The India State Innovation Report 2016

The India State

Innovation Report 2016

Authors

Dr. Amit Kapoor Honorary Chairman Institute for Competitiveness, India About Institute for Competitiveness, India Institute for Competitiveness, India is the Indian knot in the global network of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India is an international initiative centred in India, dedicated to enlarging and purposeful disseminating of the body of research and knowledge on competition and strategy, as pioneered over the last 25 years by Professor Michael Porter of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India conducts and supports indigenous research, offers academic and executive courses, and provides advisory services to the Corporate and the Governments. The institute studies competition and its implications for company strategy; the competitiveness of nations, regions & cities and thus generate guidelines for businesses and those in governance; and suggests and provides solutions for socioeconomic problems.

Sankalp Sharma Senior Researcher Institute for Competitiveness, India

Editorial Neera Vohra Program Director Institute for Competitiveness, India

Publisher Institute for Competitiveness U 24/8. DLF Phase 3, Gurgaon, Haryana - 122 002, India Website: www.competitiveness.in Š Institute for Competitiveness, 2016

Table of Contents

Contents Page No

1.0 Executive Summary 2-3 2.0 State of Innovation in Indian Context 4-11 3.0 Conceptual Underpinnings and Methodology 12-21 4.0 Results of the State Innovation Index 22-52 5.0 Discussion and Analysis of the State Innovation Index 53-61 6.0 Sectoral Innovation in India 62-78 7.0 Innovation Policies in India 79-85 8.0 Recommendations and Conclusions 86-89 Select References

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The State Innovation Report 2016

1.0 Executive Summary

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Executive Summary

Innovation is a subject matter of huge concern for a country the size of India. It is because innovations are important from several viewpoints.

These include first and foremost the viewpoint of economic growth. Apart from this, innovations also help companies overcome problems to benefit consumers. Technological innovation is the basis of growth and competitiveness of nations. Several countries have invested in R&D efforts and have benefitted from growth and development of industries around these inventions that became innovations in the long-term time frame.

The present study is aimed at looking at innovation in India from four distinct perspectives. These include the perspectives of the national system of innovation where theoretical approaches to national innovation systems are discussed.

This is followed by a description of the national system of innovation in the Indian context and its relationship to the global innovation system. Apart from this a comparison of various parameters of the national system of innovation in India is done with parameters internationally.

The second component of the report is the measurement of the state innovation in the Indian context. Here conceptual approaches are discussed including approaches from economics and management. Some approaches, which are unique to the developing country contexts in general and Indian context in particular like frugal and grassroots innovations, are also discussed. Apart from this composite measures of innovation like the Bloomberg Innovation Index and the EIU’s Innovation Index as well as the Global Innovation Index are discussed. Developed and derived post this conceptual approach is the State Innovation

Index at the state level in India. The index is a unique tool to look at the innovation environment at the state level in India. Post this results along the different dimensions of the index and a comparison of the index is presented. This it is hoped will help policymakers and corporates address some of the issues at a subnational level in India.

The third component of the report is the aspect where sectors are looked at from the viewpoint of evolution and sectoral innovation. Six sectors are considered for the study. The evolution of these sectors and the likely performance and innovation system is discussed for the Food Processing, Biotechnology, Pharmaceuticals, Automobiles, Defense and Electronics sectors respectively. In some of these sectors innovation performance and role of the private sector has enabled research and development as well as innovation. While in some others where the government alone seems to be functioning these are seen lagging behind.

Finally the fourth component of the report focuses on innovation policy in a developing country context. It starts with taking a theoretical view of what an innovation policy should look like and then discusses the innovation policy in Indian context.

Also discussed are some of the actors and systems and the policy lacunae in the Indian context.

The report ends with a brief recommendations section that enumerates recommendations at the national, state and sectoral level for India to ponder over. Several key learnings have emerged during the course of the report and it is hoped sharing these will benefit the policymakers as well as people who are enthusiastic about innovation in the Indian context.

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The State Innovation Report 2016

2.0 State of Innovation in Indian Context

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State of Innovation in the Indian Context Indian Innovation System and its comparison to Global Innovation System An innovation system is defined in different terms by different authors. The concept was initially proposed by Lundvall (1992) though a lot of work post that has been done by individuals like Nelson (1993), Freeman (1995) Niosi (1993) as well as organizations like OECD in the area of national innovation systems. The concept draws from the work of Fredirich List’s conception of the ‘The National system of Political Economy’.1 List also mentioned that science and arts have a distinct role to play in the development of manufacturing and industries. The reason why NSI’s came to play an important role was because they were seen to be important for not only technological and scientific prowess but also growth and convergence of economies. This economic aspect made it important to look at actors and networks which were instrumental in diffusion of innovations. A national system of innovation has been defined by various authors as follows: • “ .. the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies.” (Freeman, 1987) • “ .. the elements and relationships which interact in the production, diffusion and use of new, and economically useful, knowledge ... and are either located within or rooted inside the borders of a nation state.” (Lundvall, 1992) • “... a set of institutions whose interactions determine the innovative performance ... of national firms.” (Nelson, 1993) • “... A national system of innovation is the system of interacting private and public firms (either large or small), universities, and government agencies aiming at the production of science and technology within national borders.

Interaction among these units may be technical, commercial, legal, social, and financial, in as much as the goal of the interaction is the development, protection, financing or regulation of new science and technology” (Niosi et al., 1993)

•

•

“ .. the national institutions, their incentive structures and their competencies, that determine the rate and direction of technological learning (or the volume and composition of change generating activities) in a country.” (Patel and Pavitt, 1994) “.. that set of distinct institutions which jointly and individually contribute to the development and diffusion of new technologies and which provides the framework within which governments form and implement policies to influence the innovation process. As such it is a system of interconnected institutions to create, store and transfer the knowledge, skills and artefacts which define new technologies.”

