India - Industrial Technology Project

]Document of The World Bank FOR OFFICIAL USE ONLY Report No. 18105 IMPLEMENTATICN COMPLETION REPORT INDIA INDUSTRIAL TECHNOLOGY PROJECT Loan 3119-IN June 30, 1998 Finance and Private Sector Development Division South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. It:s contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of June 28, 1998) Currency Unit Indian Rupee (Rs.) Rupee 1 US$0.023 US$1.00 Rupee 42.71 GOVERNMENT FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS CSIR Council of Scientific & Industrial Research Gol Government of India IDA Intemational Development Association lDBI Industrial Development Bank of India ICICI Industrial Credit and Investment Corporation of India ICR Implementation Completion Report ITD Industrial Technology Development NCL National Chemical Laboratory NICs Newly Industrializing Countries OED Operations Evaluation Division OTCEI Over-the-Counter Exchange of India SPREAD Sponsored R&D TG Technology Group TDF Technology Development Fund Tls Technology Institutions UTI Unit Trust of India VC Venture Capital VCC Venture Capital Company WB World Bank Vice President Mieko Nishimizu Director Edwin Lim Sector Manager Marilou Uy Task Manager Sanjay Kathuria  FOR OFFICIAL USE ONLY IMPLEMENTAT'ION COMPLETION REPORT INDIA INDUSTRIAL TECHNOLOGY DEVELOPMENT PROJECT (LOAN 3119-IN/ CREDIT 2064-IN/ JAPAN GRANT 2700-IN) TABLE OF CONTENTS Preface Evaluation Summary .............................................................. i PART l: PROJECT IMPLEMENTATION ASSESSMENT A. Project Objectives .I B. Achievement of Project Objectives .3 C. Implementation Record and Major Factors . .7 D. Bank Performance ..8 E. Borrower Performance ..8 F. Assessment of Outcome ..8 G. Project Sustainability ..8 H. Future Operations ..10 1. Key Lessons Learned ..11 PART II: STATISTICAL INFORMATION Table 1: Summary of Assessments ......................................... .................. 16 Table 2: Related Bank Loans/Credits ........................................................... i 7 Table 3: Project Timetable ................... ........................................ 17 Table 4: Loan/Credit Disbursements ............................................ ............... 18 Table 5: Key Indicators for Project Implementation .............................................. 18 Table 6: Studies Included in the Project ..............................................................18 Table 7: Project Costs ........................................................... 19 Table 8: Project Financing ................... ........................................ 19 Table 9: Status of Legal Covenants ............................................ ............... 19 Table I 0:Bank Resources: Staff Inputs ........................................................... 19 APPENDIX I Borrower's Contribution to the ICR .............................................. 20-38 APPENDIX 11 Aide Memoire ........................................................... 39-45 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  INDUSTRIAL TECHNOLOGY DEVELOPMENT PROJECT INDIA Loan 3119-IN/Credit 2064-IN/Japan Grant 2700-IN Preface This is the Implementation Completion Report (ICR) for the Industrial Technology Project in India for which Loan 3119-IN and Credit 2064-IN in the amount of US$ 200 million equivalent was approved on December 8, 1989 and made effective on May 1, 1990. Japan Grant 2700-IN was signed on March 28, 1990 and'made effective on May 1, 1990. The loan/credit/grant was closed on December 31, 1997 instead of December 31, 1995 which was the original closing date. The last disbursement took place on May 19, 1998. The ICR was prepared by Mr. Sanjaya Lall (Oxford University) and Ms. Manjula Luthria (PSDBE) with the help of Ms. Harpinder Oberai (Consultant), under the supervision of Mr. Sanjay Kathuria, SASPR, task manager. The ICR was reviewed by Ms. Marilou Uy (SASFP), Ms. Shideh Hadian (SASFP), Mr. Ashoka Mody (PFG), Mr. Jan Peter Wogart (CA2DR). Preparation of this ICR began during the Bank's final completion mission in January 1998. It is based oni material in the pro ject files as well as information received during the mission. The borrower contributed to preparation of the ICR by providing written input which is attached with this ICR.  