dutz, 2011). The problem is compounded further by the fact that there is a further time lag between approval and receipt of grant. In high- technology projects this delay can affect the cost estimates seriously. We asked the participants reasons for the delay. 44

46 Table 8: Delays in approvals and release of grant: Distribution of Responses (%) SBIRI Difference between application and Difference Between approval and receipt of grant@ BIPP Difference between application and approval * Difference between approval and receipt of grant ** Less than 3 months months months More than 12 months is based on 25 projects; * Information is based on 36 projects: ** Information is based on 33 projects Source: The Primary Surveys One of the reasons for delays in approvals is believed to be the requirement of DSIR recognition of in-house R&D laboratories. There is typically a time- lag in granting final approval for some of the proposals because the applicants do not possess the necessary recognition of the Department of Scientific and Industrial Research (DSIR) for their research facility, a mandatory requirement for securing SBIRI funding. SBIRI allows companies that do not have DSIR recognition to apply, as long as they pursue such recognition while the application is being processed. But delays in securing such recognition have created a time- lag in securing final approval. According to an official, DSIR does not insist on this condition, but it is probably a precautionary measure taken to prevent frauds. Sometimes, delays occur because the companies are asked to revise their proposals. There is no pre-award technical or financial assistance offered to firms for developing these proposals. In the absence of a well-developed, innovation eco-system it becomes difficult for the companies to upgrade their proposals. The innovation landscape is often fragmented and difficult for businesses to navigate which sometime takes a long time. Finally, there have been delays in decision- making itself. Sometimes, the review process extends up to two years (Vijayaraghvan and Dutz, 2011). 45

47 Delays in releasing installments It is also observed that there are delays in releasing grants, which sometimes stalls the progress of work. This creates a vicious cycle of delays in achieving the milestones and releasing of funding. From the perspective of the administrators, payment schedules are conditional upon achieving the pre-specified milestones. The delay is caused by failure of the beneficiaries in achieving their milestones. However, many participating firms believe that the commercial aspects of the project often get neglected in the evaluation of work-progress. The development of an idea from concept to market is uneven and indirect. There are many obstacles and possible entry and exit points, but the evaluation of their achievements is often unconnected with these ground realities. These need to be factored into the assessment of achievements. It is also highlighted that if the experts are not fully satisfied with the outcomes, funding is stalled. This hampers the further work. Companies may need a flexible approach and technical assistance to ensure the continuity of work. Delays in releasing funds make the work progress tardy. Sometimes, it has also been observed that there is a mismatch between the expectations of the experts in the review process and that of the industry. It is indicated that the experts panels are dominated by academicians which overlook commercial realities of the project. This also delays the release of installments. It is argued by some that there is a mismatch of perceptions of the review committees and evaluation committees. This creates frictions and hence the delays. Finally, some believe that official procedures involved in releasing grants are long and involve delays. Rigid attitude of the Expert Committee It is reported that the Expert Committee s attitude towards introducing changes midway in the innovation process is generally rigid. There is a possibility that the proposed processes are not robust and require changes. Further, there is also a possibility that new technologies emerge in the market or there is requirement of new equipment s. In such cases, it becomes difficult for the firms to seek approval. It is also reported that in case the foreign exchange rates change or new equipment s appear in the market, it becomes difficult for the firms to adjust the changes. Sometimes they have to seek funding outside the programmes. The official perception is that the mid way changes are the norm rather than exception. Apparently, there are contradictions. Could it be that most changes are driven by experts comments rather than the firms requirements? There is a need for more discussion between the experts and companies. The outcome oriented approach with a greater emphasis on creativity and innovations needs to be adopted for the success of these programmes. 46

48 Some argue that the pre-specified milestones may be missed given the fact that technology development is a risky, uncertain, and costly process and depends upon a number of extraneous factors. In such cases, the monitoring committee insists on first achieving the milestone before release of funding. It then becomes a major challenge for the beneficiaries to continue the process. It is also observed that the experts are academically oriented or have the public sector experience. As a result, the commercial aspects of the project get neglected. Technical assistance is too little Many cite inadequate technical assistance as a major constraining factor in successfully conducting the research process. They argue that strategic value creation networks, which rely on the relationships with large players, vendors, suppliers, strategic consumer networks, national and international experts, and organisations are critically important in technology development. These relationships are the capillaries for the flow of resources and information; they are the channels for workflow, business processes, and network orchestration (Fung et al., 2008). These relationships create an innovation Ecosystem. In India, this system is almost missing. This gap is not fully addressed by the programmes under review. Interactions with experts are limited and not timely. Their responses are delayed. Further, the programmes do not provide a platform for wider relationships that can be used for generating synergies for value co-creation. This, according to many, is a major hindrance to research in India. Cultural barriers in collaborative projects While collaborative research turns out to be an attractive feature, particularly in the case of the BIPP programme, participants did highlight the issues of cultural barriers between universities and businesses, and public institutions and businesses. The former may arise, in part, due to the preference of researchers for research excellence rather than commercial opportunities, the latter could be due to gaps in work- culture between the public and private sectors. This has been exacerbated due to inadequate industry representation in the Expert Committees at various levels. IP management Legal uncertainty about the use of patents for research has the potential to impede knowledge dissemination, diffusion, and its full exploitation. This requires adequate support to small and young entrepreneurs by way of training in IP management for use of existing knowledge without violating patent rights and commercial exploitation of the IP created. Further, many respondents cited delays and costs involved as major inhibiting factors in patent registration. There is a need for providing support infrastructure and consultancy services to the small sector to address their concerns. The Department conducts IT management related workshops from time to time. 47

49 However, respondents do not appear to see much value addition. There is a need to evaluate these programmes from time to time and continuously upgrade them. Commercialization of technology One of the stated objectives of these programmes is to promote new entrepreneurs. However, the programmes support the development of a technology to a certain readiness level. Most major commercialization successes (whether public or private) require substantial post-programme research and funding from a variety of sources. It becomes difficult for firms to manage additional funding. Some of the beneficiaries have stressed the difficulties in obtaining funding for commercialization. Further, the process of taking new technology to the market is fraught with challenges and IP creators are often not well equipped to do it. In the absence of assistance for technology commercialization, new entrepreneurs find it difficult to carry the research forward. Evidence is that a large component of funding gets into pre-concept proof for SBIRI and validation for BIPP. Grants may be extended for commercial upscaling. To recapitulate, the programmes require reforms in institutional features to improve funding and extend support services to address the gaps in the innovation ecosystem of India. 48

50 7. Conclusion and Recommendations 7.1 Concluding remarks There is a growing literature that suggests that there is a strong rationale for public- funding support of science and innovation in the private sector. However, the benefits of the support programmes must be sufficient to justify public investment in private research. This calls for a regular evaluation of these programmes. Our impact assessment of the two largest public- support programmes in India finds that these programmes: focus on small, new, and high- growth firms that can be instrumental in employment creation; have a high-risk focus and supports projects that involve high-quality research; are instrumental in IP creation; have had positive effects for beneficiary firms in terms of employment and sales growth; Provide a bridge between universities, research labs, and businesses; and Above all, have crowding-in effect In sum, our analysis indicates that the governments can play a major role in shaping the innovation system by directly funding high-value research that would not otherwise be undertaken by private businesses. Innovation is critical to India s growth and its preparedness for meeting emerging economic, social, and environmental challenges. Clearly, there is an urgent need to upscale these programmes to cover more government departments. However, there are structural deficiencies in them that need also to be addressed so as to make them more effective. These relate to perceived deficiencies in the level of funding, structure, and administration of the programmes. In what follows, we offer some recommendations for up scaling and reforming these programmes. 7.2 Policy Recommendations Two sets of recommendations have been made: Align the SBIRI/BIPP with international best practices Upscale SBIRI/BIPP 1. Align the SBIRI/BIPP with international best practices Enhance award size and composition: Our interviews indicate that most companies need to manage 50% funding on their own. In the absence of venture capital and angel investors, they find it difficult to arrange for the additional funding. Many of the respondents demand that soft loans 49