(Metcalfe, 1995)

Thus a national system of innovation can be adequately described in terms of actors and linkages in the innovation system. A lot of research in this context has been undertaken by OECD which describes national innovation system in terms of firms, their capabilities and networks as well as supporting institutions and other research bodies.

The OECD identifies the following three levels of analysis of NIS.2 These are 1. Micro level analysis A micro level analysis focuses attention to a single firm or firms aligned along the value chain and the issues are generally specific but can be broader as well.

2. Meso level analysis - these include sectoral level clusters, regional clusters and functional clusters.

Sectoral clusters are located around a common knowledge base. Regional clusters are dependent on geographical agglomerations and functional clusters analysis uses statistical techniques to look at group of firms that have certain common characteristics.

3. Macro Level Analysis. A macro level clustering analysis sees the economy as a set of interlinked sectoral clusters. A macro level functional analysis sees the economy as a set of institutions and actors and tries to map the knowledge interactions between them. A national system of innovation is important as it enables growth which can enable jobs and competitiveness in the long run.

A national innovation system according to the

1 For a detailed description of historical perspective on the National system of Innovation, Kindly see http://www.globelicsacademy.org/2011_pdf/ Freeman%20NSI%20historial%20perspective.pdf 2 http://echo.iat.sfu.ca/library/oecd99_managing_National_IS.pdf

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The State Innovation Report 2016

Figure 2.1 Linkages between National Innovation System and Country Competitiveness Source: OECD, Managing National Innovation Systems, 19993

OECD (1999) has several components. These include the government units or labs. In India’s case these could also include several departments and national labs of Council of Scientific and Industrial Research (CSIR). Apart from this another important element is universities. In India’s case a variety of universities are present. These include the state and the central universities. Apart from this there is another classification, which includes private and public universities. Another category is the deemed universities. Apart from these two components, private firms form an important element of a national innovation system. A large 3 P. 23, http://echo.iat.sfu.ca/library/oecd99_managing_National_IS.pdf

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number of private firms have been operational in India. These firms have grown in depth as well as in their research and development capability with the country becoming more robust in research and development. The institutional depth has also happened over the course of time and private firms in India are also increasingly spending on research and development. Apart from this several S&T labs have also opened up in distinct sectors.

The technology transfer regime as well as the IP regime is undergoing tremendous changes that have heralded strengthening of the IP system in the country. Post 1994 with the TRIPS agreement there

Figure 2.2 National Innovation System and Global System of Innovation Source: Global Inclusion Program, Rockefeller Foundation4

have been several national legislations in the case of India. These have all strengthened the innovation system in the country.

It is also important to look at the national system of innovation in India in context of its interaction with the global innovation system especially since the liberalization in 1991. The trade regime has undergone a tremendous change and this has lead to proliferation of multinational enterprises entering India and investing in India. The intellectual property rights regime as well as the general economic alliances with countries have deepened and this has had considerable impact on the national innovation system in the country. Apart from this the collaborations with other countries as well as companies has increased considerably in the past.

National System of Innovation and Sectoral System of Innovation It is important to list at this point that there is a relationship between National System of Innovation (NSI) and the Sectoral System of Innovation (SSI).

A sectoral system as the name suggests is specific to a sector. A sectoral system is similar in form to a national system apart from the fact that it is sector specific. So for example the biotechnology sectoral system of innovation will include the Department of Biotechnology (DBT) in India along with university ecosystem as well as the firms and clusters of biotechnology in different parts of India along with policy at the union and state level in India. Thus, a sectoral system is not just an isolated entity but works in consonance with the overall national system of innovation.

4 Accessed from http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN017425.pdf on August 1, 2016.

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The State Innovation Report 2016

Figure 2.3 Actors in NSI and SSI Source: Innovation in India, Combining Economic Growth with Inclusive Development, Ed. Shyama V Ramani Cambridge University Press 2014.5

A sectoral system of innovation like the national system of innovation has several actors. These actors are similar to the actors in the NSI with the difference that some external actors can also be actors in the sectoral system of innovation. It is is relatively easy to make out that there are a few common elements in NSI and SSI.

National System of Innovation in India In India the there is a system of science and technology as well as there is a well functional university and college system. The science and technology system has several science and technology departments.

Among these central departments, the Department of Science and Technology has the primary task of formulating science, technology and innovation policy and promoting thrust areas for research. It is also entrusted with science and society programs as well as with international collaborations. The Council of Scientific and Industrial Research with its 40 institutions and laboratories is the major organization coming under the Department of Scientific and Industrial Research. The council’s major aim is to strengthen and support R&D through industrial programs and other activities. The varied national departments and institutions are allocated funds for research and development. Despite this the funding seems to be small compared to the needs

5 This section draws work done by Anshul Pachouri and Sankalp Sharma for understanding the Innovation ecosystem for MSME’s in India. Pachouri, A., and S. Sharma. 2016. Barriers to Innovation in Indian Small and Medium-Sized Enterprises. ADBI Working Paper 588. Tokyo: Asian Development Bank Institute. Available: http://www.adb.org/publications/barriers-innovation-indian-small-and-medium-sized- enterprises/

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of a society as vast and varied as India.

Apart from these, the research infrastructure for scientific research is present in a large number of universities.

For a comparison of the Indian system of innovation with the global or other national innovation systems it is best to look at some of the parameters in the rest of the world. As far as R&D expenditure as a percentage of GDP is concerned in India the research and development expenditure is one of the least in the world. In 2011 it was close to 0.82 which is small in comparison to countries like Israel, China and even the world average, which are all above 2.5 percent. This is where expenditure should be increased for making research and development a priority.

