Recent Reforms Have Put Innovation On Centre Stage, But There Might Be Some Time Before We See Results

There is no doubt now that innovation has become mainstream in India's development dialogue. India's growth story is evolving, with innovation and entrepreneurship becoming an increasingly important part of its vision. The keywords "Entrepreneur" or "Innovation" have been prevalent in many of the Prime Minister's recent speeches. Strong steps are indeed being taken to promote both.

India's focus on fostering innovation is not new. As pointed out in the NITI Aayog's three year Action Agenda, "While the National Innovation Foundation was set up in the year 2002 to fund grassroots innovations, India's Science and Technology Policy of 2003, which brought Science and Technology together for the first time, emphasized on the need to invest in research and development (R&D) for creating a national innovation ecosystem". Furthermore, 2010 - 2020 was declared the decade of innovation by the then Prime Minister of India. Under the Atal Innovation Mission, more than 900 Atal Tinkering Labs have been set up. International collaborations like the India-Israel Industrial R&D and Technological Innovation Fund, the Tech rocketship Awards with the United Kingdom, among others are giving innovators across India access to the global markets and practices.

Entrepreneurship, an integral part of an innovation friendly ecosystem, has also been one of the key focus areas. In January 2016, the Startup India Initiative was launched. It laid out 19 Action Points aimed to develop a global startup ecosystem. Various aspects of this initiative are being continually tweaked on the back of consistent feedback from the private sector. The Alternative Investment Policy Advisory Committee (AIPAC) constituted by Securities and Exchange Board of India (SEBI) in 2015 and chaired by Shri. N.R. Narayana Murthy is a great example of the Government and the private sector working in tandem to weed out the issues related to startups (in this case, alternative investment funds). Furthermore, the Government has rolled out the MUDRA Yojana which has sanctioned 1.2 lakh crore in loans as of 8th December in FY 2017-18. Furthering the Centre's focus and support, around 17 States / Union Territories have launched startup and innovation policies. Recently, India hosted the 8th Global Entrepreneurship Summit in Hyderabad, an event which brought together around 1,500 entrepreneurs, investors, business representatives etc. from around the world. As a testimony to all these efforts, India is now the world's third largest startup ecosystem.

In addition to all the government support, India is at a stage where it presents a number of opportunities for entrepreneurs and innovators to flourish. For e.g. India has overtaken the United States to become the second largest smartphone market in the world. At over a billion people, we have the world's largest biometric identification database. Furthermore, with over 450 million people online, we have the world's second largest internet population. As of 10th December 2017, 2.5 lakh kilometres of optical fibre covering 1.05 lakh gram panchayats (GPs) has been laid. Out of these c.82k GPs are service ready. We also have one of the youngest workforces in the world.

Despite all the positive support and conducive environment, the quality of innovation coming out from India still leaves much to be desired. Persistent efforts to promote innovation over the years do not seem to have resulted in a globally relevant ecosystem. As pointed out in NITI Aayog's three year Action Agenda, India has historically been a country which has led global innovation in a diverse range of fields including "urbanization (Indus Valley Civilization), metallurgy (Iron Pillar of Delhi), Algebra (invention of the Zero) or Science (Raman Effect) among many others".

Let us examine a few indicators. These will not paint the whole picture, but might point us in the right direction. The graph below shows that the % of High-Technology exports as a % of total manufactured exports has remained stagnant in India at around 7% since the turn of the century. This is low compared to other developing countries such as Vietnam and Brazil.

A statistic that gives an indication of R&D activity is the number of patent applications per million population. The chart below compares India and China since 1995. The involvement of Chinese citizens in R&D activity considerably improved from 8 applications per million in 1995 to 706 in 2015. In contrast, India's growth from 2 applications per million population in 1995 to 10 in 2015 is less impressive.
 
Furthermore, even our large startup ecosystem has been accused of producing "me too" or "copycat" models of their Western counterparts. And finally, despite all the efforts we moved just up one spot, ranking 68 in the 2018 Global Entrepreneurship Index. The index scores 137 countries across 14 pillars that constitute a healthy entrepreneurship ecosystem.

Does this mean that innovation policies are ineffective? 
It looks like the recent push from the Centre and the States is bearing fruit. We are beginning to see inspiring examples of innovation sprout across India. For example, a few weeks ago students at the Indian Institute of Technology Madras broke the Asian record for deploying the largest number of robots for sweeping an area. In February 2017, the Indian Space Research Organisation launched 104 satellites, setting the world record for the largest number of satellites in a single mission. As the ecosystem matures, less startups are focusing on vanity metrics (like Gross Merchandise Value etc.) and more are solving targeted problems in niche areas.

Furthermore, we should appreciate that developing an innovation ecosystem is a slow process. In a large number of areas in policymaking, the timelines of achieving outcomes for policies are somewhat predictable. For e.g. reducing interest rates for investments in infrastructure projects will have a positive effect on the number of infrastructure projects within a predictable timeframe. However, predicting when the innovation policies put in place by the Government will start showing their effects or whether they will be effective at all is challenging.

Along with the changes that are already underway, the development of a world-class innovation ecosystem requires some fundamental changes. For e.g. it is quite well known that education has a huge role to play in the development of an innovative ecosystem. For a long time our schools and academic institutions have focused on "learning by reading" and not "learning by doing". Any change in the education system, small or big, takes time to show results. Measures such as setting up Atal Tinkering Labs in a large number of schools are one of the much needed steps. Other steps like increasing the R&D expenditure (measured as a % of GDP) also have longer gestation periods. Similarly, regulatory changes also take time to resolve. For e.g. after continued efforts by the Government to identify and untangle bottlenecks over the last couple of years, we improved our rank significantly in the World Bank's Doing Business Report 2018. However, at 100 among 190 countries, we have a long way to improve. Developing an innovation ecosystem requires continued commitment towards a long term goal. Policy makers should refrain from knee-jerk reactions which might only have short term effects. Focus on longer term measures in areas like education, R&D etc. would help us build a sustainable ecosystem for the next generations to come.

Lastly, the private sector is central to the development of innovative thinking and entrepreneurship in our society. Currently, India's investment into R&D stands at less than 1% which is much lower when compared to other economies. It is understood that currently the private sector does not match the Government's investment into R&D. It would make a huge difference to our research capabilities if this investment ratio achieves parity. Furthermore, while our pharmaceutical industry is often referred to as the "pharmacy of the developing world", innovations targeted to health challenges in India (for e.g. tuberculosis) are few and far between. The Government can go as far being an enabler of an innovation ecosystem. However, the private sector's commitment and effort is key to its development.

Disclaimer: The views and analysis expressed in this article are personally those of the author. They do not reflect the views of NITI Aayog. NITI Aayog does not guarantee the accuracy of data included in the publication nor does it accept any responsibility for consequences of its use.