51 be replaced by grants-in-aid. Several beneficiaries, particularly those with BIPP projects, demand enhancement in the funding provisions. Some of the best international practices for augmenting SBIRI funding are: The US SBIR is not based on the matching-grants principle. It has adopted the block- grant system. To enhance public support it also sanctions pre- award funding for developing research proposals and offers support for commercialisation outside the SBIR programme. The US also offers flexibility in SBIR awards. The implementing authority can exceed the ceiling for technically attractive proposals but not by more than 50% of the specified limit;. UK offers 100% grants. Korea offers typically 75% grant but with a payback of 20-30% for successful projects over 5 years. Hawaii has a novel idea of increasing funding provision for innovation activity of small firms. It has set up a Matching Grants scheme with the High Technology Development Corporation to assist Hawaii Phase I awardees in enhancing their SBIR project development, competing for the more lucrative Phase II awards, and ultimately reach successful commercialisation. Some of these practices may be reviewed and adapted to suit the Indian conditions. The choice between matching grants and block- grants is a difficult one. While the matching-grant system restricts moral hazard, block- grant is more efficient from the perspective of programme objectives. Perhaps the Korean approach is a compromise between the two. It offers 75% grant with a payback of 20-30% for successful project for a stipulated time period. With the existing budget allocations, this practice may be considered for adoption. Budget does not appear to be a major obstacle. The Parliament Standing Committee on Science and Technology, Forest and Environment observes that the actual expenditure on PPP based R&D programmes was Rs 87 crore in The Budget allocation for the year was increased to Rs. 139 crores. It was cut down to Rs crores in the revised budget. The budget for was further reduced to a mere Rs 90 crores. It reports that non availability of high quality projects is cited as a reason by the Department. This means that budget remains underutilized. Our recommendation is that this should be used as an opportunity to increase the funding of some highly deserving projects. We recommend that a grading system may be introduce to grade firms and the projects (see, later). Include contractual research (Mission-mode) projects in SBIRI/BIPP funding: In most countries, SBIR funding is disbursed in the form of contractual (or mission mode) research. This means that the government agencies articulate the needs, invite proposals from private companies, and award them contracts through a competitive bidding process. This form of funding is more aligned with public needs and does not pose procurement issues for the innovating firms. This form of SBIRI/BIPP funding may be promoted in India also along with the existing grants-in-aid mode. There are special call made by the BIRAC under BIPP. This may be further refined so as to 50

52 express competitions as a desired outcome, rather than a required specification to increase participation of the private sector in addressing social problems through technology. The expert committee should represent industry interests: The expert committee needs to be more balanced with adequate industry representation from the private sector. Some large players and retired industry professional may be included in the committees to avoid conflict of interest. The Committee must review the projects timely and allow appropriate changes in the project. The interactions between the participating firms and experts should be more frequent. Streamline the procedures to avoid delays: It is recommended that clear and tight time frames are set for various stages of the process. Specific recommendations for improving programme management are: A clear and tight time frames for completing reviews and decisions, A clear time frames for the resubmission of applications, A clear and tight time frame for completion of grants negotiations. Adherence to the time frame for payment of instalments to ensure continuation of research projects. Some have recommended to link the programmes with the financial institutions to avoid official procedures in the release process. It is along the lines of the Korean practice. It may be studied and explored (see, Appendix 2). Further, beneficiaries demand a single point of contact to address all issues such as slow responses, lack of coordination among various offices and tedious paper work. The corporatized approach of BIPP management has been appreciated by many. SBIRI has also now come under the purview of the BIRAC. Specification of the time frames will further improve the efficiency of the programme management. Flexibility in approach: New ideas and new firms involve higher levels of uncertainty than the more established suppliers. Awards, especially those associated with higher-risk, less -proven technologies, will not be successful unless a flexible approach is adopted in the process of conducting research. The objective of the monitoring committee should be to make every effort to accommodate the research initiatives. If extraneous factors including foreign exchange rate changes and technological changes occur and requirement of changes in equipments other component changes the commercial viability of the project and call for some changes, they need to be taken into account. Introduce a grading system in the evaluation process: Evaluation of the project proposals should not be subjective at the discretion of the evaluator. A grading system needs to be developed for both firms and projects with appropriate weightage to different parameters of the criteria. Rejection and differential support may be based on the grading system for transparency and clarity. Highly graded projects may be considered for higher level of funding. 51

53 Technical assistance: There is a need to ensure better technical assistance to firms in the development stage. The objective should be to improve the outcomes of these programme. These programmes can serve as a platform for various actors to participate in technology development through continuous interactions. Companies may be assisted by creating relational networks among consumers, suppliers, vendors, and firms. This can strengthen the National Innovations System. The condition of DSIR recognised lab may be relaxed: The conditionality in DSIR recognised laboratories keeps start-up companies out of the purview of these programme unless they operate in incubators. It also increases the cost for the small companies. In the real world, there is increasing financial pressure on early stage bio-pharma companies in particular. Most companies have been trying to have a business model that is close to virtual with small head-count, limited footprint, and as few re-occuring expenses as possible in things like 'bricks and mortar' facilities. Under the SBIRI/BIPP project, however, companies are required to have our own lab facilities, which involve considerable expenses. This may be less relevant in many cases and takes away the resources which could be invested in actual research. The BIPP process should be cognizant of the pressures and needs of small biotech companies and perhaps lessen the requirement for bricks and mortar facilities as a condition for continued funding by DBT. Finally, the condition of DSIR recognized labs was cited as a probable cause of delay by many who faced delays in the approval and grant release stages. This conditionality needs a review and it may be replaced by a stricter system of financial auditing of the funding. Support for Commercialisation: How can the government design best support for business-led initiatives, which manufacturing executives also believe can result in industry competitiveness? Answers include, Shortening the bridge between product development and manufacturing. There is thus, a need to experiment with programme funding so as to improve the commercialisation potential of the programme- funded technologies by facilitating commercial up-scaling of technologies. It must be noted that the innovation process is a cycle of knowledge generation, entrepreneurship, selection (of knowledge, ideas, and innovations in the market) and the mobilisation of resources. Unless knowledge creation is connected with entrepreneurship through commercialisation of technology, the cycle is not complete and the success of the programme in creating new innovation based, high growth enterprises will remain limited. Singapore has initiated a programme which supports commercialisation of new technology. This programme, the Technology Enterprise Commercialisation Scheme (TECS), aims to catalyse the formation and growth of such start-ups that are based on strong technology, Intellectual Property, and a scalable business model. The TECS provides early-stage funding to successful applicants for such R&D efforts that lead to commercialisation of proprietary technology ideas. The TECS is a competitive grant in which proposals are ranked based on the evaluation of both technical and commercial merits by a team of reviewers, and the best are funded. Proposals are reviewed every 52

54 two months or earlier. A complementary programme on funding support to commercialisation of technology may be the way forward for DBT too.. Public Procurement: In the Netherlands, SBIR is defined as a procurement programme in which the Government uses the power of procurement for finding innovative solutions to societal issues. The procurement policy is thus linked to SBIR. SBIR challenges companies to develop solutions within a short time span and enables the government to be a first client for new innovations. This is gain-gain situation for all: the government, community and private companies. We recommend to link a public procurement element in the programme to facilitate marketing. It is also suggested by some that the Department could help getting contacts for the marketing of the technologies developed under these programmes. These possibilities need to be discussed and considered seriously. Incorporate into the programme comprehensive mechanisms for impact assessment of SBIRI/BIPP programmes: Currently the programme is not sufficiently evidence- based. It is important to develop the culture of evaluation. There is a need for periodic assessment of the performance of the programme and to identify the appropriate lessons learnt. It is also recommended to gather data that would track the performance of the programme. A regular monitoring and feedback mechanism needs to be developed that would encourage internal evaluation and regular assessment of progress towards definable parameters. We are informed that there is a system of independent annual evaluation of the programmes but its reports are not made public. There needs to be a greater transparency in the systems where public money is involved. Streamline data and reporting: An improved programme-wide centralised data system will have to be developed to facilitate administrative reporting and programme evaluation. The system will enable applicants and agencies to provide the required information to the centralised database. It will consist of the following databases: (1) Solicitations Database; (2) Application Information Database of information on each SBIRI/BIPP application; (3) Award Information Database of information on each SBIRI/BIPP awardee; (4) Commercialisation Database of the projects that have received these awards; and (5) Database on patents. These databases will be designed to minimise the reporting burden on small business. 2. Upscale SBIRI /BIPP Participation in SBIRI/BIPP may be made mandatory for ministries and agencies if they have a threshold level of R&D budget allocations: As seen above, SBIRI/BIPP is a commendable initiative taken by the Department of Biotechnology. It has the potential of stimulating scientific and technological knowledge advances in the biotechnology sector by providing significant support to the small sector. It is essential that it be extended to other government departments. It should be made compulsory for each major government department to keep a part of its budget for research and development. Further, each programme-implementing department should set aside a 53

