Hi,
  I am planing to visit Germany from India on 21st Feb. I will be attending conference from 23-25 Feb followed by 2 months and one week research. I have applied for Schengen visa and submmited all required documents for Guest Scientist visa categorey, still German Consulate is asking me to submit ZAV letter. The processing will take longer time, and I wish to come back before 3 months. What to do?

By seeing your situation, I feel little complicated. Moreover, such letter is required for the person who comes for work. In your case since you come for conference which last for 2 months.(Quite strange). May be this is the reason they would have asked for such letter.

Please also visit the below link to have clear idea to apply for the ZAV letter. 
http://www.trust7.com/forum/-/message_boards/message/91569
All the best for you.

Hi, 
   Thank you so much for quick reply. Conference is just for 3 days while i will be doing research for 2 months. In my invitation letter it was mentioned that I will be given salary to work as student scholar. How long does it takes for ZAV document processing? 

I don't think less than one month is enough to get the ZAV consent + visa. I'd think that would take 3+ months. As far as I understand, they are giving you a salary and not a scholarship, that is why the embassy is asking for ZAV consent. They should change your income source to a scholarship or equivalent so that you can get a visa quickly.