Figure 2.4 S&T System in India Source: Government of India, Department of Science and Technology. S&T System in India. www.dst.gov.in/st-system-india

As far as the numbers of researchers are concerned, they too are one of the fewest per million in India.

In India the researchers per million are 157 while a commensurate figure for countries like the Israel is 8282 which is almost 50 times the number in India.

In terms of technical outputs India’s performance with regards to the investment and number of people employed per million exceeds its inputs. It produced 93349 scientific and technical journal articles in 2013 behind countries like Germany, USA and China. Thus Indian innovation system can be looked as a frugal system with limited resources but producing significant output.

Innovation at a Sub-national level in India

Figure 2.5 Central Government S&T Departments Source: Government of India, Department of Science and Technology. S&T System in India. www.dst.gov.in/st-system-india

A regional or a subnational system too has actors and institutions that are present at the national level.

In the case of the world some regions/locations have been more creative and innovative as compared to others. There are several components that are important for a state or region to foster a robust science, technology and innovation ecosystem. Some of this has to do with proliferation of universities and higher educational institutions as well as support from the governments and industries in making the locations innovative. Often one sees two views to the paradigm of innovation. One is the science and technology push view while the other is the more market friendly competitive view of innovation. Both these views are important to create

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The State Innovation Report 2016

Figure 2.6 R&D Expenditure as a percentage of GDP Source: WDI, 20166

Figure 2.7: Researchers in R&D per million people in Different countries Source: WDI, 20167

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a robust system of Innovation. Added to this is the role that finance – both early stage (venture capital and private equity) – as well as later stage finance can play in attracting talent as well as spurring newer startups. All the components are important at a subnational level to foster innovation. In India, a number of states have had been able to foster an environment which is conductive for innovation.

The index calculated in this report looks at some parameters critical for innovation at a subnational level. Some states as it is appear to be innovation hubs. These include states like Maharashtra, Delhi, Tamil Nadu Karnataka, etc. These states have both human capital as well as the scientific and technological infrastructure to drive growth and innovation in the years ahead.

6 http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS?view=chart 7 http://data.worldbank.org/indicator/SP.POP.SCIE.RD.P6?view=chart

Figure 2.8: Total Number of Scientific and Technical Journal Articles Source: WDI, 20168

8 http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS?view=chart

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The State Innovation Report 2016

3.0 Conceptual Underpinnings and Methodology

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Global Approaches to looking at and Measuring Innovation “Carrying out innovations is the only function which is fundamental in history”. -J.A. Schumpeter9 Innovation is used in a variety of contexts and with a variety of meanings. A pertinent way to look at is in the form of inventions and changes that have had an impact on changing the course of human history.

This may sometimes be referred to as technological innovation in which human society has evolved by major changes in way of doing things. This involves the first changes, which were at the time of first agricultural revolution to the advent of personal computers and now smartphones.

There have been several approaches to looking at innovation. Innovation became popular after Joseph Schumpeter used it to describe change continuity and growth in capitalist societies. Schumpeter used the term to describe ‘industrial mutation’ which is caused due to entrepreneurs in an economy. Broadly, innovation research can be clubbed into three broad heads. These include research on Innovation around various types and forms from an organizational point of view. This constitutes the first inspiration on innovation for the development of State Innovation Index. Then there is the locational aspects of innovation and development of composite measures to measure and rank countries along

Figure 3.1: Major Events in Human History Source: Commission on Growth and Development, World Bank 2008 based on Fogel, 1999.10 9 Quoted in “Schumpeter’s View on Innovation and Entrepreneurship”. Karol Śledzik (2013) accessed from http://papers.ssrn.com/sol3/papers. cfm?abstract_id=2257783 on Dec 4, 2013.

10 See http://siteresources.worldbank.org/EXTPREMNET/Resources/489960-1338997241035/Growth_Commission_Final_Report.pdf Pg., 108

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The State Innovation Report 2016 key dimensions of innovation. This constitutes the second broad head of innovation. The third aspect is on innovation policies that shall be discussed elsewhere in the report.

1. Individual Research on Innovation From the viewpoint of individual literature on innovation it can broadly be classified into economic and business and management aspects of innovation. Though this classification does not always hold for the sake of brevity it is necessary to make a distinction between economic aspects as well as business aspects of innovation. In economic literature Schumpeter (1934) proposed a list of five types of innovations: i) Introduction of new products. ii) Introduction of new methods of production. iii) Opening of new markets. iv) Development of new sources of supply for raw materials or other inputs. v) Creation of new market structures in an industry.

The economics profession11 was slow to recognize the importance of innovation for economic growth.

In economic models output (Q) was expressed as a function of capital (K) and labor (L), and technology was assumed away.

Q=f(K,L).

Robert Solow in 1957 pointed out that increases in labor and capital were not fully able to account for economic growth. Thus another factor called technical change was added to which explained and enhanced the productivity of labor and capital.

Q=Af(K,L).

Technology was assumed to be exogenous. In 1986 Paul Romer, questioned this hypothesis and put technology as a result of explicit efforts in terms of research and development as well as human capital.

A=f(R&D,HC).

Post this empirical research to a large extent has been done on understanding the role of technological progress in explaining economic growth.

Q=f(K,L,R&D,HC).

The Growth Commission of the World Bank studied the role of capital deepening as well as the total factor productivity (TFP) (a substitute to innovation) in explaining growth. The results of their analysis over the 1970-2000 period for 112 countries suggested that TFP is the major contributor in explaining differences in development across economies.