55 proportion of this funding for its SBIRI-type programme. The programme may be aligned with varying mission objectives, needs, and modes of operation of the implementing departments. The existing research programmes of these departments are conducted independently and are not well focused and significant. Many of these programmes are being run by the Ministry of Science and Technology without involving the respective Ministries. Evidently, these programmes do not seem to have made an impact on the R&D activities of the private sector. In the USA, it is mandatory for a government department to implement the SBIR programme if its extramural R&D allocation is more than $100 million ($1 billion for STTR). In the UK, it is mandatory for all government departments to implement the programme. In other countries also it is open to all ministries. In India, some of the ministries have large R&D budgets and they offer grants-in-aid to private researchers and universities to undertake independent research. To identify them, we examined the outcome budgets of all the central government departments. Table 9 presents the total research allocation of the major government departments for We recommend that these ministries/agencies may be covered under the programme with immediate effect. In addition, the Ministry of Science and Technology and the research agencies such as the Council of Scientific and Industrial Research, National Innovation Council, and TIFAC may also be brought under the umbrella SBIRI/BIPP programmes. Most of these agencies have extramural R&D budgets and have their own PPP programmes. A part of their R&D budget may be allocated to the extended SBIRI/BIPP scheme. This will not require any additional budgetary allocations. This means that there will be no additional budgetary implication for the programme. Table 9: Research Budget of government departments for (Rs. Million) Ministry/ Department Total Research Budget Ministry of Mining 17,550* Ministry of Health & Family welfare 62,785 Department of Health Research 10,080 Defence services 55,526 Department of Space 14,376 Department of Agriculture 57,243 Ministry of Earth Sciences- Oceanographic 10,040 Research & other Scientific Research Source: Outcome budget of relevant Ministries. *: This figure is for Further, we recommend that the state governments should also introduce the SBIRI/BIPP like programmes to address the state-specific problems through locally developed technologies, by involving the private sector. Kerala for instance is struggling with the issue of solid waste management. Its success with foreign technologies has been rather limited. A SBIRI like programme may support the most competitive research proposals in this area through competitive bids. These projects once completed may be commercialized with the help of the coordinating agency. This will help in local capacity building and entrepreneurship. In Taiwan, provincial 54

56 governments have been operating this programme to address local issues. Similarly some of the US states have their SBIR programme; some with even enhanced features (Table 3). Constitute a specialised agency for governing the programme: The multi-department SBIRI-type programme may be overseen by a coordinating agency. It may be constituted under the aegis of the Department of Scientific and Industrial Research (DSIR), which essentially is responsible for promoting PPP programmes in industry. The coordinating agency will direct the implementing departments, formulate policies, review the progress of the programme, and report to the DSIR. Ensure cross- department flexibility in the programme: Individual departments should be given powers to designate their R&D proposals, administer programme operations, and control financial support. Although each agency s SBIRI programme would share a common structure, the SBIRI concept should be adapted at each agency in accordance with its separate missions and operating procedures. Almost all the countries that implemented this programme have adopted this basic feature of the US SBIR programme (Table 3). The upshot is that the programme has proved to be effective in promoting innovative activities. It is promoting innovation, encouraging participation by small companies in R&D, providing support to small firms, and resolving research questions for the society. It is essential to extend it to other government Departments with the programmatic changes recommended above. Effective project management and knowledge- based project monitoring by experts can help the programme to bolster its achievements. A user- oriented product development approach can immensely help industries in expanding their technology capabilities, reducing product development cycle, and thus improving market penetration. 55

57 Bibliography André Roos (2009) SBIR in The Netherlands; a new perspective for Europe? Ministry of Economic affairs, Netherlands. November, 2009; Available at: Audretsch, D. B., Link, A. N., & Scott, J. T. (2002). Public/private technology partnerships: evaluating SBIR-supported research. Research Policy, 31(1), Autio, Erkko; Kronlund, Mathias; Kovalainen, Anne (2007): High-Growth SME support initiatives in nine countries: analysis, categorisation, and recommendations. Report prepared for the Finnish Ministry of Trade and Industry. MTI Publications 1/2007 Benjamin Montmartin & Nadine Massard, Is Financial Support for Private R&D Always Justified? A Discussion Based on the Literature on Growth GREDEG Working Papers , University of Nice- Sophia Antipolis. BIRAC (2013) BIRAC Annual Report Department of Biotechnology. Bosma N. and Erik Stam (2012) Local Policies for High-Employment Growth Enterprises Report prepared for the OECD/DBA International Workshop on High-growth firms: local policies and local determinants Copenhagen, 28 March 2012 Bound and Puttick, 2010, Buying Power? Is the Small Business Research Initiative for procuring R&D driving innovation in the UK? NESTA, June 2010 report. Available at: accessed on 23 July, 2013 Chien-wen Huang, Jen-Chun Lo, Pin-Yu Chu (2006) The policy impact of public sponsored research & development program in Taiwan. Proceedings of the 11th Annual Conference of Asia Pacific Decision Sciences Institute Hong Kong, June 14-18, 2006, pp Connell, D & Probert, J (2010) Exploding the Myths of UK Innovation Policy: How Soft Companies and R&D Contracts for Customers Drive the Growth of the Hi-Tech Economy center for Business research, University of Cambridge. Available at: Accessed on 25 July, 2013 Cunningham, Paul (2008): Policies in support of high-growth SMEs. Thematic Report. RO INNO Europe, Inno Policy Trendchart. Manchester Institute of Innovation Research, University of Manchester, July Donell T.O and D.Golding (2012) SME support overseas: Learning from international peer reviews, PRO- INNO Europe, European Commission, INNO-Partnering Forum 56

58 EBTC (2013) Overview of Indian Biotech Market associated with Climate change European Business and Technology Centre. EBTC Eshima, Y. Impact of policy on innovation SMEs in Japan, Journal of Small Business Management, 2003, 41 (1), Executive Office of the President (2009). A strategy for American Innovation: Driving towards Sustainable Growth Gans, J.S; Hsu, D.H & Stern, S, (2000), When does start-up innovation spur the gale of creative destruction Rand Journal of Economics, vol 33, no:4, winter 2002 GOI (2011) Faster, sustainable and more inclusive growth: An approach to the Twelfth Five Year Plan. Planning Commission, Government of India GOI (2012a) Small business innovation research initiative by S. Ninawe and George John. Department of Biotechnology, Ministry of Science and Technology Government of India GOI (2012b) DBT_BIRAC Innovators Impacting through innovations DBT BIRAC Innovators Compendium: 2012 GOI (2013) Department related Parliamentary standing committee on Science and Technology, environment and Forests, 2013 Haltiwanger, John C., Ron S. Jarmin and Javier Miranda (2010) Who creates jobs? Small vs. large vs. young, NBER working paper Working Paper 16300; Haynes, K. E. and H. Qian. Beyond Innovation: The Small Business Innovation Research Program as Entrepreneurship Policy (August 30, 2012).Available at SSRN: or Hölzl, Werner; Friesenbichler, Klaus (2008): Final Sector Report Gazelles. Innovation Watch - Systematic. Europe Innova; Huang, Chien-wen, Jen-Chun Lo, Pin-Yu Chu (2006) The policy impact of public sponsored research & development program in Taiwan, Proceedings of the 11th Annual Conference of Asia Pacific Decision Sciences Institute Hong Kong, June 14-18, 2006, pp Kauffman foundation (2012) The Ascent of America's High-Growth Companies Lee F.W, C. W. Huang and F.Y Chu (2005) Does the small business innovation research forester new company? Evidence from Taiwan Proceedings for the third workshop on Knowledge economy and electronic commerce, 2005 Lerner, J. (1999) The government as venture capitalist: The long-run impact of the SBIR program, Journal of Business, 1999, 72(3), Link, A. N. and Ruhm, C. J. (2009) Bringing Science to Market: Commercializing from NIH SBIR Awards, Economics of Innovation and New Technology, 18: Link, Albert N. & Scott, John T. (2012) "How the Small Business Innovation Research (SBIR) Program Matters," Working Papers 12-7, University of North Carolina at Greensboro, Department of Economics. 57