EVALUATION SUMMARY Project Objective The overall objective of the project was to facilitate the acquisition and development of technology by industrial firms in India. It aimed to balance existing domestic technological capability with import of foreign technology. and reduce the financial constraints to new technology ventures and the foreign exchange constraint to technology import. The project had three components: a) Helping small, innovative firms obtain financing by supporting the development of venture capital (VC) in India. This $ 45 million loan component originally aimed to support four venture capital entities and finance perhaps 150 enterprises. b) Upgrading research and standards institutions to provide technology services to industry and promoting collaboration between industry and research institutions. This technology services component was expected to upgrade the facilities and build the industrial support programs of 12 - 15 technology institutions (Tls) for $ 40 million: and provide $ 15 million to about 60 firms to finance R&D projects contracted with TIs. c) Financing the import of technology and technical know-how by industry by supporting the the fast-track Techlnology Development Fund (TDF), with $ 100 imillion equivalent of loan proceeds, expected to benefit between 600 and 800 firms. Evaluation of Objectives The experience of the project suggests that the failures it was addressing in capital, information, technology and institutional markets were real, and the modalities dlevised for remedying them well conceived. Policy changes that directly affected the project such as import liberalization and the determination of the government to make scientitic institutions financially more self-supporting, and, more generally, the increasingly positive attitude to the private sector and foreign investors, all reinforced the benefits of the project, suggesting that its initial concept was sound (refer para #4 of main text and para # 1.1 of borrower input for policy environment). Implementation Experience Overall implementation experience was highly satisfactory. All covenants were fully complied with. Loan disbursements were slow in the initial periods, largely due to the fact that there was a long learning period for the implementing agencies given that R&D finance, restructuring of R&D institutes and venture capital were all new concepts to be grappled with. Restructuring of the project in light of early closure of the TDF component also contributed to delays. Bank agreement with the Borrower to reallocate some of the funds from unusable components into others improved the implementation process and contributed to the quality of the project. Cooperation between the Bank and the project institutions was highly satisfactory and credit for this goes to both sides. Continuity and;olr commitment on the part of the Gol as well as the Bank played a key role in the ability and readiness to solve problems. ICICI and IDBI functioned as high quality intermediaries for this project. Strict performance monitoring and evaluation criteria and a high degree of institutiona'l involvement in each of the sub-projects was present throughout (refer Section E of main text on borrower performance). Finally, the availability of Japanese implementation grants were very useful in funding key studies, internship programs, and seminars that increased the "ownership" and understanding of the borrowing institutions. Availability of IDA resources allowed sub-loans to institutions to be restructured as interest-free loans for longer periods. This made the loan affordable while inculcating the discipline of repayment for activities that they would not have typically borrowed for (refer Section C, para # 11 of main text for detailed discussion of both issues and para #1.5 of borrower input).  ii Results A caretfil selection of the participating institutions, adequate seminars, training and study tours, the right economic incentives and policy environment, and strong Borrower as well as Bank commitment resulted in a highl) satisfactory results. Technical Development Fund (TDF) component (Section B, para # 7 of main text): US $100 million of the loan was to support increased and rapid import of various forms of technology required for upgrading. Around 400 firmls used this facility as a one-stop-shop for importing technologies. A wide range of technologies in diverse sectors were imported by firms of all sizes; however medium and large firms predominated. The project came in at a tiime when foreign exchange limitations were severe and rules for imports of technology were highly bureaucratic. By supporting the TDF, the project was able to bolster the speed of reform towards greater liberalization. Indeed, against the backdrop of the TDF, the Government of India liberalized import policies considerably, beginninig July 1991, rendering this component redundant. While $53.5 million was eventually used for this component, $11.5 million was reallocated to the Pilot Software Fund and S 15 million to traditional VC, $20 million was canceled. Veentlre Capital (VC) component (Section B, para # 8 of main text): Numerically, the project achieved more thlan set out in its initial objectives. The project supported six venture capital companies (VCCs) which managed ninle funds. They invested in over 300 companies and the returns have been around 18-20% on average. Most of the institutionis set up adopted the innovative, hands-on, risk-taking approach that venture capital requires, and sponsored some exciting and valuable technology based projects. In fact, many of the ventures would not have taken off in the absence of VCCs because of the lack of other souIces of technology finance. Those projects that may have been undertaken would