A. Definitions of Innovation The term has underwent considerable change over time. Innovation is largely used to describe a ‘new idea device or method’.12 The Oslo Manual (2006)13 defines innovation as ‘the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations.’

B. Management and Business Conceptions of Innovation Of late the term has entered varied disciplines and is used in a variety of contexts. Business and management academics have devoted a considerable amount of energy in defining and describing innovation. These include management and business thinkers like Drucker, Christensen, Von Hippel, and Govindarajan et al.

This section looks at briefly the work of scholars to describe what innovation is and what and how scholars have explored in the broad area of innovation. According to Peter Drucker (2002) the seven sources of innovation14 include: 1. Unexpected Occurrences: These include occurences that are not planned but happen

11 As mentioned in the Report -Innovation Policy: A Guide for Developing Countries. World Bank. (2010). https://openknowledge.worldbank.org/ handle/10986/2460 12 http://www.learnersdictionary.com/definition/innovation 13 Accessed from http://www.oecd-ilibrary.org/docserver/download/9205111e.pdf?expires=1468997818&id=id&accname=guest&checksum=269A09B74A 57EB12A2ADC568E18CC552 P.46.

14 Drucker Peter F, The Discipline of Innovation: https://hbr.org/2002/08/the-discipline-of-innovation

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2.

3.

4.

5.

6.

7.

just as a matter of fact and end up benefitting organizations.

Incongruities: Incongruities exist in technology as well as in economic realities as well as between an industries’ reality and assumptions.

All the incongruities can also be a source of innovation.

Process Needs: A process need essentially is important to make the system work. Sometimes the innovation in this case may be technical at other times it may be social.

Industry and Market Changes: Industry structure and market structures are prone to changes and this is an essential source of innovaton.

Demographic Changes: Demographics have been changing quickly and they depend on age distribution, education, occupation and geographic location and they also have a potential to be an agent of change.

Changes in Perception: Changes in perception of people or managers in organizations can also be a source of innovation.

New Knowledge: New Knowledge can be a source of innovation though it may take time to come up with new knowledge.

There are several forms of Innovation which have been looked at by business and management scholars. Some of these are mentioned below.

Disruptive Innovation Disruptive Innovation15 is a term coined by Clayton

Christensen to reflect a product or process by which a product or service takes root initially at the bottom of markets but then moves up the market, eventually displacing competititors. Starting with a multisectoral study of industries in the US, Christensen showed that companies failed as they were unable to compete as incumbents kept on doing the same thing while newer and nimbler rivals found better ways of doing things. A large segment of industries were thus disrupted by disruptees.

Open Innovation Another major thing that is often assumed about the innovation process is that innovation is produced generally by manufacturers in a simple linear process. However this came under scrutiny with Eric Von Hippel challenging the status quo and arguing in his book “The sources of Innovation”17 that the process of innovation is far from linear.

At times several of the other stakeholders are sources of innovation. These could include but are not limited to end users, suppliers and others.

Sometimes the term is also used in conjunction with open innovations.

Reverse Innovation Reverse Innovation is a term defined to look at the approach of multinational firms to emerging markets. According to Govindarajan et al (2009)18 the multinational approach to emerging markets can be described in four phases.19 In the first phase US products were made by US firms for emerging markets. In the second phase, US firms started

Some examples of disruptive innovations include: Disruptor

Disruptee

Personal computers

Mainframe and mini computers

Mini mills

Integrated steel mills

Cellular phones

Fixed line telephony

Community colleges

Four-year colleges

Discount retailers

Full-service department stores

Retail medical clinics

Traditional doctor’s offices

Table 3.1: Examples of Disruptive Innovation Source: Clayton Christensen Innovation Blog16 15 For a greater understanding kindly see, http://www.claytonchristensen.com/key-concepts/ 16 Kindly see http://www.claytonchristensen.com/key-concepts/ 17 Kindly see, http://web.mit.edu/evhippel/www/sources.htm .

18 For a better understanding look at the HBR 2009 piece, https://hbr.org/2009/10/how-ge-is-disrupting-itself 19 For a detailed description of emerging market phases

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The State Innovation Report 2016 making products in emerging markets for emerging markets. These constituted what is termed as globalization and glocalization. In the third phase, increasingly there is local design made by emerging market firms made for emerging markets. The final stage is where there is local design which can be taken to the world. Essentially multinationals complete the reverse innovation process by taking the innovations originally chartered for poor countries, adapting them, and scaling them up for worldwide use. Several companies have opened up R&D centers in India since the 1980’s20 and as of 2012 these have swollen to more that 1000.21 India according to some reports is also at the forefront of R&D globalization with the greatest amount of R&D investments by global companies.22 Product and Process Innovation and their interaction The Oslo manual (2006)23 describes four essential kinds of Innovation. These include 1.

2.

3.

4.

Product Innovation Process Innovation Marketing Innovation Organisational Innovation

Product Innovation: It is defined as ‘the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics.’

Product innovation is used to cover both goods and services.

Process Innovation: A process innovation is defined as the ‘implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.’ Process innovations are usually done to decrease costs of delivery and improve quality or deliver better

products.

Marketing Innovation: A marketing innovation is defined as the ‘implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing.’ Marketing innovations are best for adressing customer needs, opening up new markets and positioning a product in a new market.

Organisational Innovation: Organisational innovation is defined as the ‘implementation of a new organisational method in the firm’s business practices, workplace organisation or external relations.’ Organizational innovations tend to reduce a firm’s performance by reducing transaction costs and workplace costs.

There are several innovations which may be difficult to characterize and for this there are examples provided in the Oslo manual for easy reference.