59 Link, Albert N. & Scott, John T., (2010) "Government as entrepreneur: Evaluating the commercialization success of SBIR projects," Research Policy, Elsevier, vol. 39(5), pages , June. Link, A. N. and Scott, J. T. (2009) Private Investor Participation and Commercialization Rates for Government-sponsored Research and Development: Would a Prediction Market Improve the Performance of the SBIR Programme? Economica, 76: Link, Albert N. & Scott, John T., "Public/private partnerships: stimulating competition in a dynamic market," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages , April. Link, A. N. and Scott, J. T. (2000) Estimates of the Social Returns to SBIR-Sponsored Projects. In: Wessner, C. (ed.) The Small Business Innovation Research Program: An Assessment of Fast Track, pp Washington, DC: National Academy of Sciences. Lundvall B-A (1992). National Systems of Innovation. Towards a Theory of Innovation and Interactive Learning. London: Pinter Publishers. Mahlich, J., and W. Pascha Korean Science and Technology in an International Perspective: Springer NESTA (2009) How high-growth innovative businesses generate prosperity and jobs. National Endowment for Science, Technology and the Arts: London. National Research Council (2000), The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative. Charles W. Wessner, ed. Washington, D.C.: National Academy Press. National Research Council (2007), SBIR and the Phase III Challenge of Commercialization: Report of a Symposium record_id=11851&page=37 National Research Council (2008), An Assessment of the SBIR Program OECD (2013) Science, Technology and Industry Scoreboard 2013 Innovation for Growth Parsley, C. and Halabisky, D. (2008) Profile of Growth Firms: A Summary of Industry Canada Research. Industry Canada, Small Business Research and Statistics Public procurement programmes for small firms SBIR-type programmes, available at: RBI (2013) Welcome to India: State of the Indian Economy, Banking Sector and Factoring Services K. C. Chakrabarty (November 2013) Opening Address by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India at International Factors Group s Annual Conference on October Schacht, W.H. (2011). The Small Business Innovation Research (SBIR) Program: Reauthorization Efforts. CRS Report for Congress: Available at: Tang, M., Baskaran, A., Pancholi, J., & Muchie, M. (2011). Technology Business Incubators in China and India: A Comparative Case Study. African Journal of Science, Technology, Innovation and Development, 3(2),

60 Tibbetts, Ronald,.The Small Business Innovation Research Program and NSF SBIR Commercialization Results, mimeograph, 1999 Toole, A. A., & Czarnitzki, D. (2007). Biomedical academic entrepreneurship through the SBIR program. Journal of Economic Behavior & Organization, 63(4), Tredgett, E.A and Coad, A, The Shaky Start of the UK Small Business Research Initiative (SBRI) in Comparison to the US Small Business Innovation Research Programme (SBIR) (January 22, 2013). Available at SSRN: or Vijayaraghavan K. and M.A. Dutz (2011) Biotechnology Innovation for Inclusive Growth A Study of Indian Policies to Foster Accelerated Technology Adaptation for Affordable Development, World Bank Policy Research Working paper 6022 Wallsten, S. J. (2000) The effects of government-industry R&D programs on private R&D: the case of the Small Business Innovation Research program, RAND Journal of Economics, 2000,31(1), Wessner (2008), An Assessment of the Small Business Innovation Research Program National Research Council (US) Committee for Capitalizing on Science, Technology, and Innovation. Available at: 59

61 APPENDIX 1 PPP based R&D programmes in India Department of Scientific and Industrial Research Startups and MSMEs (PRISM) scheme: TePP has been replaced by PRISM in the 12th Plan. It has increased the grants and covered MSMEs within the realm of the programme. It supports Phase I activity upto Rs. 2 lakh for the proof of concept/ prototypes/ models, and upto Rs. 20 lakh for innovation incubation. Phase II grants of upto Rs. 50 lakh are provided for technology development for MSME clusters and for commercialisation of technology. Building Industrial R&D Promotion Programme (BIRD): Under the scheme, support is provided for creation of Common Research Facilities for Small and Micro Industries. Patent Acquisition and Collaborative Research and Technology Development (PACE) scheme: It facilitates early stage technology/ip acquisition by industries to manufacture Made in India products and strengthens the interface between industry, R&D establishments, and academic institutions by providing catalytic support for development and demonstration of innovative products and process technologies. Technology Development and Demonstration Programme (TDDP): A registered company more than three years old, having a healthy financial track record can seek partial financial support for new product or process development. Department of Science and Technology Drug and Pharmaceuticals: The objective of this programme is to fund research in all systems of medicines jointly undertaken by industry and institutions. Funding is provided to public institutions; research undertaken by industry is funded 100% by industry. 60

62 Technology Development Board: It provides equity capital or loans to industrial concerns and financial assistance to research and development institutions. The loan carries a simple interest rate of 5% per annum. The coverage is not limited to MSMEs alone. National Innovation Council Cluster Innovation Centre s: National Innovation Council has been set up to catalyse and facilitate the creation of Cluster Innovation Centre s (CICs) which will act as hubs for connecting various regional/national actors and stakeholders. These CICs will drive need- based innovation in the clusters, connecting demand to supply and sharing information/knowledge among the stakeholders. India Inclusive Innovation Fund: Recently, the government has announced that it will provide through the National Innovation Council, Rs 100 crore (Rs 1 billion) as seed money for setting up the India Inclusive Innovation Fund to promote new ideas. NIC will also explore the possibility of establishing soft incubation capacity and resources expertise and programmes that will support individual investee entrepreneurs and companies for successful enterprise development and performance. This effort will address social impact objectives, by kick-starting an ecosystem of capacity building around BOP-focused enterprises and entrepreneurship, by providing entrepreneurial teams with the capacities needed to successfully deliver on their ideas. Department of Information Technology Multiplier Grant Scheme: Encourages collaborative R&D between industry and academics/r&d institutions for development of products and packages. Under the scheme, if industry supports R&D for development of products that can be commercialised at (or by) a government institution, the Government may provide financial support of up to twice the amount provided by industry. The proposals for providing financial support under the scheme are to be submitted jointly by the industry and the institutions. Council of Scientific and Industrial Research (CSIR) New Millennium Indian Technology Leadership Initiative (NMITLI): The New Millennium Indian Technology Leadership Initiative (NMITLI) was launched in 2003 by the Council of 61

