Manuel Bueno

How to Stimulate Innovation in India?

indian innovationThis is exactly the same question that was asked by the World Bank last year and I have recently had the chance to read their subsequent report ?Unleashing India’s Innovation?.

All in all it was an interesting reading with a complete analysis of the main innovation levers in the country, although sometimes I felt it was much too vague in its recommendations.India is becoming a global innovator for high-tech products and services. However, it is well-known that the country is underperforming relative to its real innovation potential. This is quite puzzling taking into account the fact that India’s stock of scientists and engineers engaged in Research & Development (R&D) is among the largest in the world.

The problem, however, is that the informal sector accounts for roughly 90 percent of the workforce (less than 3 percent of the Indian workforce is employed in the modern private sector) and is often characterized by underemployment, low productivity and low-skilled activities. In fact, it is estimated that only 10-25 percent of general college graduates are suitable for employment.

According to the World Bank, to unleash its innovation potential India has to develop a strategy based on:

  1. Increasing competition. Since the Indian private sector was opened up in 1991, those sectors most open to competition have tended to invest more in R&D.
  2. Strengthening efforts to create and commercialize knowledge, better diffusing existing knowledge and increasing the capacity of smaller enterprises to absorb it. It is estimated that if all enterprises could achieve national best practices based on knowledge already in use in India, economic output could multiply by more than five.
  3. Fostering more inclusive innovation by promoting more formal R&D efforts for poor people and more creative grassroots efforts, and by improving the ability of informal enterprises to exploit existing ones. Existing pro-poor initiatives need to be scaled up. Public policy needs to play a bigger role here, creating incentives for pro-poor early stage technology developments (like Kickstart?s MoneyMaker irrigation pumps) and commercialization by the formal sector. Additionally, India has to strengthen Intellectual Property Rights leveraging traditional knowledge into revenue streams and preventing international patenting of India-based traditional knowledge.

To increase diffusion and absorption of existing national and global knowledge, India will need to increase openness to trade and Foreign Direct Investment and leverage the talents of the Indian diaspora. It is estimated that 2 percent of India’s population, 20 million people, live abroad, earning the equivalent of two-thirds of India’s GDP.

Also, to improve the ease and cost of accessing and sharing information and knowledge, information and communication technologies should be made more available to rural and urban users. Teledensity in Indian urban areas is 40 percent compared with 2 percent in rural areas. The value of ICT infrastructure to Indians and the lack of alternatives is shown by the speed at which phone services are taken up when made available. This has also been proved in our publication ?The Next 4 Billion?.

Some Indian manufacturers are already going down this road. They have often focused on delivering low-cost products to previously untapped markets by innovating in their delivery mechanisms, as with Tata Motors and its low cost cars, innovating in their outsourcing as with Bharti and its ultra-low telephone prices, and innovating in its supply chains, as E-Choupal has done with its cyber kiosks.

However, despite these pockets of innovative activities, the World Bank states that innovation remains concentrated in a small segment of the economy. To sustain competitiveness, economic growth, and rising standards of living over the long term, India needs to aggressively harness its innovation potential. BoP businesses will be at the forefront of this challenge.