Low resource setting innovations Several innovations take place in developing countries and amidst severe constraints. Several terms have been devised by academics to define these kinds of Innovations. Consider the case of India. In India a lot of work is done by the National Innovation Foundation on grassroot innovations.

Grassroot Innovations24 is basically systematic innovation done by common people facing severe constraints and out to find a solution to their problems. The National Innovation Foundation in India has found several of these innovations in low resource settings and scaled them up for commerical use. Another form of innovation which has found currency in recent years is ‘Jugaad innovation’.25 Jugaad Innovation is used to describe an improvised solution born from ingenuity and cleverness) which could lead to a dramatic growth in how western companies can adopt jugaad innovation to succeed in today’s hypercompetitive world.

Another important term which has been looked to describe how principles from low resources

20 According to Basant et al (2012) the first R&D center opened in India was an offshoring R&D center of Texas Instruments in Bangalore in 1984. P-30 http:// www.iimahd.ernet.in/assets/snippets/workingpaperpdf/8040799502012-01-06.pdf 21 http://timesofindia.indiatimes.com/business/india-business/25-global-companies-set-up-RD-centres-in-India-in-last-18-months/articleshow/22846741.cms 22 The figure for overall emerging markets was pegged at 31Billion USD while for India alone the figure was 31 Billion USD. http://zinnov.com/global-rdservice-provider-ratings-2015-2/ Slide 8.

23 For a detailed description of types of innovation according to Oslo Manual kindly see http://www.oecd-ilibrary.org/docserver/download/9205111e.pdf?expir es=1468997818&id=id&accname=guest&checksum=269A09B74A57EB12A2ADC568E18CC552 24 For more on grassroots innovation and the work of national innovation foundation see http://nif.org.in/ 25 http://www.livemint.com/Companies/Tip6POBrIggFp6GI4TyXZL/Why-Carlos-Ghosn-is-fond-of-8216jugaad8217.html

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setting can lead to innovation in developing markets is frugal innovation.26 Several companies are using principles embedded in frugal mindset for developing solutions that change the price performance ratio of goods and services.

Reconciling some terms in Innovation An interesting thing is reconciling various models and ways in which innovation is looked at. A simple model27 for better reconciliation of some of the various terms used to describe innovation is given below. It can be seen that innovation can be seen in the model as occouring along two dimensions of technological progress and market impact. There are four possibilities along the two dimensions of technology progress and market Impact.

At one end of the spectrum are innovations which have high degree of technology progress as well as a high degree of market impact. These can be categorized as game changing innovations.

Similarly there are some innovations that have high technology progress but have low market impact.

These are termed breakthrough innovations. Then there are innovations which have high market impact and low technological progress. These are termed disruptive innovations. Finally innovations which have both low technological progress and low

Figure: 3.2 Four Zones of Innovation Source: Four Zones of Innovation

market impact can be categorized as incremental innovations.

Apart from the above mentioned literature on Innovation primarily in the context of organizations several newer forms of innovation are gaining weight. These include design innovation28 and idea of business model innovation. In design innovation design is used as a principle to improve the offering of a company. Business model innovation is a bundle of innterconnected activities (defined as a business model)29 is reconfigured for delivering value.

2. Composite Measures of Innovation Several indices over the past few years have been developed to look into innovation of locations specifically countries. Prominent among these are the Global Innovation Index and Bloomberg Innovation Index.

A. The Bloomberg Innovation Index30 Bloomberg, a news agency ranks countries on the basis of six key measures of innovation. Six equally weighted metrics were considered and their scores combined to provide an overall score for each country from zero to 100. These include 1. Research & Development: Research and development expenditure as a percentage of GDP 2. Manufacturing: Manufacturing value-added per capita 3. High-tech companies: Number of domestically domiciled high-tech public companies — such as aerospace and defense, biotechnology, hardware, software, semiconductors, Internet software and services, and renewable energy companies — as a share of world's total high-tech public companies 4. Postsecondary education: Number of secondary graduates enrolled in postsecondary institutions as a percentage of cohort; percentage of labor force with tertiary degrees; annual science and engineering graduates as a percentage of the labor force and as a percentage of total tertiary graduates

26 For a greater understanding on frugal innovation see http://knowledge.insead.edu/innovation/frugal-innovation-a-new-business-paradigm-2375 27 https://experiencinginformation.wordpress.com/2012/06/03/clarifying-innovation-four-zones-of-innovation/ 28 See https://hbr.org/2011/06/the-innovation-catalysts/ 29 http://sloanreview.mit.edu/article/creating-value-through-business-model-innovation/ 30 http://www.bloomberg.com/graphics/2015-innovative-countries/

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The State Innovation Report 2016

Figure 3.3 The Global Innovation Index Source: The Global Innovation Report (2016)

5. Research personnel: Professionals, including Ph.D. students, engaged in R&D per 1 million population 6. Patents: Resident utility patent filings per 1 million population and per $1 million of R&D spent; utility patents granted as a percentage of world total Of the more than 200 countries and sovereigns evaluated, 69 have data for all six metrics in its most recent report. Post-secondary education and patent activity consisted of multiple factors that were weighted equally. According to the 2015 Bloomberg Innovation Index, South Korea is ranked 1 followed

by Japan and Germany.

B. EIU’s Global Innovation Index31 The Economist Intelligence Unit’s Global Innovation Index was done in 2009 most recently and looked at measuring innovation in economies.

To rank countries, the Economist Intelligence Unit distinguishes between “innovation output” 31 http://graphics.eiu.com/PDF/Cisco_Innovation_Complete.pdf 32 https://www.globalinnovationindex.org/gii-2015-report

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(performance) and “innovation inputs” (enablers).