63 Scientific and Industrial Research (CSIR) to foster public private partnership designed to promote innovation- led development and achieve global technology leadership position across various science and technology sectors. The financial support to all the projects under NMITLI Scheme is in the form of grant-in-aid to the institutional partners in public domain and as soft loan 3% interest) to the industrial partners in the private sector. Technology Information, Forecasting and Assessment Council (TIFAC) The Advanced Composites Programme: TIFAC collaborates with the industries for development and commercialisation of select composite products. The Mission provides soft financial assistance to the industries on repayable basis. TIFAC and the industry partner share the total project cost equally. The Advanced Composites Programme has also focused on the setting up of special purpose technology development, product design-cum-demonstration centres with specific tasks and targets. The programme has recently initiated preparation of technology dossiers-cum-training manuals on specific composite fabrication process & products by experts. The collaborative programme of TIFAC & SIDBI: Launched on November 01, 2010, the programme aims at facilitating development, demonstration, and scaling-up (commercialisation) of technology innovation projects pertaining to new product or process development, encouraging and promoting development of capabilities in MSMEs to innovate, and bringing high-risk innovations to the market for opening up opportunities for business linked with innovations. TIFAC created a Revolving Technology Innovation Fund of Rs. 30 crore and placed it with SIDBI for providing assistance to MSMEs for development, up- scaling, demonstration, and commercialisation of innovative technology- based projects. MSMEs seeking financial assistance from the Fund for technology innovation projects may send detailed project proposals either to TIFAC or SIDBI. The technical evaluation of the project proposals shall be carried out by TIFAC and the financial appraisal of the technicallyrecommended proposals only shall be done by SIDBI. Under the programme, TIFAC extends Technology Development Assistance (TDA) for technology development/demonstration projects in partnership with industries (SMEs), with technology support from in-house R&D / national labs / academic institutions. Department of Biotechnology Biotechnology Ignition Grant (BIG): It is available to scientist entrepreneurs from research institutes, academia, and startups. The Applicant must be either an Incubatee (incubator?) or 62

64 have a registered company with a functional R&D laboratory to be eligible for this grant. The scheme is designed to stimulate commercialisation of research discoveries by providing very early- stage grants to help bridge the gap between discovery and invention. As part of this scheme, successful BIG Innovators receive up to Rs. 50 lakh (approx. $100K) for research projects with commercialisation potential, with duration of up to 18 months. The Scheme is currently managed through 3 BIG Partners across the country that work with the Ignition grantees (BIG Innovators) to provide mentoring, monitoring, networking, and other businessdevelopment related activities. The current BIG Partners are: IKP Knowledge Park, Hyderabad; Centre for Cellular and Molecular Platforms (C-CAMP), Bangalore; and Foundation for Innovation and Technology Transfer, New Delhi. According to the website of the Department, 18 Innovators have been awarded the BIG Grant, out of which 12 are startup companies and 6 are individual entrepreneurs. Grant money amounting to Rs lakh (USD $ 1.6m) has been approved. Contract Research and Services (CRS): Under this, Public Sector Research Institutes and Universities who have already generated or have a pre-existing, scientifically established proof of concept/leads could seek support for specific research, and the validation process is to be performed by an industry partner within a defined time frame (?). The industry partner would complete the Validation Phase in a Contract Research mode. The academia / public sector will be given grant-in-aid for the research component (if any) required for the validation at their site as well as for the validation and contract research/contract service component(s) to be outsourced to the collaborating company (ies). Small Business Innovation Research Programme of India (SBIRI): The Department of Biotechnology (DBT) launched the scheme in for supporting small and medium sized enterprises with a grant or loan to help the early phase of product development. This Public Private Partnership Programme of the Department supports both early stage innovative research (Phase I) and technology development (Phase II); and provides mentorship and problem solving support in addition to the grant/soft loan. Biotechnology Industry Partnership Programme (BIPP) - An Advanced Technology Scheme (ATS): This scheme is envisaged as a government partnership programme with industries for support to high- risk discovery and accelerated technology development, especially in futuristic areas, on a cost sharing basis. Under the scheme, the government funds upto 50% of the project cost through grant-in-aid and soft loans. The grant-in-aid component ranges between 30% to 50%. The grant- in- aid support is also provided for evaluation and validation of biotechnology products that are based on indigenous discovery and innovation. The scheme supports major research facilities and platform technology centers as core facilities that are readily accessible to MSMEs and public sector scientists. Source: Relevant websites 63

65 Appendix 2 Features of SBIR-like programmes in selected countries The US SBIR programme A prototype of the SBIR program was introduced by the National Science Foundation (NSF) in 1977 (Tibbetts,1999), in part to respond to complaints by the small business community that it was being shut out of government funding for innovative research and for procurement 18. The Department of Defense (DoD) started a parallel small business initiative in 1980 and became the second agency to run this programme. Keeping its success in view, Congress passed the Small Business Innovation Development Act 1982 authorizing it on July 22, The 1982 Act states the following objectives of the program: To stimulate technological innovation, To use small business to meet Federal research and development needs, To foster and encourage participation by minority and disadvantaged persons ( and women since ) in technological innovation, and To increase private sector commercialization of innovations derived from federal research and development. The Small Business Development Enhancement Act of 1992 reauthorized the programme until September 30, In 2000, it was again reauthorized until September 30, 2008 by the Small Business Reauthorization Act of Several incremental changes were introduced between 2000 and 2011 and finally it was further re-authorized through 2017 in The Small Business Development Enhancement Act of 1992 initiated another parallel programme STTR in 1994 and authorized it for three years. The objective was to strengthen the public support to small business innovation and research. It was reauthorized until the year 2001 by the Small Business Reauthorization Act of 1997, reauthorized until September 30, 2009, by the Small Business Technology Transfer Program Reauthorization Act of 2001, and re-authorized through the financial year 2017 by the Reauthorisation Act of The 1992 reauthorization broadened objective (3) above to also focus on women: to provide for enhanced outreach efforts to increase the participation of small businesses that are 51 percent owned and controlled by women. 64

66 The STTR and SBIR programs are similar in that both seek to increase the participation of small businesses in Federal R&D. The unique feature of the STTR program is that it requires research partners at universities and other non-profit research institutions to have a formal collaborative relationship with the small business concern. At least 40 percent of the STTR research project is to be conducted by the small business concern and at least 30 percent of the work is to be conducted by the single, "partnering" research institution. These conditions are not stipulated under the SBIR programme. STTR combines the strengths of both entities by introducing entrepreneurial skills to high-tech research efforts. Major characteristics The distinguishing features of the two programmes are as under. Legal framework: Both these programmes are backed by the respective legal framework, as mentioned above. It is felt that law is necessary to achieve the objectives of the programmes. There has been periodic reauthorization of the Act. This provides flexibility in the Act. Legal entities: The US Small Business Administration plays an important role as the coordinating agency for the SBIR (and STTR) programs. It is responsible for the broad policy framework; and directs the implementation of SBIR (STTR), reviews their progress, and reports annually to Congress on its operation. SBA is also the information link to SBIR/STTR. SBA collects solicitation information from all participating agencies and publishes it quarterly in a Pre- Solicitation Announcement (PSA). The PSA is a single source for the topics and anticipated release and closing dates for each agency's solicitations. Implementing departments: Federal agencies with extramural research and development budgets of over $100 million are required to establish their own SBIR program. Currently, eleven Federal agencies participate in the SBIR program: the Departments of Health and Human Services (DHHS), Agriculture (USDA), Commerce (DOC), Defense (DOD), Education (DoED), Energy (DOE), Homeland Security (DHS), and Transportation (DOT); the Environmental Protection Agency (EPA), the National Aeronautics and Space Administration (NASA), and the National Science Foundation (NSF). Federal agencies with extramural R&D budgets over $1 billion are required to administer STTR programs. Currently, five Federal agencies participate in the STTR program: DOD, DOE, DHHS (NIH), NASA and NSF. Individual departments designate R&D proposals, administer program operations, and control financial support. Although each agency s SBIR program shares the common structure, the SBIR concept is interpreted uniquely at each agency owing to its separate missions and operating 65

