I believe in innovation, and the way you get innovation is you fund research and you learn the basic facts.– Bill Gates A study conducted to investigate the impact of research and development (R&D) on economic growth in the European Union during the period 2002- 2012 showed that an increase in R&D expenditure enhanced a country's real gross domestic product (GDP).

In 2019, R&D expenditure in the OECD (Organisation for Economic Cooperation and Development) countries grew in real terms by 4 per cent, which resulted in GDP growth of 1.6 per cent. The OECD is a unique forum where the governments of 37 democracies with market-based economies collaborate to develop policy standards to promote sustainable economic growth.

R&D is a process intended to create new or improved technology that can provide competitive advantage at the business, industry or nation level. It is the best way to discover the cause and effect in any field. It could be a career swinging deal in a power-hungry economy for embracing new technology for its development.

R&D may suggest the best alternative for development to encourage economy recovery in the aftermath of the COVID-19.

Nepal is a least developed country characterised by slow economic growth with an average 4 per cent GDP growth over the last four decades despite its immense prospects and opportunities.

Why should the government of developing countries with tons of acute social problems and limited budget invest in R&D, is a major question that may arise while discussing budget allocation for R&D.

It is obvious that the government of any country is looking for an environment that encourages economic growth and spreads new ideas, technologies, industries and jobs. Research results are beneficial to the formulators of economic policy in the innovation and demographic areas, ultimately for pinpointing and utilising the available resources within the country.

Governments of different countries are emphasising R&D through tax exemption on quality research and development equipment and property purchase. Studies show that, not allowing immediate R&D expenditure could result in losses worth billions of dollars in income for American workers.

The United Kingdom has designed tax incentives to encourage companies to invest in R&D. Companies can reduce their tax bill or claim payable cash credits as a proportion of their R&D expenditure. The scheme was introduced in 2000 for small and medium enterprises (SMEs), with a separate scheme for large companies launched in 2002. Any company carrying out R&D is likely to qualify for the relief.

Similarly, the government of India has offered multiple schemes for innovation and research. For instance, Technology Development Board, India provides financial support through various modes, such as loans of upto 50 per cent of the project cost at simple interest with repayment in five years after project completion, participation in the equity of companies of up to 25 per cent of paid up capital, and grants-in-aid and so on.

Many other countries worldwide, like Canada, France and the USA, long ago had operated schemes to promote corporate R&D investment. In turn, this has increased innovation and wealth creation in the economy in those countries.

Because of Spirit AeroSystem's investments in research, technology and innovation, they were able to rapidly apply their manufacturing capabilities to meet the need of critical care ventilators of the United States during the COV- ID-19 pandemic. In doing so, they also created hundreds of jobs.

In the United States, total R&D spending - both public and private - has been relatively stable over the past three decades, at roughly 2.5 per cent of GDP.

A research paper published in June 2020 on 'Hydropower Development and Economic Growth in Nepal' by the ADB South Asia Working Paper Series has demonstrated that expanding Nepal's hydropower generation by 20 per cent of the economic potential would result in an 87 per cent increase in real GDP by 2030. Further, the results show that hydropower expansion can be a hedge against the undesirable impact of oil prices on economic growth.

Tourism in Nepal is becoming the mainstay of the country's economy to enhancing real GDP. Tourism promotion through international marts across the globe through digital marketing seems beneficial in the current digital world.

However, Nepal Tourism Board initiated research work for an online marketing system only during the last fiscal year that ended in mid-July. About Rs 20 million was set aside for the purpose, but its outcome is yet to be known.

A detailed R&D analysis is necessary to encourage foreign direct investment inflow, intensify remittances, bring changes in the use of petroleum products, scale down production cost and do demand analysis of hydroelectricity and so on.

Rational R&D spending can lead to more resilient growth that can drive both profits and well-being for society and eventually for the country.

However, expenditure on R&D in developing countries like Nepal should be instructive and rational.

Without intervention and illustration from the government side, the private market cannot adequately carry out certain types of research.

Nepal will be in a position to promote innovative activity if the government is able to understand the importance of R&D and its role in nascent economic recovery. That said, in a time of fiscal stringency and tactical budgetary decisions, the government should carefully weigh competing priorities while allocating resources.

A version of this article appears in the print on July 20, 2022, of The Himalayan Times.