In the study Innovation output is measured by the sum of patents granted by three major government patent offices: the European Patent Office (EPO), the Japanese Patent Office (JPO) and the US Patent and Trademark Office (USPTO). The data is then averaged over four-year periods, and normalised as number of patents per million to create an index on a 1-10 scale.

Innovation inputs include both direct drivers and the broad economic, social and political context, or innovation environment. The Index in 2009 mentioned that China and India continued to gain ground on the Index. The index ranked Japan as the most innovative economy in 2009.

C. The Global Innovation Index32 The Global Innovation Index is a joint publication of Johnson School of Business in Cornell University, INSEAD Business School and WIPO. The Global Innovation Index (GII) of 2016 covers 128

economies around the world and uses 82 indicators across a range of themes to look at innovation. The Index has two major sub indices. These include the Innovation Input sub index and the Innovation Output sub index. Apart form this there are 7 broad pillars on the Index.

The report classifies India as an 'innovation outperformer' due to India's relatively low per capita income, high 'global innovation score' (GIS) among its peers and being consistently an 'innovation achiever' for the past three years.

European countries continue to dominate the GII rankings with countries like Switzerland (1), Sweden (2), United Kingdom (3), and the Finland (5) being in the top five. Only two non-European countries (USrank 4 and Singapore- rank 7) are among the top 10.

Among the BRICS countries China (25), Russia (43), South Africa (54) are ranked ahead of India (66) while Brazil (69) is ranked lower than India. Also, in the Central and South Asian region, India is ranked the best economy for innovation.

Looking at the 'Innovation efficiency ratio', (a ratio of outputs of innovation to inputs of innovation), India is ranked 63rd among the 141 countries. This means that in comparison to innovation inputs, India's outputs are significantly better than many countries.

Other Work and Indices Apart from the mentioned work above several theoretical models and reports have had a bearing on the development of the State Innovation Index in India. These include the OECD’s resources on Innnovation33, India’s National Innovation Survey 2014 and OKR’s34 resources on Innovation.

Apart from this recent work on foundational competitiveness was also looked at for looking at the linkages between competitiveness and innovation.

Process followed to Arrive at Major Pillars of Innovation The Oslo manual on measuring innovation clearly sets the tone for measurement of innovation. On the one side are firms with the overall framework and within the framework of firms four types of innovations are distinguished.

Apart from the firm critical elements of the innovation ecosystem include innovation polices as well as the education and public research ecosystem in a location to make it innovative. Apart from this, a demand and the overall infrastructural and institutional frameworks are important in making a location innovative. This report thus focusses on three important aspects of innovation. These include – innovation at the level of states, innovation at the level of industries and innovation policies conducive for economic development. Another major body of work is the competitive advantage of nations, which has had a bearing on the understanding of innovation and its linkages to competitiveness.

The process followed for arriving at a robust Innovation Index at state level in India is described below.

1. Literature Review A thorough literature review was undertaken to look at dimensions which are considered important for innovation within a locations.

These conditions were not characterized as input and output but were looked from creating an innovative economy at a state level in India.

2. Creation of Tentative Index Framework Once the basic literature review was over the team at Institute for Competitiveness decided to draw a basic tentative index framework.

The index framework had broad dimensions as well as tentative indicators within each of the dimensions.

3. Creation of Final Index Framework A final index framework was created post the discussion with experts in the field of index construction as well as innovation. These included Indian as well as international experts who understood the process of innovation to advise on the final parameters for creation of a State Innovation Index.

4. Collection of data The identified indicators were sourced from various information sources prominent among which were the government websites, research organizations funded by the government, international organizations, etc.

5. Collation of the data points The various indicators thus collected were then

33 For detailed resources in OECD, see http://www.oecd.org/innovation/, 34 For detailed resources in World Bank, see https://openknowledge.worldbank.org/discover

19

The State Innovation Report 2016 various institutions like Reserve bank of India, and Ministry of Statistics and Programme Implementation, etc.

Figure 3.4 Innovation Measurement Factors Source: The Oslo Manual (2006)35

made fit for using in the analysis. For some scaling of data was done.

6. Construction of Index post a PCA Index parameters were then run through a principal component factor analysis to look for fit between the indicators. Post this the Index was computed.

7. Validation and Final Index These results were then validated with experts and iterations were done post on the Index to get final results on Index.

Quality of data The research team had to mine some data used for the report.

For some of the indicators for which the present year data was not available and in some cases the data was not available for particular states.

Due to this, some gaps emerged in the data collected. Several techniques were employed to fill these gaps including regression and interpolation.

For some of the data points the scores were scaled. This resulted in providing the research team with data points that were robust, standard and most importantly timely. Regarding the timeliness of the data, the most updated datasets were taken up for the study.

Measurement of the State Innovation Index The following broad pillars and parameters were considered for the construction of the State Innovation Index in India.

These are: 1. Factors of Production

Methodology for the Index Data sources The India State Innovation Report 2016 uses data published by the government of India reports of various ministries and departments, and government funded research organizations, institutions and other international multilateral organizations like World Bank, IMF, etc. The study uses actual economic and social indicators rather than doing surveys primarily because this eliminates the possibility of personal bias getting into the research as well as measures actual performance on the ground. Apart from this data was also taken from

Figure 3.5: Steps undertaken for calculating the State Innovation Index 2016 Source: Authors

35 http://www.oecd-ilibrary.org/docserver/download/9205111e.pdf?expires=1469023516&id=id&accname=guest&checksum=F5667544A946ED17DDC312B4 88D89B45

20

2. Demand Conditions 3. Industries, Innovation and Entrepreneurship 4. Social and Political Institutions These 4 major pillars are further categorized into sub-indices. There are four sub-indices for Factors Of Production, two for Demand Conditions, two for Industries, Innovation and Entrepreneurship and two for Social and Political Institutions. These sub indices further have indicators. Thus there is a 3 level hierarchy for measurement for the overall competitiveness score of states of India (figure 3.7).