67 procedures 20. This flexibility is a positive attribute in that it permits each agency to adapt its SBIR program to the agency s particular mission, scale, and working culture. For example, agencies have the flexibility of disbursing funding in the form of contracts, grants, or cooperative agreements. At DoD for instance research is often coupled with procurement of goods and services but rarely at NSF or NIH. Separate agency solicitations are issued at established times. Following submission of proposals, they make SBIR awards based on small business qualification, degree of innovation, technical merit, and future market potential. SBIR/STTR coverage: Both SBIR and STTR cover American-owned and independently operated, for-profit firms with the employment size of 500 employees. Firms that are majority-owned by multiple venture capital operating companies (VCOCs), hedge funds and/or private equity firms can receive SBIR and STTR with riders. Funding: Implementing agencies are prescribed an annual set-aside out of their extramural R&D budget for small companies to conduct innovative research or research and development (R/R&D) that has potential for commercialization and public benefit. The 1982 Act required all government departments and agencies with external research programs of greater than $100 billion to establish their own SBIR program and to set aside funds equal to 0.2 percent of their external research budget. For STTR, it was initially 0.01% which increased to 0.10 in 1995 and 0.15 in The set aside fund allocation for both programmes has increased over the years. This itself is a manifestation of the success of the programmes. Programme structure The SBIR and STTR Programs are structured in three phases Phase I: It is the startup phase to support exploration of the technical merit or feasibility of an idea or technology. Phase II. The objective of Phase II is to continue the R/R&D efforts initiated in Phase I. Funding is based on the results achieved in Phase I and the scientific and technical merit and commercial potential of the project proposed in Phase II. Only Phase I awardees are eligible for a Phase II award. Phase III. The objective of Phase III is for the small business concern to pursue with non- SBIR/STTR funds the commercialization objectives resulting from the Phase I/II R/R&D activities. In some Federal agencies, Phase III may involve follow-on non-sbir/sttr funded R&D or production contracts for products, processes or services intended for use by the U.S. Government

68 Award sizes: Table 3 provides the award sizes as revised from time to time. Deviations from the indicated Phase I/Phase II statutory award amount and project period guidelines are acceptable but must be well justified and should be discussed with the agency prior to submission of the application prior to submission of the application. Under the current rules, awards may not exceed guideline amounts by more than 50% ($225,000 for Phase I and $1.5 million for Phase II). Table 2: Award sizes under SBIR and STTR Year SBIR Time frame STTR Time Frame Phase $100,000 6 months $150, months 2011 $150,000 Phase II ( 2 years) 1992 $ 750,000 2 years $1,000,000 2 years 2011 $1,000,000 Source: Audresch et al (2002) 21 and relevant website In addition to the award amount for both Phase I and Phase II, there is a provision of technical assistance is also in these programme at phase 0 level. Until the Reauthorisation Act of 2011, agencies were permitted to award $4000 as technical assistance. This amount of is raised to $5000 per award per year. Awardees may contract this amount to a provider other than the vendor selected by the agency. Phase III awards do not come from SBIR, but rather from the private sector to the researching company to pursue commercialization.. Type of funding: There are two categories of government funding: funding aimed at the procurement of R&D or funding for R&D performers in the form of grants or subsidies. While the former is procurement of R&D with a clear-cut planned technical objective, the latter is designed as subsidies without assumed restriction. Further, the former is based on public procurement, the latter needs to assess the market potential. The SBA has adopted a highly flexible approach in implementing the program guidelines. It provides waivers not only on funding size (as described above) but also on mechanisms of the offers. While some agencies use the contract mechanism, including the Departments of Commerce, Defense, Education, Health and Human Services, and Transportation; Environmental Protection Agency; and NASA; others such as the Departments of Agriculture, Energy, Health and Human Services, and National Science Foundation use grants. DHHS is the only SBIR awarding agencies that makes both grants and contracts with winning companies. Some agencies like DARPA have offer fast track SBIR contracts, also known as the Phase 2 Enhancement Program. This version of the contracts is available to companies whose projects have 21 David B. Audretsch, A.N.Link and J.T. Scott (2002a) Public/Private Technology Partnerships: Evaluating SBIR- Supported Research, Research Policy 67

69 already secured some funding, either from other government sources or the private sector, and require extra funding for the Phase 2/product development stage (this amount cannot exceed $200,000). In this version of the SBIR contract, there is no competition stage, only an application needs to be filled in and then the project can be considered for the extra funding (DARPA, 2012) Monitoring: Efforts are being made to ensure better monitoring of the programme. The Policy Directives include new reporting requirements for the participating agencies to develop data needed to monitor and analyze these time lags. Evaluation mechanism: The Government Accountability Office (GAO; formerly the General Accounting Office) is legislatively directed to assess the implementation of both SBIR and STTR initiatives, and has issued a series of reports since 1987 documenting its findings 22. Further, to facilitate the performance evaluation, it has been proposed to create a central database Tech-Net. These databases will be designed to minimize the reporting burden on small business Performance of SBIR Total awards Since 1983, all SBIR awarding agencies have funded a total of 130,856 projects amounting to $32.3 billion in current prices and $19.9 billion in 1983 prices. On average, 4362 projects were funded on annual basis during with annual grant of over $1 billion (in current prices). The average annual number of awards increased from 1920 during to 6257 over This number somewhat declined during due mainly to global recession. However, it still amounts to over 5000 project per year amounting to around USD 2 billion. This is a remarkable achievement. Figure 1 illustrates the share of R&D expenditures in total government expenditure and that of SBIR awards in total R&D expenditure. It shows that the share of R&D expenditure in total government expenditure has been declining gradually since 1983 In contrast, the share of SBIR in total R&D expenditure has increased almost continuously until the late 1990s23. Since then, it has remained almost constant. Flexibility is said to be a major feature of the programme. The relatively wide range of options available to the agencies and their SBIR program managers has helped to account for the effectiveness of the program

70 Figure 2: The share of SBIR in government R&D expenditures Share. R&Dexp_Govtexp Source: Federal Government Budget document SBIRexp_R&Dexp Distribution of SBIR grants by agency: DoD and HHS have been the largest sources of funding since inception. These two agencies accounted for 69% of the total funding during Their share increased almost continuously to 77% by They are followed by NASA and DOE which accounted for 22% of the total funding. Their share eroded in subsequent years. In , they were receiving only 14% of the grant. Other agencies have been marginal players in the overall context. Evaluation: The SBIR programme has been subject to intensive evaluation by both, government agencies (GAO and NRC 24 ) and individual researchers. Empirical research indicates that SBIR is widely acclaimed as a successful public program. The commercialization success of the SBIR program is unparalleled in Federal R&D programs with its focus on commercialisation (Berger et al., 1992; Link and Scott 2009, 2010; Audresch 2002a; Link and Scott, 2001). According to the Wessner (2008),... approximately percent of projects generate products that do reach the marketplace (Page 129). This is further exemplified by the very high rate of patents generated by SBIR firms compared to universities and large businesses 38% of U.S. patents for small business (with < 4% of the Federal R&D budget); 3% for universities (with 28% of the budget); and 55% for large businesses (with 36% of the budget) These commercialization efforts produce products, jobs and tax revenue. Almost 55% of SBIR 24 An Assessment of the Small Business Innovation Research Program, National Research Council, National Academies Press; Charles W. Wessner, Editor, Committee on Capitalizing on Science, Technology, and Innovation; 2008 and 25 Over 34 percent of NIH projects surveyed in Phase II generated at least one patent, and just over half of NIH respondents published at least one peer-reviewed article. 26 A Google search of SBIR Success Stories provides over 30,000returns. See SBIR Success Stories at 69

