India holds immense potential to emerge as innovation leader

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India holds immense potential to emerge as innovation leader

Friday, 04 November 2022 | KLN SASTRY | JADHAV CHAKRADHAR

Innovation, the introduction of new technologies, has been the main source of economic progress. Innovations help to improve human and capital productivity, facilitate rapid increases in output and it affects the wellbeing of the people. The introduction of the steam engine is considered to be the beginning of modern innovation. The steam engine, electricity, modern medicines, space technologies, semiconductors, and modern 3D printing are some of the most important innovations that changed the course of human progress. Innovation policy, the process of generating and applying new technologies, has turned out to be the focal point of economic policy. Governments across the world have implemented a wide variety of programmes—from research grants and loans to venture capital and tax incentives—to encourage an innovative business environment and respond to market needs.

Innovation policies are important because of the spill-over effects generated by innovations. One company's research and development (R&D) activities might affect the functioning of other firms operating in the same industry or in different sectors, either domestically or internationally. It is well established that knowledge is a non–rival and only partially excludable good. However, any innovation is a risky undertaking. It needs to be accepted by the different stakeholders like the firms/producers who will produce the output using the new technology and the consumers who will use it. Also, the new technology should be subject to a Government regulatory framework. Most of the new technologies are a result of systematic coordination between the national Governments, academia, and industry. Risky innovation efforts raise the marginal cost of research and development (R&D), resulting in R&D underinvestment and eventually leading to market failure.


The World Intellectual Property Organisation's (WIPO) Global Innovation Index (GII) Report of 2022 has some interesting observations about India. India has made dramatic progress in climbing up the ladder of innovation, with its rank improving from 81st in 2015 to 40 in 2022. It ranks first among the lower-middle income countries as well as in central and southern Asia. Innovation initiatives in India cover a wide spectrum of areas like space technology, smart cities, universal healthcare and telecommunications. India's recent progress in vaccine development and COWIN application for COVID-19 vaccination are due to concerted efforts by the pharmaceutical industry and Government.

India made impressive progress when compared to Brazil, South Africa and the Russian Federation. The latter could maintain its position, while Brazil improved its rank significantly. China had the best performance, reaching the 11th position and becoming the highest-ranked country in BRICS. India, Brazil and Russia climbed their positions. However, South Africa declined by three positions in the ranking during 2018-2022.

Moreover, India has surpassed Vietnam (48th) to become the most innovative economy among lower middle-income countries. India’s progress in the last seven years calls for attention. India has emerged as the third biggest start-up economy in the world. As is well known, India is a leader in information and communications technology (ICT), ranks 12th in labour productivity growth and holds 14th rank in domestic industry diversification. India has four of the world's top 100 science and technology clusters, among which the Mumbai cluster has moved up by three ranks since 2015.While we have made good progress, we still lag behind many countries. This necessitates sector-specific policies that are designed to promote technological innovation. Innovation policy initiatives are important for improvements in factor productivity and economic growth.

The Covid-19 experience shows us that the Government needs to provide subsidised capital to foster innovations. In this context, India has some serious challenges before it can emerge as an important innovating economy. The academia-industry interaction is still very low in India. India scores low on the infrastructure (78), science and technology intensity (34) and business sophistication (54) and create output (52) with no important patenting activity undertaken by academia. Also, the diffusion of innovations is low, which slows down labour productivity and impairs the economy's long-run growth. The informalisation of industry and labour also pose important challenges to the innovation environment. Regional disparities also are a threat to the long-run growth of the economy. It is observed that the innovation policy in India could not effectively address the problem of high job retrenchment, declining funding to the venture capital and lack of feasible business plans. Additionally, failure to exploit the demographic dividend is perhaps the greatest of the shortcomings of India's innovation policy.

The provision of soft loans, subsidies and tax rebates might not be sufficient to mitigate the challenges of innovation. A strong inter-linkage between academic institutions and industry needs immediate attention. Also, the Government needs to provide incentives to promote and foster basic science research in which India is way behind the other leading countries. It is imminent that concerted measures are taken to convert the knowledge gained in the education and health sectors and to utilise this to other sectors. We conclude that India holds immense potential to emerge as an innovation leader, which calls for systematic institutional efforts with an aim to foster environment-friendly technology.

(Dr Sastry is retired Associate Professor, Chetana’s H S College, Mumbai. Chakradhar is Assistant Professor, Centre for Economic and Social Studies (CESS), Hyderabad)

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