Analysis The sum total of reality that the State Innovation Index represents is a cumulative whole of all the individual indicators. Thus, one sees an overall contribution to the value of the Index by all the insignificant individual indicators considered for the study.

Almost 50 indicators were used for assessing the Innovation environment of Indian states in 2016.

The sub-pillar measure and the pillar weights were assigned on the basis of extensive research and a principal component factor analysis.

From the viewpoint of the policy makers the

Figure 3.6: The State Innovation Index Source: Authors

India State Innovation Report 2016 brings forth a comprehensive study of the factors necessary for studying and enhancing the innovation potential of Indian states.

Formulae used for computing the Index Several formulae were used for the computation of scores on the innovation Index.

For Component Scores the following formulae are used.

Componentc = ∑i(Wi * indicatori) For Calculation of Dimensional Scores the following formula is used.

1 Dimensiond = n

∑ c

Componentc

Where n is the number of Components in a dimension For Calculation of State Innovation Index the following formula is used.

SII =

1 4

∑ d

Dimensiond

Note: This is an approximate number.

Figure 3.7: Hierarchy of Measurement of State Innovation Index

21

The State Innovation Report 2016

4.0 Results of the State Innovation Index

22

State Innovation Index

The table below represents the State Innovation Index for states of India. What follows is the ranking and profiling of states.

