The chief economic advisor, V Anantha Nageswaran, has written a two-part series in this paper on why Indian industry under-invests in R&D. His articles deserve deep consideration, as the problem is vital. He says, “National and shareholder interests converge in the long run. The private sector that fails to recognise this convergence will eventually discover it the hard way”. I agree with him that our industrial future, and the national future, depends on the willingness of Indian industry to invest strongly in in-house R&D for the long-term.Nageswaran is also right when he says that the future of Indian industry depends not on the government but on “… decisions taken in corporate board rooms: About R&D budgets, talent, the willingness to absorb short-term costs in pursuit of long-run competitive advantage”. I have a different view, though, of both the sources of our problem and their remedies. I believe we need to complement his cultural argument with the right economics.AdvertisementNageswaran says that Indian industry is too inwardly focused on the Indian market: “Why develop a better product when the existing one sells readily?” The obvious remedy lies in economic policy, in a better trade policy: We should not protect the Indian market. The last 10 years have seen tariffs raised on over half the items we import. The best way to get the Indian industry to “develop a better product” is to provide the option of buying a better imported one. We need to see our tariffs converge on the rates of South East Asia, Europe, and the Far East, and the wholesale cancellation of Quality Control Orders — import restrictions dressed up in a fancy phrase.The argument that uncertainty deters long-term investment is, of course, right. This uncertainty, Nageswaran says, comes from “competitive popular democracy” and from external challenges (Covid, wars in Europe and Asia, the Trump tariffs). My argument would be that policy uncertainty compounds this uncertainty we have no control over. Post 1991, we increasingly moved to the market determining prices, but there are too many areas where policy still chooses to play god. Domestic oil prices to consumers have increased 10 per cent, when international oil prices have increased 50 per cent. Urea prices in India are a fraction of international prices. Prices determined by the market would drive conservation much more effectively than exhortation. To address our tariffs, if we provided a clear and credible timeline for their reduction to zero over, say, the next five years, it would give industry both the incentive to invest in building competitive advantage and the time to get newer capabilities in place.Also Read | R&D underspending in India has no one cause. It’s systemic as well as culturalNageswaran repeats an allegation against family business: “The founder builds with hunger, the second generation consolidates, and by the third, the urgency has often dissipated”. This allegation may be common, but it is wrong. As any careful study of family business shows, if one compares a 70-year-old professionally run firm with a family business in the third generation, also around 70 years old, one finds just as much diversity in performance and ambition. A family business I know intimately celebrated its centenary last month. I can vouch for the fourth generation having just as much ambition and national commitment as the first generation in 1926. You may say that that is an anecdotal argument of one business, which is true, but the allegation is based on equally anecdotal evidence. The best argument in favour of family business is provided by Nageswaran himself. He cites a study that found US public firms were much more concerned about short-run results than private firms and so invested less. The long-term outlook of family business is – worldwide – its greatest attribute. Thinking in generations instead of quarters can greatly enhance the willingness to invest in long-run technical capability.AdvertisementThe sources identified by him affect long-run investment in general. That is not, in my view, the Indian industry’s problem. Our problem is investment, specifically in R&D. Take our three largest groups – the Tatas, the Ambanis and the Adani group. Each has committed hundreds of thousands of crores for capacity in everything from semiconductors to infrastructure to alternative energy to petrochemicals. But except for a few Tata companies, their investments in technology remain limited. We need to understand why they underinvest in R&D when they are willing to invest for the long-term in new capacity. Industrial policy must, however, enable the ambition of all Indian industry, not just a few large groups.When The Indian Express asked me to write, the idea was to reflect on the recent SpaceX listing and consider why we do not see the same backing of an idea at a grand scale that this listing represents. I believe that question is in the same league as questions around why we do not have our own Google or Apple.you may likeI have spent over 40 years studying how nations and firms become innovative. Building technical capability is a hard slog; it has to be learnt step by step. If I think of our own firm, we started investing significantly in R&D in 1991 to develop new products different from everyone else. We had a well-qualified team, but one primarily focused on indigenisation. It took us three years before we got our first moderately successful product out, five or six years before we learnt enough to count on a flow of innovative new products, year on year. The results show in success, in India and overseas. But we are still learning: Focused now on deepening technical capability with closer connection with academic research, in India and overseas.Our story is also the story of firms in South Korea and Taiwan, which built R&D capabilities step by step, starting in the 1970s. Today, we might admire TSMC or Samsung, with their trillion-dollar valuations reflecting long-term commitments to R&D. But those reflect decades of growing investment in R&D, beginning with incremental process innovation, moving onto incremental product innovation, and only in recent years operating at the cutting edge of the latest developments in technology. I do not know how to short-circuit this process. Perhaps the newer US tech firms, with experienced tech entrepreneurs using their fortunes to back billion-dollar start-ups, will prove to be the exception. But I would still push for the Indian industry to learn, step by step, how to invest in R&D and make new products a rising share of future success.Let me return to policy: The trigger for our choice in Forbes Marshall to invest in R&D in 1991 was the Narasimha Rao/Manmohan Singh reforms. The reforms delivered a new and powerful trajectory for our firm, triggering us to take decisions that increased R&D budgets, and a willingness to absorb short-term costs in pursuit of long-run competitiveness. We need the reforms that will, again, unleash the ambition of all of Indian industry, not just of the Tatas, Ambani, and Adani. The reform express must leave the station.The writer is co-chairman, Forbes Marshall