have either taken much longer, or th2lir scope significantly curtailed. In that sense, the project in essence launched the VC industry in India, Its indirect contribution may have been equally important, in influencing the 'culture' of risk finance and enabling foreign venture capitalists to be attracted to India. TI component (Section B, para # 9 of main text): The project supported 33 loans in 30 Tls instead of the target of 12-15 institutions. Of these, 7 loans supported new TIs, mostly private contract or cooperative research labs or technology service institutions. The project provided loans rather than grants, forcing the TIs to focus on financial management and rates of return. Also, the loans were made conditional on the launching of internal institutional changes. A number of research institutes were able to modernize and upgrade their physical facilities in several importanit areas. This enabled them to enter new areas of research and re-orient themselves to serve industry. Most of these institutions have raised the proportion of the budget that comes from their own earnings significantly. The institutional re-orientation towards market friendly postures has been remarkable (see para #1.13, Boxes I and 2 of borower input for examples). Sponsored R&D (SPREAD) promotion fund (Section B, para # 10 of main text): A total of 98 projects in 96 companies borrowed under the SPREAD program. Nearly two-thirds of these have never undertaken any R&D activity before, and around 80 of them had no previous joint activities with a TI. Furthermore, almost 90 percent of the companies borrowing under SPREAD were of small or medium- scale. Many of the technologies developed are complex and demanding and a sample of the projects suggests that most involve substantial technological effort and introduced completely new products or processes to India. They mostly involve replacing expensive or closely held new foreign technologies with viable, adapted and much cheaper local counterparts. Also, exports often resulted from SPREAD projects.  iii The immediate benefit of SPREAD for borrowing firms came from expediting the identification of Tls or researchers for the proposed project; the clarification and credibility which ICICI's appraisal brought to the firms' proposal; and the intermediary role of solving problems between Tls and firms that ICICI performed. The larger- benefits of SPREAD include new or improved products or processes which would have gotten to market much more slowly or not at all or through a more costly route. Other benefits are the positive impact on new projects being developed in collaboration between firms and Tls; and the confidence of the various parties (firms and Tls) in their abilities to produce practical results and work together. Many of the firms have stated that they will go back to lils or universities for research collaboration in the future. Project Sustainability The project made a positive contribution to industrial technology development in India. It helped shape the direction of reform in technology institutions, launched the venture capital industry, and started a culture of collaborative research between firms and technology institutions. Perhaps more importantly, it has launched a process that has enormous externalities that will feed into longer term developments. However, concerns regarding the momentlm of reform in the absence of the committed intermediaries and Bank funds are expressed in Section G of the main text of this document as well as in the borrower input in paras # 1.28/1.29 and # 3.9. Key Lessons Learned The project offers some important overall lessons for the design of ITD projects in other developing countries (refer Section 1. paras # 25, 26 and 27 of main text): a) Success in restructruing public sector institutions resulted from identification of market failures and in-built tight monitoring, training, and incentives for participants to 'own' the projects. Such monitoring is demanding for the Bank and internediary institutions (see section E, paras # 14 and 15 of main text for discussion of borrower commitment and performance). Strong leadership in the beneficiary institutions played a key role in achieving success. b) The broader policy context within which ITD is placed is crucial to its success. The Indian project was located within a liberalization episode, when growing internal and international competition forced firms to improve their technologies and innovate. While withou.t this backdrop much of the impact may have been lost, the project did not wait for the entire reform process to be either initiated or completed, but accepted the limited reform that had already taken place and played the role of a catalyst in accelerating the momentum of the reform effort further. c) The role of an agency such as the World Bank iis important in accelerating and augmenting such reform effor-ts because the Bank has credibility and the experience necessary to play the role of an honest broker between the science & technology