<div><em>If intellectual property drain continues unabated, this can impoverish India more than the East India Company did and in a much similar manner, says <strong>Harish HV</strong></em><br><br><br>India has suffered heavily due to its restrictive economic policies and rigid processes in the government in the 60s and 70s which led to the cream of its talent migrating to the US. This was called the brain drain. According to Oxford Advanced Learner’s dictionary, Brain Drain is the movement of highly skilled and qualified people to a country where they can work in better conditions and earn more money. The UNDP estimates that India loses $2 billion a year because of the emigration of computer experts to the US Indian students going abroad for their higher studies costs India a foreign exchange outflow of $10 billion annually. I believe this problem has been addressed to some extent as there is a large population which is returning and being attracted to India in view of the progress made on many fronts and the opportunities to create value and build businesses.</div><div> </div><div>Those who are returning and building businesses as well as home grown new age entrepreneurs are focussed on building businesses around new ideas and concepts rather than producing traditional commodities based on easily available technologies. The core of these new businesses is the Intellectual Property that is created in these businesses. As per WIPO (world intellectual property organisation), the crucial point about legal protection of intellectual property is that it turns intangible assets into exclusive property rights, albeit for a limited period of time. These are now being valued by investors and owners as they have the ability to generate significant returns and are worth far more than physical assets. </div><div> </div><div>If military might, abundance of natural resources and sophisticated industrial capability were the factors which helped nations and societies to dominate the world in the past centuries, then this is the time for intellectual property (IP) to play the most important role in determining the ascendancy of nations in the current century. Relative strength of a country in terms of IP developed, owned and exploited by its people and enterprises will determine how well it does in the 21st century.</div><div> </div><div>Whilst the new age brains are building and creating IP in India (whether returned Indians or local), they find the Indian business environment unconducive to retain it in India and they all are being forced by the regulatory environment and the pulls of countries competing to own the IP, having realised its value to move it out of India. This is what I call “IP DRAIN” which is the second biggest drain phenomenon that has begun to happen. In my opinion,if IP Drain continues unabated, this can impoverish India more than the East India Company did and in a much similar manner. Indians are creating IP which is going to other countries and those countries will earn revenue from across the world and the wealth transfer will happen to the country owning IPwhich is going to be the most prized asset of the future. </div><div> </div><div>One country which has realised it quickly is (no surprises here) is Singapore and they are looking to become the IP capital of the world and are going about attracting IP from around the world and have obviously trained its efforts on India. Singapore has created its IP Hub Master Plan (2013) which aims to make Singapore a preferred place for IP transactions and management, offering world-class services for quality IP filings and a venue of choice for IP dispute resolution.</div><div> </div><div>In December 2014, the Intellectual Property Office of Singapore launched a convenient one-stop online platform for the registration of intellectual property. Earlier that year, an IP Financing scheme was rolled out which enables eligible Singapore-incorporated companies possessing granted patents to raise finance with their patents serving as collateral. There is a special programme for small and medium enterprises under which grants are available to fund manpower, consultancy and IP registration / acquisition costs. Financial assistance can also be availed under the Global Company Partnership programme, a niche initiative by International Enterprise Singapore - a government agency that helps Singapore businesses in going global. A one-stop services centre was opened last year with effective linkages to the IP community, such as the local enterprises, IP service providers, IP owners, academics, etc. to offer the IP community a comprehensive suite of products, services and networks. This centre offers preliminary advice on anything to do with IP, provides access to Singapore’s IP database and holds awareness and training seminars for business and creative community. Singapore has also made suitable changes to its legal framework to facilitate cheaper and faster options to settle patent disputes such as inventorship or entitlement disputes or patent revocations that involve complex technical or scientific issues. The World Economic Forum’s (WEF) Global Competitiveness Report 2014-2015 ranked Singapore as number one in Asia and second in the world for intellectual property protection. India and China are at lowly 65th and 53rd ranks respectively on this parameter as per the same report. </div><div> </div><div> Apart from these measures, Singapore is creating a strong eco system and making itself the most attractive place for IP through a system of tax breaks forIP. In summary these are as under</div><div> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>Under Productivity & Innovation Credit scheme, qualifying small and medium enterprises that invest in acquisition and licensing of IP rights, registrations of patents, trademarks, designs &plant varieties and R&D activities, get 400% tax deduction for up to S$600,000 of expenditure per year per activity. This is where the Indian equivalent pales in comparison. Under Section 35(2AB) of the Indian income-tax law, expenditure on scientific research gets a weighted tax deduction of 200%. Singapore goes even further. For businesses with low or no taxable income, weighted deduction is of little immediate relevance. For such businesses, Singapore gives an option of a non-taxable cash payout of S$60,000 a year for S$100,000 of expenditure not claimed as tax deduction. Writing down allowance enables amortisation of capital expenditure on IP over five year on a straight line basis.</div><div> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>The headline corporate tax rate is just 17% in Singapore as against more than 30% in India. Even this rate of 17% can be further reduced to up to 0% under the headquarters programme for a specified period on qualifying income. This programme is available to those businesses that commit significant economic investment in Singapore in terms of recruitment and expenditure. As if all this was not adequate, the committee that worked on the IP Hub master plan also recommended to the government that Singapore should implement an IP Box or similar tax regime to provide greater transparency and certainty in its IP tax regime. It may be noted that France, China, Netherlands, Belgium and UK already have such IP Box regimes.</div><div> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>Service tax is another bugbear that companies have to contend with in India. Even if you are an export business and therefore not liable for an output service tax, it takes ages in India to get a refund of input service tax due to you. Managing such working capital is so much easier under Singapore’s GST regime.</div><div> </div><div>•<span class="Apple-tab-span" style="white-space:pre"> </span>On valuation front too, Singapore has an edge. Selling an IP owning company’s shares to investors in Singapore are likely to fetch more than what such investors might be willing to pay for a similar Indian company. Even if an Indian product company were able to sell shares at a good premium, there are regulatory restrictions to hold it back. Indian companies are not allowed to list abroad unless they are also listed in India. A small window was opened in 2013 to permit unlisted Indian companies to list abroad subject to certain conditions without requiring them to also list in India. However, the latest updated FDI policy issued earlier this month appears to have closed this route now. Despite all these odds, if an Indian IP company were to decide to list in India, it is up against the formidable listing conditions of SEBI, such as profitability track record. To be fair, SEBI seems keen to address this issue. It has recently released a discussion paper on its draft Alternative Capital Raising Platform, which, if operationalized, can make things a tad easier for knowledge-based companies.</div><div> </div><div>In addition to all these there is the ease of doing business where Singapore and other countries score and they have a functional legal system which delivers timely justice.</div><div> </div><div>India needs to wake up to this and we all need to work to ensure that like Make in India we have “IP in India” as an initiative and this requires a rethink of the business environment and the legal system with a fresh pair of eyes. The existing rules and processes are based on the oldworld manufacturing industrial promoter view of businesses. IP is created by founders who are young and first generation supported by VCs and they have a different worldview and approach compared to the promoters that Indian Regulators are familiar with. This article is a call for people to recognise the problem as realising that there is a problem is the first step in finding a solution.</div><div> </div><div> </div><div><em>This article is written by Harish H V, Partner, Grant Thornton India LLP with the support of Shashishekhar Chaugule, Fellow Chartered Accountant. Harish is also on the policy board of iSpirit. Views are personal.</em></div><div> </div><div> </div>
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