71 grantees responding to the National Academies survey indicated that more than half of their firm s growth was directly attributable to SBIR Wessner (2008) finds the significant level of involvement by universities in the program and highlights the program s contribution to the transition of university research to the marketplace. It is found that more than two-thirds had at least one academic founder, and more than a quarter had more than one; about one-third of founders were most recently employed in an academic environment before founding the new company; in some 27 percent of projects, university faculty were involved as principal investigators or consultants on the project; and 17 percent of Phase II projects involved universities as subcontractors; The programme has facilitated entrepreneurship or new firm (Audretsch et al. 2002b; Toole and Czarnitzki 2007; Qian and Haynes ). Financial incentives from the SBIR program motivate entrepreneurs (especially academic entrepreneurs) to start up businesses to commercialize new knowledge. Additional knowledge-based new businesses have also been created as a result of a demonstration effect, which means that potential entrepreneurs who witness the cases of using SBIR to commercialize new knowledge may be encouraged to do the same. The programme has been especially important for the creation of women- and minorityowned firms (Table 6). With regards to the number of contracts awarded to ethnic minorities, women and historically underutilised business zones (HUBZones), the percentage of participation has not changed dramatically over the years, although there seems to be a slow increase in most of these groups. Overall, 12-13% of projects are awarded to under-privileged sections. As Wessner (2008) notes, part of the power of the programme comes not just from each of these individual attributes, but from their collective impact on participation, opportunity, and the possibility of additional growth through addon funding, procurement, and reputational impact. Gans and Stern (2000) reported that SBIR firms perform best in industries with the highest levels of venture capital financing. Wessner (2008) confirms that. He discovers that about 25 percent of the top 200 NIH Phase II award winners ( ) have acquired some venture funding in addition to the SBIR awards. The impact of SBIR on employment creation is not unambiguous. Lerner (1999) shows that awardees experienced greater employment and efforts (Lerner, 1999). Wallsten (2000)

72 however found no evidence that SBIR grants led to increased employment in a simultaneous equation analysis. He further revealed that public R&D subsidies actually crowded out private R&D for those small firms with available R&D expenditures. Similarly, Link and Scott (2012) reported that SBIR only played a moderate role in awardee firms employment growth. Europe SBIR The focus on small businesses is fairly recent in origin in Europe28. In March 2000 the Lisbon European Council set the goal to transform Europe into the world s most competitive and dynamic knowledge-based economy by It identified the need for an increase of expenditures in research and development (R&D) to achieve this goal. In 2000, the Lisbon Strategy was launched. With this, Think Small First took center stage in its economic policy. It is widely recognized that SMEs are an innovation engine and therefore SME participation in EU programs should be enhanced29. The European Council in March 2005 urged Member States inter alia to establish support mechanisms for innovative SMEs. The Community Competitiveness and Innovation Programme launched in 2006 aims to foster, in particular, SME competitiveness and to promote innovation, including eco-innovation. With this shift in the focus, many European countries adopted the US style SBIR programme to replicate the success of US. These were, the UK, Netherlands, Sweden and Finland. United Kingdom The UK version of the program, which is called the Small Business Research Initiative (SBRI) was introduced in The government departments were expected to set aside 2.5% of their R&D budgets for the SBRI (Tredgett and Coad, 2013) 30. It was not mandatory though. The start was slow and the programme could not get off the ground. UK departments just saw it as an unnecessary drain on their funds and a kind of Small business tax (Connell and Probert, 2010). In 2005, the government made it mandatory for all departments to participate in the SBRI (Sainsbury,2007). In 2008, a new reformed version of the initiative was created upon these recommendations and run in pilot form in Initially, pilots were planned with the Department R&D and Innovation in SMEs: A Joint Japan and EU seminar. February, 2005, Tokyo 30 Emma Tredgett and Alex Coad (2013) The shaky start of the UK Small Business Research Initiative (SBRI) in comparison to the US Small Business Innovation Research Programme (SBIR) Electronic copy available at: 71

73 of health and defense. In November, 2009, it was rolled out for all ministries. All departments need to prepare annual procurement innovation plan. The Technology Strategy Board (TSB) is responsible for overseeing the UK version of the SBIR: the Small Business Research Initiative (SBRI). The TSB is funded by the UK Government Department for Business, Innovation and Skills. The purpose of the TSB is similar to that of the US SBA in that it is responsible for a range of innovation programmes, although unlike the SBA it is not restricted to small business innovation programmes. Unlike the US SBIR, the UKSBRI focuses only on enabling UK businesses to develop technologies to meet the needs of public sector bodies and government Departments. Therefore, the programme does not offer grants or loans, but competitive R&D contracts. The process starts with a government department or other public body identifying a specific challenge. Government departments are expected to notify twice yearly the TSB of the technological areas in which they would like to fund projects, and this way SMEs would be able to find all of the competitions advertised in one place. The assessment of proposals should then be made jointly between the department and TSB. This is then turned into an open competition for new technologies and ideas that is open to the broad business community. SBRI research and development budget set-asides are said to build up over the first three years, starting at 1.5% and then reaching 2.5%. Any enterprise (not necessarily the SME) can apply, although it is expected that SBRI opportunities will be particularly attractive for SMEs. Pre-start-ups may apply, however the contracts can only be awarded to legal entities. Universities may apply but must demonstrate a route to market i.e. the application must include a plan to commercialise the results. Registered charities are equally eligible to enter SBRI competitions via their trading company limited by guarantee. Funding covers 100% of project costs. It is a two phased programs. In the first phase, successful companies receive a direct contract, which covers the cost of proving technical feasibility of up to 100,000 and within a six-month period. The most promising technologies receive further contracts to demonstrate product capability within a two-year period. The SBRI programme uses the power of government procurement to drive innovation. It provides opportunities for innovative companies to engage with the public sector to solve specific problems. However, the UK SBRI is slow to take off because it is found that number of high quality applicants (demand for finance) is small. As a matter of fact, there are already a large number of pro-sme policies in place in the UK. Storey (2006, p. 248) writes that the UK spends more on small business than it spends on the police force. Notwithstanding, the SBRI has a crucial role to play in the UK economy. The Government announced its intention in the 2013 Budget to expand the use of SBRI five-fold among key departments. The value of contracts made available through this route will increase from 40 million in to over 100 million in , and over 200 million in

74 Netherlands The Dutch SBIR scheme is an initiative of the Ministry of Economic Affairs, Agriculture and Innovation, in collaboration with several other ministries. With the SBIR, the Ministry of Economic Affairs, Agriculture and Innovation aims to stimulate start-ups, young fast growing firms, and SMEs and to challenge them to perform pioneering research. In 2004 the Dutch government started SBIR pilots on seven different subjects, within four different Ministries. The first evaluation was conducted in May 2007 based on the data from 88 companies. It found that SBIR brought in new companies and new ideas. SBIR companies were small; all contracts were given to companies with less than 100 employees. SBIR companies that received an SBIR phase 1 contract have more often strategic co-operation in an SBIR project, than companies that did not receive a contract: 89% vs. 47%; with other (SME) companies (42% vs. 7%); with research institutes (18% vs. 17%); or both 29% vs. 23%. Following the evaluation in 2007, the pilot became a fully operation programme. Like the UKSBRI, SBIR of the Netherlands is a form of public procurement in Netherlands that is fully funded by the contracting authority 31. Public technology procurement is seen as a powerful means of increasing R&D expenditures. The SBIR-projects consist of three phases: Feasibility analysis Research & development, and Commercialisation of a product, process or service Agency NL implements the SBIR programme and outsources socially relevant innovative research to SMEs by issuing tenders. Tenders are available for the first phase (feasibility study) with a budget of up to 50,000 EUR per project, and the second phase (research and development), with a budget of up to 450,000 EUR per project. An independent committee evaluates the proposals and makes a ranking. The Minister uses this ranking in his/her decision. The third phase (market implementation) is not publicly financed. The government can act as a catalyst by procuring innovation. Through pre commercial procurement or as launching customer, the government is able to stimulate innovative solutions for social issues such as health and the environment. It provides direct support of business R&D (grants and loans). SBIR projects thus aim at contributing to solving societal challenges. Public procurement provides the government an opportunity to participate as a major innovation-driven purchaser and to be the first to buy the new products. Firms can thus take advantage of the new opportunities. 31 sbirinfo@agentschapnl.nl. 73