institutions, industry, and the Government. d) A strong positive response also depends on the existing base of industrial and technological capabilities. India's large supply base responded to technological policy stimuli and was able to enter advanced technologies even at fairly small scales. e) A strong and committed intermediary is crucial to the success of a complex project. In the Indian experience the intermediary possessed and further cultivated the skills and commitment necessary to create a market lor technology finance. f) There is a fairly long 'learning' period for all participants in such projects, including for the intermediary agency. Where a culture of technology upgrading and collaborations has to be created among firms and R& D institutions, it may be. typical to see slow starts (reflected in slow disbursements) in the beginning, but the right incentives, training, and advice can help build momentum. Future Operations The response to SPREAD shows that interventions of this nature are more useful in stimulating industry to spend more on R&D than tax incentives. Much of Indian industry is unable to afford the cost of R&D and needs soft funding support for industrial technology development. Continuation of this program in its present or modified form  iv will allow efficient usage of the existing R&D infrastructure through joint projects with industry. The expertise built up in the Technology Group of ICICI could be built upon and augmented, perhaps through its transformation into a full-fledged organization on its own, like the Korea Technology Bank. Small-scale industry does not and cannot seek alliances with formal R&D institutions, however industry-inclined the latter might become. The needs of small industry may also be more routine -- in the area of quality promotion and standards adherence, which need to be supported by different organizations that are able to target clusters ot firms which face similar constraints. New and small technology-based companies need special attention once the support for the domestic VCFs through the bank project comes to an end. The process of bringing an industry-oriented approach to R&D institutions in India has begun well, but much remains to be done. Training of scientists in CSIR labs needs to be continued over a longer period of time so that the ability of scientists to respond to the new incentives is enhanced. Many more institutes need to be challenged wvith reform for the culture gap between science and industry to be bridged. Industry needs to be encouraged to use scientific institutions to solve industrial problems and this requires a continuation of the education, awareness- raising and training efforts. Similar efforts need to be conducted in universities and engineering colleges so that educational programs can be more industry focused. Finally, if local inventive efforts are to be encouraged and nurtured, and the absorptive capacity of technology transfer from abroad to be strengthened, the role of intellectual and property rights (IPRs) will need to be faced squarely While India is a member of the WTO, and legislation that makes India a signatory to adopting stronger intellectual property right regime is due in Parliament, a lot will need to be done to bring a greater understanding of the role of IPRs to both the scientific community and industry. Compliance with internationally accepted IPR norms will mandate non-trivial investments in the enforcement infrastructure on the one hand, and a critical role lor education, training, and dissemination of information on the other, which in turn would stimulate technology gener-ation and diffusion. Foor borrower's suggestions on future operations refer "Unfinished Agenda" paras # 1.28 through # 1 .32 of borrower input section.  INDIA INDUSTRIAL TECHNOLOGY DEVELOPMENT PROJECT (Loan 3119-IN, Credit 2064-IN, Japan Grant 2700-IN) Part 1. PROJECT IMPLEMENTATION ASSESSMENT Project Identity Project Name Industrial Technology Development Project Loan no. 3 119-IN (US $145 million) IDA credit no. 2064-IN (US $55 million equivalent) Japanese Grant no. JPN-2700 (US $2.5 million equivalent) Country India Sector Financial Sector A. PROJECT OBJECTIVES Project Objectives I. The overall objective of the project was to facilitate the acquisition and development of technology by industrial firms in India. It aimed to promote within industry a balanced recourse between existing domestic technological capability and increased and easier import of foreign technology; and to reduce the finanicial constraint to new technology ventures and the foreign exchange constraint to technology import. The project lhad three components: a) Helping small, innovative firms obtain financing by supporting the development of venture capital (VC) in India. This $ 45 million loan component originally aimed to support four venture capital entities (later expanded to six), finance perhaps 150 enterprises, lead to the development and commercialization of many new products ancl processes and earn returns on investments of 