California, with a population that is 1/33th of the population of India, has an economy of size that is comparable to that of India. As of FY16, the GDP of India is ~USD 2.26 trillion, while the GDP of the state of California is ~ USD 2.6 trillion. California is at the forefront of innovation and technology, providing a favorable ecosystem to promote innovation, with numerous technology companies, including Facebook, Google and Apple Inc., headquartered in California.
· California is considered to be the home of American innovation, providing constant inspiration, a culture of innovation, and a healthy competitive energy. California has a large number of good-paying, tech-sector jobs.
o California leads among states of the US in number of industries in which it has a higher proportion of employment than the US national average. A research study shows that California exceeds the U.S. average in 17 out of a possible 19 high-tech industries.
o The state boasts nearly 1.2 million tech-sector employees, a robust 7.2% of the workforce, making it number one among states of the US in number of employees and fourth largest as a percentage of the workforce
o On average, the wage in California is nearly two and half times more than the US national average wage
o According to a report by WalletHub in 2017, California was ranked 4th among states of the US in 18 “key indicators of innovation-friendliness”. It was ranked behind the District of Columbia, Maryland and Massachusetts.
o California ranked No. 1 among states of the US in venture-capital spending per capita
o California ranked No. 4 among states of the US in research-and-development spending per capita, behind District of Columbia, Massachusetts and Maryland
o California is ranked 1st among states of the US for number of patents issued per capita, almost 3 times the national average of USA
· The role of governments is critical in the promotion of innovation. Government policies play a critical role in the determination of where R&D investments will be made, and consequently where successful innovations occur and spur economic growth. Interventions promoting innovation in California include – creation of the Innovation and Entrepreneurship Unit under the Governor’s Office of Business and Economic Development, banning of non-compete agreements and hence promoting entrepreneurial growth, and recently announced proposed regulations for testing autonomous cars on public roads.
Indian Context
· "Jugaad", the poster boy of Indian innovation, is also a poster boy of what is wrong in the Indian innovation ecosystem and policy. Jugaad is a means of transportation in north India, powered by diesel/kerosene engines originally intended to power agricultural irrigation pumps. It has numerous benefits – helps in irrigation, in transportation of farm produce and in transportation of people. It is therefore a perfect example of innovation that leads to enormous asset optimization as the same asset is used for multiple purposes and does not lie idle. However, as per Government of India's Central Motor Vehicle's Act , Jugaad is an illegal vehicle. In spite of the product providing asset optimization, limited efforts were made by the Government of India to strengthen it and popularize it in the rest of the country and therefore its usage stays limited to north India and is subject to the vagaries of the whims and fancies of the local police in allowing it to operate on the roads.
On the other hand, Uber, which faced similar regulatory challenges globally and in India, was able to tweak the regulatory bottlenecks to enable it to survive and prosper. Uber could do that as their home government supported them from a regulatory perspective and allowed Uber to prosper.
· Innovations in science and technology are integral to the long-term growth and dynamism of any nation. According to the Global Innovation Index (GII) 2017, announced by the World Intellectual Property Organisation, India is ranked 60 out of 130 nations, up from Rank 66 in 2016.
· While Indian historic contribution to scientific knowledge has been significant, currently India under-spends on R&D, even relative to its level of development.
· According to the 2016 Global R&D Funding Forecast, global R&D spending was estimated to grow by ~3.5% in 2016. On the other hand, according to the Economic Survey 2017 – 2018, R&D spending in India has doubled in the last 10 years, growing at a CAGR of ~8% over this period. However, India’s R&D spending as a % of GDP has remained stagnant at 0.6% – 0.7% over this period.
· According to the Economic Survey 2017 – 2018, India’s spending on R&D is ~0.6% of GDP and is well below that in major nations:
o USA: 2.8% of GDP,
o China: 2.1% of GDP, and
o Israel: 4.3% of GDP
· The Economic Survey 2017 – 2018 observes that in India, unlike other nations, the central government is not just the primary source of R&D funding, but also the primary user of these funds. It is critical that state governments step up and increase spending on R&D, to target problems specific to their population and economies.
