The importance of innovation: What India must do to remain ‘cutting edge’

By Jatin Bavishi

In the recently released Global Innovation Index (GII), India moved to the 60^th position—up 6 positions from 66^th last year. In 2007 when the GII was first released, India was at 41. The sliding of ranks doesn’t mean that India’s position is worse than that in 2007. Rather, this is because the GII parameters have changed over the years, as its creators have continued to tweak and improve the methodology. Regardless, one thing has become clear: India and other Asian countries are improving in innovation.

India’s global innovation standing

Innovation is seen as an important factor that contributes to the long-term development of an economy. The history of civilisations has been a story of human beings learning newer, easier, and more efficient ways of carrying out mundane but necessary activities. Under capitalism, innovation requires definite public policy to ensure it happens continuously.

Over the years, India has surpassed most other middle-income economies in areas like the number of science and engineering graduates, gross capital formation, and research talent on the input side. On the output side, it has improved in quality of scientific publications, high-tech and Information and Communication Technology (ICT) services exports, creative goods exports, high-tech manufacturers, and IP receipts.

A simple eyeballing of the Innovative Index would show that India’s innovative capacity is highly biased in favour of aspects like ‘business sophistication’, ‘market sophistication’ and ‘knowledge and technology outputs’;  the ranks are 55, 39, and 38 respectively out of 127 countries that were studied. However, India lags behind on ‘creative outputs’ with a rank of 85. The report attributes this to India’s political, business, and regulatory environments being unfavourable to innovation, along with infrastructure bottlenecks.

The communication and innovation revolution

At the dawn of the 21^st Century, India seized the opportunity of the US-initiated communications revolution. At the same time, India liberalised the rules for outsourcing which contributed to a ‘boom in the back-office operations of the leading financial firms’, according to R. Nagaraj, who is associated with the Indira Gandhi Institute of Development Research (IGIDR) in Mumbai.

Capital flow increases to emerging markets like India are determined by global supply factors such as the low US interest rates after the dot-com bubble burst and the willingness of global investors to take risks in investing in emerging market economies. As the US and Japan maintained a loose monetary policy to revive their domestic economies, international investors funnelled their capital to such emerging markets.

India’s edge

At this international juncture, three factors particularly gave India an edge. Firstly, the social capital—or social network—of Indian professionals working in Wall Street firms, Indian academics in US universities, and Indian entrepreneurs, reaped huge returns. Secondly, the labour force overall developed a good grasp of English, the dominant communication language of the ‘developed’ world, particularly the US. This was an ironic outcome of India’s colonial experience. Thirdly, this generation grew up under the aegis of highly subsidised, yet high quality, state-sponsored educational infrastructure. This was all on top of India’s abysmally high poverty rate, which acted as an anchor to a low cost of living. All of these factors combined to create a remarkable success story, igniting the popular imagination of India becoming ‘the world’s back office’.

Changing policy to meet new global goals

India boasts of a labour force which is not just skilled, but also cheaper than its global counterparts. This formula worked when business cycles favoured cost minimization as the main objective. However, recently the scales have tipped and revenue maximisation has become the new objective. Barring the limited few in the top brass, the Indian labour force is known to have a comparative advantage in reverse-engineering (i.e. in reproducing a product but at low costs). Under the new global objective, the desired skill is creativity and ability to innovate which caters to customised needs of buyers. This new objective is forcing a reevaluation of current policy.

This also comes at a time when xenophobia and a general economic slowdown are gradually pushing economies to turn inwards. India’s reliance on top-heavy innovation might be unable to produce sufficient yield in the coming years. Consequently, a revamp of the country’s innovation policies is in order.

Avoiding complacency

In a recent blog post, Binny Bansal, co-founder of Flipkart, reiterated the importance of innovation in a country like India. Notably, he emphasised that this innovation should be such that the downtrodden are empowered to be more productive. In the same blog, he mentions a few exemplary domestically-developed innovations such as the Indian Space Research Organization’s (ISRO’s) aeronautical products, or Flipkart’s Cash-on-delivery model. Such items are based on utilising the strengths of Indian demography and values. Hence, “India doesn’t need moon-shot ideas like drones, self-drive cars, and domestic robots for now”, he adds— something which might sound ironic given his current position as the Flipkart CEO.

While India’s improvement in the Global Innovation Index might be seen as a good sign, the country should not be complacent. The fruits of innovation have not reached equally to different sections, and it is imperative to quickly develop a ‘grass-root’ or ‘bottom-up’ approach lest India fall behind.

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