15-18%. b) Upgrading research and standards institutions to provide technology services to industry and promoting collaboration between industry and research institutions. This technology services component was expected to upgrade the facilities and build the industrial support programs of 12 - 15 technology institutions (TIs) for S 40 million: and provide $ 15 million to about 60 firms to finance R&D projects contracted with TIs. c) Financing the import of technology and technical know-how by industry by supporting the expansion and easier access by companies to the fast-track Technology Development Fund (TDF), with $ 100 million loan, expected to benefit between 600 and 800 firms. This 'policy finance' was agreed to after the Government removed some major limitations from the TDF, in 1988-89.  2 Policy Context (historical, and preceding the project) 2. The Indian Government was one of the first in the developing world to implement a comprehensive plan for industrial technology development (ITD), aiming to promote institutions and provide incentives for formal research activity. Beginning in the early 1940s, but principally since independence, many institutions were built largely within the public sector to support the development and diffusion of technology. Their activities encompassed virtually all those generally found in the industrialized countries and advanced newly industrializing countries (NICs). They included over one hundred research and development (R&D) institutes, as well as institutions responsible for standards and product certification; patents and other forms of intellectual property: technology diffusion to small-scale industry; technical consulting at the state level; and regulating the inflow of foreign technology. 3. Flowever, this strategy was not successful in catalyzing ITD in Indian industry. Technological effort remained predominantly in the public sector, and the R&D institutes remained largely divorced from direct involvement in productive activity. Technology imports were also restricted. The controls, first launched in the 60s in the wake of the tight foreign exchange controls, became more stringent during the 70s. Over this period, lndia industrialized with the lowest relative dependence on foreign technology of all the leading developing countries. 4. Major policy changes were first initiated in the late 80s and continued during the early 90s. These inchlded gradual but significant trade liberalization; the lifting of various internal regulations on industrial growth; financial sector reforms; and a more positive attitude to foreign direct and portfolio investment. A major shift in science policy required that public R&D institutes and laboratories turn more commercially-driven and self-supporting. Some of these changes deserve elaboration. * Liberalization of the domestic regulatory system removed the licensing requirements for investments up to a certaiin limit, reduced the number of products reserved for production by small scale industries, eased the monopoly regulations by increasing the threshold level, and expanded the product areas in whicih firimls classified as monopolies could invest. - Gradual trade liberalization in the late eighties paved the way for liberal technology imports which came into full effect in the early nineties, leading to a marked jump in the number of foreign collaborations. New guidellines which enabled the import of technologies removed many of the previous restrictive conditions. providing a boost to technological competition among firms. The processing of applications was streamlined. and restrictions on capital goods imports relaxed. * On the recommendation of the Abid Hussain Committee it was stipulated that one-third of the revenues of the CSIR network of laboratories should be generated from non-budget sources by 1992-93 and 40% by 2000: that industry should be represented on the governing board of the CSIR; that links should be built with design engineering firms; that the institutes do their own marketing; and that individual researchers be encouraged to conlsult for industry. The management of the institutes was strengthened, and some experienced industrial managers were attracted. These reforms started to yield some benefits quickly, and within a year or two a change of orientation was evident in some CSIR laboratories. The better managed ones showed a significant increase in their earnings based on the re-orientation of their activities to the needs of industry. 5. As a result of these policies (and accompanying expansionary macroeconomic policies), industrial growth accelerated from 6 percent in the early eighties to 9 percent per year towards the end of the decade. While this rapid growth was partly in response to the expansion of public spending which created demand for industrial products. the improved lpolicy environment contributed substantially by enabling firms to adjust the volume and composition of output to meet this increased demand. The technology project, while aware of the many remaining deficiencies, was based on this improved incentive structure which had already demonstrated positive signs of its effectiveness.  