75 The budget increased considerably the last years from 3.5 million in 2006 to 7.4 million euro in 2008 to 26.3 million in In 2010, an evaluation of the SBIR programme concluded that the scheme was very effective, and that ministerial departments that made use of the scheme were generally very positive about the programme. Among the recommendations, it was suggested to follow participating firms more closely in the third phase. Other European countries Sweden, Finland and Russia have also adopted SBIR-like programmes to support research and innovation activities of their small businesses. In Sweden, the innovation agency VINNOVA under the Ministry of enterprise, energy and communication funds projects for companies and research institutions through public calls for proposals. VINNOVA's activities are divided into eleven strategic areas. Innovative small and medium-sized enterprises are one of VINNOVA's strategic areas. In Finland, Tekes is the most important publicly funded expert organisation for financing research & development, and innovation. Tekes funds spearhead R&D and innovation projects. The main target group of Tekes consists of SMEs seeking growth in internationalisation. In this group of businesses, young growth companies form a focus area that receives approximately one third of the Tekes funding targeted at businesses. It thus works with the top innovative companies and research units in particular in the small sector in Finland. Over 76% grants are targeted at enterprises with less than 500 employees Russia emulates the Nordic countries-type SBIR programme to support and promote high-tech SMEs projects. Taiwan ASIA SBIR Taiwan launched a Small Business Innovation Research (SBIR) program in 1999 to consolidate the SMEs' competitiveness. Initially, the program was run by the Industrial Technology Research Institute (ITRI), a government-sponsored research organization. In 2008, the Department commissioned the China Productivity Center to implement the SBIR program. The SBIR program supports small and medium enterprises R & D projects in five main areas: electronics, information technology, mechanical engineering, chemical engineering, and biotechnology & pharmaceuticals. The scope of research under the programme includes not only developing a brand new idea, concept or new technology but also applying an existing technology to a new application; applying a new technology or business model to an existing application; and improving an existing 74

76 technology or product upon various aspects. Awardees must be local company legally with less than 200 employees or capital less than 80 million 32. The maximum SBIR subsidy provided during phase 1 for a single SME is capped at NT$1 million (US$33,300) and at NT$5 million (US$166,700) for an alliance. Phase I awards are intended to allow firms to determine the feasibility of their ideas. Subsidies in phase 2 are capped at NT$10 million (US$345,000) for individual SMEs and at NT$50 million (US$1.7 million) for research alliances. SBIR Phase II+: NT $5,000,000 total governmental subsidy for 1 year. This involves the implementation and wide application of R&D results in Phase 2 so as to meet market and customer demand. In 2008, the "Promotion of Innovative R&D for Local Industries Program" (Local SBIR) was implemented. This marked the start of the local governments active involvement in the R&D of industries with local characteristics. In the first year of the local program, Tainan County, which merged into Tainan City in December 2010, was the only local government to participate in an SBIR project. By 2012, however, 17 local governments around Taiwan were taking part in such initiatives. Four important features are: The grants provided cannot exceed half of the total funding needed to carry out a given project. Awardees privately finishing initial stage may directly apply for the more substantial Phase II grants and skip Phase I 33. There is a provision for Phase II plus grant also. Local government version of the programme is initiated to involve the local governments and promote the innovative R&D projects by local industries As of the end of August 2012, the Small Business Innovation Research Program (MOEA SBIR) had approved 4, innovative research projects. Over the years the SBIR program has pumped a significant amount of funding into research work, as by 2012 the Ministry of Economic Affairs had allocated a total of NT$9.1 billion (US$314 million) for the program since its inception. This encouraged the total SME investment by NT$16.9 billion in R&D, with more than 43,000 people 32 In Taiwan, an SME is defined as an enterprise in the manufacturing sector with no more than 200 employees or with capital of less than NT$80 million (US$2.8 million), or as one in the service sector possessing no more than 50 workers or generating no more than NT$100 million (US$3.4 million) in annual revenue By the end of 2012, the number was

77 directly engaged in the program. In , SBIR grants were record high. A special attempt was made to encourage SMEs during recession to take advantage of the slow business cycle to conduct research work and upgrade their operations. Over 45% of the beneficiaries had the age above 10 years. New and start ups ( upto 3 years of age) accounted for 21% of the beneficiaries. Japan In Japan, the Law for Facilitating Creation of New Business known as the Japanese SBIR program was implemented in 1999 to provide subsidies and debt guarantees to help small and medium enterprises (SMEs) to develop and commercialize new technologies. Unlike other countries, it focuses on start-up companies i.e. those university researchers who are trying to practice a new personal business, and others who are trying to establish a new company based on novel technological concept. It is a cross Ministerial system. Currently, 7 Ministries are participating in the programme. These are, namely, Ministry of Internal Affairs and Communications, Ministry of Education, Culture, Sports, Science and Technology, Ministry of Health, Labor and Welfare, Ministry of Agriculture, Forestry and Fisheries, Ministry of Economy, Trade and Industry, Ministry of Land, Infrastructure, Transportation and Tourism, Ministry of Environment. The Amount of funding varies from US$10,000 to as high as US$5 million and the period of assistance varies from 1 year to 5 years. In addition, those issued SBIR grants are offered special measures under Small Business Credit Insurance Act. They can also get loans at concessional rates from the Japan Finance Corporation. Finally, the Act ensures elaborate commercialization support measures for the SBIR beneficiaries by arranging for concessional loans for setting up companies and expanding them. For instance, 50% concessions are offered in patent examination fee and patent fee. Korea The objective of Korea Small Business Innovation Research Program (KOSBIR) has been to increase R&D investment of innovative firms. It is being managed by the Korea Evaluation Institute of Industrial Technology. The number of projects eligible for KOSBIR assistance has been increased and the limits on assistance have been loosened. To achieve this, the share of R&D in the budget for Korea Small and Medium Business Administration (SMBA) has increased from 4% in 2009 to 6% in Ministries and government-funded institutions are required to allocate a certain percentage (5%) of the R&D budget to support SMEs technology development under the Korea Small Business Innovation Research (KOSBIR) system. The SMBA spent around 645m in 2007 under the KOSBIR programme. In 2011, the budget was 442m. Typically 75% grant is offered with a payback of 20-30% for successful projects over 5 years 35 In 2009, around 1,300 SMEs submitted applications for subsidies to the MOEA for evaluation, with the central government agency approving 729 of the applications and earmarking NT$1.66 billion (US$57 million) for the projects 76

78 A unique feature of this scheme is that the SMBA provides support in the marketing of new technologies. It uses demand survey to capture SME interest. Through an annual demand survey, demand for various technologies is assessed. SMEs may respond to these specifications and submit the proposals for evaluation. The programme thus connects private procurer with the innovative firms. Further, public organizations are mandated to use 15-20% budget in the purchase of new technology products. Another feature of the programme is that a scientific system of grading ( as mentioned above) is used to evaluate the potential of the company. Evaluation is not subjective at the discretion of the evaluator (The grading system is patented by the country). The third feature is that the money is deposited into the account of Industrial Development Bank of Korea where it is converted to points allocated to the SME. Payment system is linked to the company s database and work progress. There are no delays and lengthy processes in the payment system. Further, there are IT alerts for frauds and misuse. Finally, a strong monitoring system is in place for evaluating the commercial potential of SME technologies, and the system for evaluating how effectively firms are using the R&D funds and the quality of the results of R&D 36. Brazil Latin America The Brazilian Innovation Agency, FINEP, has also created Pappe in 2003 to support small business R&D with the potential to generate high commercial or social returns. Pappe is active in 18 states. Under the programme, companies with successful projects are eligible for zero interest business loans from FINEP. In Brazil, An earlier programme launched in 1997, the Programa Inovação Tecnológica em Pequenas Empresas (PIPE), has already supported over 500 companies in the state of São Paulo, included R&D on HIV, TB, Chagas, helminthiases, hepatitis C and cancer. Sectoral Funds, have been created since 1999 to support publicprivate R&D partnerships in 14 sectors including biotechnology and health. The funds are managed by FINEP. Sectoral Funds support grants to non-profit universities and research centres; companies can participate only by partnering with one of these public institutions. The overall goal is to increase domestic investment in R&D and to create uma cultura empreendedora e de investimento de risco no País (a culture of entrepreneurship and risk investment in the country) Learning_from_International_Peer_Reviews.pdf 77