· According to Forbes 2017, there are 26 Indian companies in the list of the top 2,500 global R&D spenders compared to 301 Chinese companies. Further, 19 (of these 26) firms are in just three sectors: pharmaceuticals, automobiles and software. There is a need for greater private sector investments in R&D.
· The Economic Survey 2017 – 2018 advises doubling of R&D spending is necessary, with a much larger role by the private sector and universities. This also involves a more conducive regulatory environment.
· Number of publications:
o Between 2009-2014, annual publication growth in India was almost 14%. This increased India’s share in global publications from 3.1% in 2009 to 4.4% in 2014 as per the Scopus Database.
o The Nature Index publishes tables based on counts of high-quality research outputs in the previous calendar year covering the natural sciences. This Index ranked India at 13 in 2017.
· Patents:
o While, India is the 7th largest Patent Filing Office in the World (according to the World Intellectual Property Organisation), the number of patents filed in India is just ~7% of the number of patents filed in USA and ~4% of the number of patents filed in China.
o Also, India has a poor patents per capita
o There is a severe backlog and high rate of pendency for domestic patent applications. Given the rapid rate of technological obsolescence, the inordinate delays in processing patents penalizes innovation and innovators within the country.
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The Government of India has adopted numerous initiatives to promote innovation and entrepreneurship, including Start Up India, Make in India, Atal Innovation Mission (AIM), Support to Training and Employment Programme for Women, Jan Dhan – Aadhaar – Mobile (JAM) Trinity, Digital India, Stand Up India, among several other initiatives.
There are broadly 2 types of innovation models, depending on the main driver of innovation – the bottom-up approach and the top down approach.
Bottom-up approach to innovation:
· The bottom-up approach to innovation is demand-based and driven by affected communities, with effective incentivization for all stakeholders.
· In the bottom-up approach, the role of the government is to provide a conducive environment for research and for adoption of innovations.
· A stable, innovation-friendly regulatory framework is critical to encourage and promote innovation. Moreover, along with simplification of the regulatory framework, it is important to spread awareness on the related regulations; this ensures a level-playing field.
· An example of short-term innovation developed using the bottom-up approach is the Jugaad vehicle in India. An economy that achieves long-term innovations using the bottom-up approach is an innovating economy, and this is the ideal state for an economy to be in.
Top-down approach to innovation:
· The top-down approach to innovation is driven by companies or nations. Examples of short-term innovations using this approach can include electric vehicles, while long-term innovations may include Artificial Intelligence.
· China has adopted the top-down approach to great success. The central and provincial governments have funded numerous projects throughout the country that aim to produce advanced technology, cultivate high-level talent and nurture an entrepreneurial environment.
· Big data has become crucial to building China’s IT industry and China’s economic growth. According to the China Academy of Information and Communication Technology, investments promoting big data storage and use in 2015 were estimated at USD 1.89 billion. It is estimated that China's data volume will expand at an annual rate of over 50% and account for 21% of worldwide data by 2020.
· China aims to be the global leader in artificial intelligence (AI) by 2030.
o With more than 700 million internet users, China has an abundance of data to train AI-learning algorithms
o The existing mobile internet ecosystem provides the opportunities for AI researchers to collect and analyze big data related to demographics and behavior, and to conduct large-scale experiments
o The Chinese government has adopted favorable policies to inspire innovations, with several internet giants and rising start-ups adopting AI technology in their operations or investing in it.
o Local governments in China are offering incentives to encourage AI-related innovations.
§ Guizhou, earlier one of the poorest provinces in the country, has become known as China’s ‘big data hub’, with major internet companies setting up big data centers in the province.
§ Chongqing became one of the 1st municipalities of China to establish a bureau to support local AI development
§ Xiong’an New Area and Guangdong-Hong Kong-Macau Greater Bay Area have incorporated AI in their development plans
Global Context:
· Innovation requires continuous investment. Before the 2009 crisis, global research and development (R&D) expenditure grew at an annual pace of approximately 7%. GII 2016 data indicate that global R&D grew by only 4% in 2014, as a result of slower growth in emerging economies and tighter R&D budgets in high-income economies.
· The growth in global R&D investments is being driven by spending in Asian countries, in particular, China, Japan, and South Korea, which now account for more than 40% of all global investments.