3 Evaluation of Objectives 6. Given this liberalized policy environment, was the technology development project still useful for Incdian industry? The evidence suggests that it turned out to be more rather than less successful than originally expected: the failures it was addressing in capital, information, technology and institutional markets were real, and the modalities devised for remedying them well conceived. Policy changes that directly affected the project such as import liberalization and the determination of the government to make scientific institutions financially more self- supporting, and, more generally, the increasingly positive attitude to the private sector and foreign investors, all reinforced the benefits of the project, suggesting that its initial concept was sound. The project also helped in some measure to ease various growing pains, when the effects of liberalization began to come to the fore. B. ACHIEVEMENT OF PROJECT OBJECTIVES 7. Technical Development Fund component:1 US $100 million of the loan was to support increased and rapid import of various forms of technology, thus doubling the Fund's capacity. Support was provided solel lfor imports required for technology upgrading and whichi were approved under a 'fast-track' system. * Around 400 firms used this facility as a one-stop-shop for importing technologies. * Mainly three types of technology transfer mechanisms were supported: licenses, technical drawings, and capital goods imports. A wide range of technologies in diverse sectors were imported by firms of all sizes: however. medium and large firms predominated. Timing was an important asset in the achievements of this component. The project came in at a time when foreign exchange limitations were severe and rules for imports of technology were highly bureaucratic. By supporting the TDF, the project was able to bolster the speed of reform towards greater liberalization. * Indeed, against the backdrop of this improved. TDF facility , the Government of India liberalized import policies considerably, beginning July 1991, which meant that a large part of the original US $100 million was no longer required under the technology import component. US $53.5 million was eventually used for this component, US $ 26.5 million reallocated to the VC component (US $11.5 million to traditional VC and US $15 million to a special VC fund called the Pilot Software Financing Facility) and US $20 million canceled in two installments, once in 1994 and then in 1997. 8. VC component: US $45 million of the loan (an additional $ 26.5 million was allocated later) was to be relent by the government to four financial institutions to finance part of their equity investments in the venturIe capital funds established by them or their subsidiaries (refer para # 2.1 of borrower input section for details). Each VCF would consist of investments made by the respective financial institutions as well as when feasible, fuilds raised from public, institutional, and foreign investors. One third of each VCF investments came from Bank ftinds.2 LNumerically, the project achieved more than set out in its initial objectives. The project supported six ventuLre capital companies involving six VC management companies and nine funds: Technology Development and Information Company of India, Ltd. (TDICI), Gujarat Venture Finance Ltd. (GVFL), Andhra Pradesh Venture Capital Ltd. ( APVCL), Canara Bank Venture Capital Fund and (CANVCL) were the original four. Two additional funds, IL&FS Venture Capital Funcl (IVC) and Risk Capital and Technology Finance Corp. Ltd. (RCTC) were added in 1993. They have invested in over 300 companies and the returns have been around 18- Limited information could be collected on this component at the time of preparing this ICR on account of the fact that this component had been closed for several years. 2 While the IFC joined the Bank mission and contributed to one existing fund (TDICI), it could not participate more fully because no foreign investors were interested.  4 20% on average, which is considerably better than what is earned in VC activities during its infancy.3 Total investments have been about $60.4 million instead of $ 45 million that was planned, and in local currency the difference between planned and actual would be higher owing to the devaluation of 1991. The project in essence launched the VC industry in India by building upon the existence of one VC entity and encouraging the framing of appropriate policies and incentives. Currently, around Rs. 30 billion is being managed by this industry as opposed to Rs. 2 billion in 1990. Its contribution, in terms of influencing the 'culture' of risk finance and enabling foreign venture capitalists to be attracted to India was equally if not more important than the narrow numerical contribution. Prior to this project the culture of VC did not exist in India4. but was developed through technical and