Incubating innovation in India
Creating an ecosystem that incubates and promotes innovation — converting undoubted potential to reality — requires policy intervention and funding by the government.
LIKE “faster, higher, stronger”, the motto of the Olympics, the magic mantra for most successful corporates is “cheaper, quicker, better”. A strong comparative advantage in any of these can be the key ingredient to doing well. Examples abound: low-cost airlines and the mobile telecom sector — symbols of India’s growth — demonstrate the advantages of being cheaper; “fast” food and courier companies have built their businesses around “quicker”; and many consumer goods owe their success to the claim of “better”. India’s IT-BPO sector has established global preeminence by combining all three and its cheaper-better-quicker formula has enabled phenomenal growth, resulting in exports of almost $50 billion this year.
Yet, while individual companies may thrive by specialising in one or more of the three drivers, this is not really sustainable. As standardisation and commodification take place — as they inevitably do, for most goods and services — there is a rapid convergence amongst all players on all three dimensions. Hence, for sustainable competitive advantage, one has to look elsewhere. The answer lies in innovation. It is innovation that can create differentiation or bring about radical changes in cost, quality or delivery time. Continuous innovation is, then, the best way of ensuring on-going, long-term competitive advantage, especially in the knowledge and technology sectors.
There is a considerable amount of research about the structural, systemic, human and other factors that make a company innovative. However, of broader interest is the challenge at the societal or country level: can one create — through policy or other interventions — an ambience that gives an impetus to innovation? This is a particularly important and pertinent question for India. It is knowledge-based sectors (including IT, knowledge-enriched manufacturing and agriculture) that are going to be increasingly important for India, especially if it is to capitalise on its demographic dividend by creating a large and well-educated work force. Also, knowledge industries with their higher value-add and lower energy-intensity will greatly aid government’s plan to reduce carbon emissions per unit of incremental GDP growth.
Innovation is particularly pertinent for India because the massive problems in health, education, livelihoods and food security cannot really be solved by conventional and incremental-change approaches; they need innovative and creative solutions that ensure step function growth and radical change. Fortunately, we have the advantage of four key innovation-driving factors: democracy, demography, diversity and adversity. The last needs no explanation — it is what most Indians have experienced for centuries and is a major stimulus for out-of-box thinking. While adversity is, hopefully, a rapidly eroding “advantage”, the other three are India’s long-term and unique 3D advantage.
Few countries have the rich diversity that habituates Indians to differences in language, ethnicity, religion, cuisine, dress and appearance. It is but natural, then, to accept diversity in thoughts and ideas. Democracy — especially India’s raucous, cacophonous, chaotic version — ensures that all shades of opinion and ideas are voiced. Finally, the large and growing proportion of young (the “demographic dividend”) ensures that the open-minded and rebellious — change drivers and creative minds — have a major voice.
TWO countries, outstanding innovators, have “created” the 3D conditions: both Israel and the US have used immigration as the vehicle for ensuring diversity and a younger demographic. It is hardly surprising that creativity (even beyond technology) flourishes in California, with its waves of Japanese, Korean, Chinese and Indian immigrants. Israel, through its encouragement to Jewish immigration from all countries, has created an ethnically and culturally diverse population (including, by one estimate, over 200,000 people from India; a far greater proportion of the total population than in the US).
These factors do provide fertile soil for creativity and innovation, but how to ensure the planting of seeds and the nurturing of the shoots? The US has accelerated innovation through tax regulations that encourage venture capital, and laws (like the Bayh-Dole Act) that facilitate transition of academic research to the commercial world. The result has been epicentres of innovation like Silicon Valley, based on plentiful private seed capital and technology from universities. In Israel, the government has played a more direct role, particularly through the office of the chief scientist (OCS).
OCS provides high-tech start-ups with seed funding, which is treated as a grant (and so can be written off). Its seed funding of less than $100 million a year has created an ecosystem which has produced billion dollar companies and given Israel a dominant position in many vital high-tech fields including, particularly, security software. Other vital factors have been the high investment in R&D (4.5% of GDP, compared to less than 3% in the US and under 2% in India) and easy transfer of technology from the defence sector to the commercial world.
India has much to learn from these examples if it is to become — as it must — a major global hub for high-tech innovation. A huge increase in R&D investment — by both the government and the private sector — is essential, as are tax laws that encourage this and provide an impetus to seed funding. Government could kick-start large-scale seed funding by setting up a grant-making seed fund for high-tech with a budget of Rs 1,000 crore per year, to be administered by a non-governmental group of industry and academic experts. Government must also move quickly to leverage and monetise or utilise the R&D and embedded intellectual capital that is locked in R&D institutions of the government. CSIR has made a start through the innovative move of creating a commercial arm (CSIR Tech). This for-profit holding company will act as the conduit to funnel CSIR intellectual property to private commercial ventures, with its scientists permitted to be part owners.
Other government R&D organisations — including those under the space, atomic energy and defence departments — must do something similar.
To be a powerful country, India must be in the forefront of the knowledge and technology world; to be competitive and prosperous, it must be innovative.
Creating an ecosystem that incubates and promotes innovation, converting undoubted potential to reality, requires policy intervention and funding by the government.