· The top innovating nations are all high-income economies, with high GDP per capita, and these economies show mature innovation systems with robust institutions and high levels of market and business sophistication, allowing investment in human capital and infrastructure to translate into quality innovation outputs. The steps taken by some of these top innovating regions are:
o United Kingdom: the framework under the Department for Innovation, Universities & Skills (DIUS) has been performing well, especially on the lifelong learning and early-stage venture capital front. The Innovation Nation White Paper outlines the future of innovation in the country, providing intellectual leadership by suggesting new policies based on new imperatives. Highlights include provisioning for ‘hidden’ innovation and demand-driven ideas and fostering collaboration between public, private and non-governmental organizations (NGOs) to transform public services.
o United States: The US recognizes a vision and strong culture of innovation, and more importantly, successful commercialization of innovation in the country. The National Innovation Initiative (NII) outlines the next phase in this journey, focusing strongly on the three pillars - talent, investment and infrastructure.
o European Union: The European Union (EU) stresses on innovation at both the Union level as well as the regional level. For Europe 2020, the three priorities identified include smart growth, sustainable growth and inclusive growth. The EU’s Innovation Policy places strong emphasis on social innovation, recognizing it as “an important new field which should be nurtured”.
o China: China has shown tremendous rise over the past decade, and is currently ranked 22 in the Global Innovation Index 2017. This high ranking was on the back of strong performance in business sophistication and knowledge and technology outputs, presence of global R&D companies, research talent in business enterprise and patent applications.
Recommendations to promote innovation in India:
· The innovation strategy for India needs to have four very clear objectives:
o enable innovation at the bottom of the pyramid (for and by the next billion)
o create an innovation ecosystem
o focus on local capabilities for both near- and long-term benefits, and
o harvest existing innovations so that the benefits reach a larger potential user base.
This quadri-focal strategy is outlined in the figure below:
· To build the environment for innovation, the strategy needs to address the following factors:
o Ensure research converts to innovation
o Create a strong legal structure
o Enable business partnerships and incubation
o Encourage community participation
o Develop policies to incentivize innovation
· The legal and regulatory framework in India for promotion of innovation may be further strengthened to address the existing weaknesses. There are three requirements on the policy front for innovation:
o formulation of appropriate strategies for promoting technological development,
o identification of trade and fiscal measures to encourage technology development, and
o developing of a framework for standardization, certification and accreditation
· According to the Global Innovation Index 2017 Report, the weaknesses in regulatory ecosystem in India include ease of starting of business, ease of resolving insolvency, ease of paying taxes and environmental performance. India is expected to show improvement in these parameters, with the Government’s steps to address these issues, including adoption of the Insolvency and Bankruptcy Code (IBC) Code.
· The intellectual property regime in India is weak, and there is scope for strengthening. Innovators do not generally seek protection for their intellectual property unless forced to. For most entrepreneurs, patents and other forms of protection take too long and cost too much. Patent literacy is low and there is a lack of expert help in this field.
· Incentives in the form of capital investment, finance and favorable taxation are critical. Also, current procurement policies disincentivize innovation, there is a need for government policies to enable procurement of innovation. Technology and IPR framework, availability of a talent pool and better access to market are all necessary to foster innovation as well.
· Innovation is critical to the creation of high-quality, high-wage, sustainable jobs and economic growth. It is important to create an ecosystem to recognize a vision and strong culture of innovation, and also promote successful commercialization of innovation.
· As India emerges as one of the world’s largest economies, it needs to gradually move from being a net consumer of knowledge to becoming a net producer.
· India lacks structures and mechanisms to identify areas of innovation for a top-down innovation approach. This needs to be defined and created.
· Also, India needs to create institutional mechanisms to identify and promote innovations happening at the grassroots.
· As highlighted by the Economic Survey 2017 – 2018, the Government of India is the main source and user of R&D funding. It is critical that state governments, private sector and universities step up and play a greater role in investments in R&D.
· While research is integral to innovation, it is also important to convert research into meaningful innovation. This calls for a three-way understanding and collaboration between the public sector, the private sector and the academia. Collaboration between industry and labs, creating a framework for jointly-funded research, creating a functioning lab-less research capability that leverages the existing facilities in the private sector, universities and the government itself, and ensuring feedback for research are the other important factors.