management training for VC managers and seminars to riaise awareness among .industry. Through the various internships, study tours, and extensive training programs, a pool of skilled talent has been created for the VC industry. Programs are also in place now that will offer training for venture capitalists in the future (refer para # 2.4 of borrower input section for review of overseas training program). * Many of the ventures would not have taken off in the absence of VCCs, as other sources of technology finance were simply not available. Those projects that may have been undertaken would have taken much longer, or their scope significantly curtailed. * Protected domestic markets are no longer the driving force in technology-based investments - even when the main market is domestic, which is natural for a large country like India, the technologies used are expected to be competitive with imports and with multinational entrants. The newly liberalized environment has allowed many enterprising technologists to develop competitive products that have good potential in export markets. The firms' awareness of current technological trends, the high level of sophistication of many projects, and the ability to 'reverse engineer' complex technologies while adapting them to very different raw materials or product specifications, are also impressive. * The VC institutions have adopted the innovative, hands-on, risk-taking approach that venture capital requires. and have sponsored some exciting and valuable technology based projects. Examples of these projects are provided in Section I of the ICR and the attached borrower's input. However, over time these funds have tended to adopt a more risk-averse approach, moving away from financing technology based start-up companies to relatively safe investments in established companies. * The Software Fund was a little slow to get off the ground but the fund claims a solid portfolio of excellent companies that would not have been able to attract either VC or traditional banking finance.5 In the limited period of around nine months of investment activity, nine investments aggregating US $7.54 million were made. Given the recent formation of this fund, an in-depth evaluation of the firms assisted by it has not yet been undertaken, but at least one of its investee companies has been an outstanding success, and one other has strong potential. While the Fund was the first of its kind, the fact that similar software funds are now being planned' after the close of the Bank project is one indication of the usefulness of the facility created. While in the earlier years the returns were much higher, in recent years the declining stock exchange has maintained very low multiples and the market for initial public offerings has been almost moribund. 4 While one VC company already existed (TDICI), it was considerably reshaped and influenced by the project to reflect a more technology based orientation. 5 Because software companies lack collateral and have capabilities not understood in the banking community, they require other assistance. On the other hand, the Software Fund was not a pure VC fund either, since there was not a very large up-side scenario. It was aimed at potentially good companies that were unlikely to generate 40-50% rate of return but needed a range of support apart from equity and advice. 6 A large new foreign fund is being formed with special funds earmarked for the Software industry.  5 Technology support services: TI component 9. Of the US$55 million IDA credit (amounted to $ 61.2 million owing to SDR appreciation), $US 40 million was to finance i) technology service institutions through equipment for pilot plants, laboratory and testing facilitates; ii) common R&D facilities with industry; iii) technology collaboration fees; iv) training and exchange programs with industry; v) upgrading of management systems, safety and marketing capabilities; vi) other R&D expenditures such as special samples, materials and consultant fees. The project was essentially targeted to improve the functioning of the Council of Scientific & Industrial Research (CSIR) and its constituent laboratories7 (refer para # 1.2 of borrower input section for issues identified in the functioning of technology institutions). Of the $40 million, $15 million was earmarked for restructuring CSIR, and the remaining $25 million for other institutions. * The project has supported 33 loans in 30 Tls instead of the target of 12-15 institutions. These included nine CSIR laboratories, nine labs under other govemmmnt departments, eight research foundations, five laboratories set up by industry associations and two national technology training institutions. * This component built upon the Abid Hussain Committee proposed reforms and demonstrated via examples, the ability of scientists and technology institutions to respond to changed incentives. By aiding the first few steps of this new regime this component gave the reform process the momentum and commitment it needed to gain wider acceptance.