S. No

States

State Innovation Index

1

Andhra Pradesh

35.43

2

Arunachal Pradesh

28.30

3

Assam

23.49

4

Bihar

24.27

5

Chhattisgarh

23.69

6

Delhi

40.55

7

Goa

39.67

8

Gujarat

37.70

9

Haryana

30.05

10

Himachal Pradesh

33.35

11

Jammu & Kashmir

26.97

12

Jharkhand

21.42

13

Karnataka

40.35

14

Kerala

37.40

15

Madhya Pradesh

26.98

16

Maharashtra

49.32

17

Manipur

27.40

18

Meghalaya

22.86

19

Mizoram

32.47

20

Nagaland

22.75

21

Odisha

26.26

22

Punjab

33.94

23

Rajasthan

28.18

24

Sikkim

33.04

25

Tamil Nadu

45.62

26

Tripura

27.15

27

Uttar Pradesh

37.91

28

Uttarakhand

30.73

29

West Bengal

33.01

Table 4.1 State Innovation Index without stages of development Source: Authors

23

The State Innovation Report 2016

24

Andhra Pradesh

Scores

State Innovation Index

35.4

Factors of Production

43.9

Land and Labour

65.3

Capital

32.1

Physical and Technological Infrastructure

50.5

Human Capital

27.6

Demand Conditions

33.8

Market Size

42.2

Market Sophistication and Growth

25.5

Industries, Innovation and Entrepreneurship

28.0

R&D, Firms and New Firm Creation

22.1

Industrial Clusters and New Knowledge creation

33.9

Social and Political Institutions

36.0

Healthcare and Educational Institutions

47.0

Financial and Administrative Institutions

25.1

Arunachal Pradesh

Scores

State Innovation Index

28.3

Factors of Production

28.5

Land and Labour

23.8

Capital

1.9

Physical and Technological Infrastructure

18.1

Human Capital

70.2

Demand Conditions

11.5

Market Size

0.4

Market Sophistication and Growth

22.5

Industries, Innovation and Entrepreneurship

0.3

R&D, Firms and New Firm Creation

0.6

Industrial Clusters and New Knowledge creation

0.0

Social and Political Institutions

72.9

Healthcare and Educational Institutions

96.3

Financial and Administrative Institutions

49.6

25

The State Innovation Report 2016

26

Assam

Scores

State Innovation Index

23.5

Factors of Production

21.8

Land and Labour

32.5

Capital

9.5

Physical and Technological Infrastructure

27.7

Human Capital

17.5

Demand Conditions

14.7

Market Size

15.4

Market Sophistication and Growth

14.1

Industries, Innovation and Entrepreneurship

6.6

R&D, Firms and New Firm Creation

9.4

Industrial Clusters and New Knowledge creation

3.8

Social and Political Institutions

50.8

Healthcare and Educational Institutions

86.9

Financial and Administrative Institutions

14.7

Bihar

Scores

State Innovation Index

24.27

Factors of Production

20.48

Land and Labour

6.25

Capital

7.81

Physical and Technological Infrastructure

34.44

Human Capital

33.42

Demand Conditions

29.23

Market Size

51.95

Market Sophistication and Growth

6.51

Industries, Innovation and Entrepreneurship

8.77

R&D, Firms and New Firm Creation

8.02

Industrial Clusters and New Knowledge creation

9.52

Social and Political Institutions

38.59

Healthcare and Educational Institutions

67.39

Financial and Administrative Institutions

9.79

27

The State Innovation Report 2016

28

Chhattisgarh

Scores

State Innovation Index

23.69

Factors of Production

30.05

Land and Labour

33.35

Capital

32.23

Physical and Technological Infrastructure

19.63

Human Capital

34.97

Demand Conditions

12.40

Market Size

12.52

Market Sophistication and Growth

12.29

Industries, Innovation and Entrepreneurship

6.02

R&D, Firms and New Firm Creation

5.00

Industrial Clusters and New Knowledge creation

7.05

Social and Political Institutions

46.31

Healthcare and Educational Institutions

72.16

Financial and Administrative Institutions

20.46

Delhi

Scores

State Innovation Index

40.55

Factors of Production

35.90

Land and Labour

43.98

Capital

13.79

Physical and Technological Infrastructure

54.67

Human Capital

31.16

Demand Conditions

49.32

Market Size

8.12

Market Sophistication and Growth

90.51

Industries, Innovation and Entrepreneurship

20.65

R&D, Firms and New Firm Creation

16.19

Industrial Clusters and New Knowledge creation

25.11

Social and Political Institutions

56.33

Healthcare and Educational Institutions

64.78

Financial and Administrative Institutions

47.87

29

The State Innovation Report 2016

30

Goa

Scores

State Innovation Index

39.67

Factors of Production

31.35

Land and Labour

56.00

Capital

7.53

Physical and Technological Infrastructure

22.32

Human Capital

39.54

Demand Conditions

44.96

Market Size

0.43

Market Sophistication and Growth

89.50

Industries, Innovation and Entrepreneurship

10.72

R&D, Firms and New Firm Creation

3.22

Industrial Clusters and New Knowledge creation

18.22

Social and Political Institutions

71.66

Healthcare and Educational Institutions

93.15

Financial and Administrative Institutions

50.17

Gujarat

Scores

State Innovation Index

37.70

Factors of Production

44.23

Land and Labour

47.92

Capital

75.24

Physical and Technological Infrastructure

41.68

Human Capital

12.06

Demand Conditions

29.87

Market Size

30.03

Market Sophistication and Growth

29.70

Industries, Innovation and Entrepreneurship

37.35

R&D, Firms and New Firm Creation

38.23

Industrial Clusters and New Knowledge creation

36.47

Social and Political Institutions

39.35

Healthcare and Educational Institutions

53.45

Financial and Administrative Institutions

25.26

31

The State Innovation Report 2016

32

Haryana

Scores

State Innovation Index

30.05

Factors of Production

32.02

Land and Labour

42.09

Capital

16.18

Physical and Technological Infrastructure

25.24

Human Capital

44.59

Demand Conditions

28.78

Market Size

12.42

Market Sophistication and Growth

45.14

Industries, Innovation and Entrepreneurship

13.46

R&D, Firms and New Firm Creation

18.43

Industrial Clusters and New Knowledge creation

8.50

Social and Political Institutions

45.95

Healthcare and Educational Institutions

65.47

Financial and Administrative Institutions

26.43

Himachal Pradesh

Scores

State Innovation Index

33.35

Factors of Production

38.49

Land and Labour

57.59

Capital

8.09

Physical and Technological Infrastructure

25.14

Human Capital

63.15

Demand Conditions

22.74

Market Size

3.14

Market Sophistication and Growth

42.35

Industries, Innovation and Entrepreneurship

10.63

R&D, Firms and New Firm Creation

15.97

Industrial Clusters and New Knowledge creation

5.30

Social and Political Institutions

61.52

Healthcare and Educational Institutions

89.42

Financial and Administrative Institutions

33.62

33

The State Innovation Report 2016

34

Jammu and Kashmir

Scores

State Innovation Index

26.97

Factors of Production

18.16

Land and Labour

27.60

Capital

6.53

Physical and Technological Infrastructure

10.35

Human Capital

28.16

Demand Conditions

18.24

Market Size

5.99

Market Sophistication and Growth

30.49

Industries, Innovation and Entrepreneurship

6.18

R&D, Firms and New Firm Creation

6.62

Industrial Clusters and New Knowledge creation

5.75

Social and Political Institutions

65.28

Healthcare and Educational Institutions

94.53

Financial and Administrative Institutions

36.03

Jharkhand

Scores

State Innovation Index

21.42

Factors of Production

15.55

Land and Labour

22.03

Capital

6.96

Physical and Technological Infrastructure

21.34

Human Capital

11.86

Demand Conditions

15.79

Market Size

16.25

Market Sophistication and Growth

15.34

Industries, Innovation and Entrepreneurship

5.68

R&D, Firms and New Firm Creation

8.46

Industrial Clusters and New Knowledge creation

2.91

Social and Political Institutions

48.66

Healthcare and Educational Institutions

78.15

Financial and Administrative Institutions

19.17

35

The State Innovation Report 2016

36

Karnataka

Scores

State Innovation Index

40.35

Factors of Production

39.56

Land and Labour

60.85

Capital

42.21

Physical and Technological Infrastructure

37.18

Human Capital

17.98

Demand Conditions

33.58

Market Size

30.36

Market Sophistication and Growth

36.80

Industries, Innovation and Entrepreneurship

47.52

R&D, Firms and New Firm Creation

39.69

Industrial Clusters and New Knowledge creation

55.34

Social and Political Institutions

40.76

Healthcare and Educational Institutions

55.44

Financial and Administrative Institutions

26.08

Kerala

Scores

State Innovation Index

37.40

Factors of Production

35.37

Land and Labour

58.47

Capital

10.74

Physical and Technological Infrastructure

30.42

Human Capital

41.85

Demand Conditions

33.85

Market Size

16.46

Market Sophistication and Growth

51.23

Industries, Innovation and Entrepreneurship

23.58

R&D, Firms and New Firm Creation

14.56

Industrial Clusters and New Knowledge creation

32.59

Social and Political Institutions

56.79

Healthcare and Educational Institutions

85.22

Financial and Administrative Institutions

28.36

37

The State Innovation Report 2016

38

Madhya Pradesh

Scores

State Innovation Index

26.98

Factors of Production

28.34

Land and Labour

33.23

Capital

35.35

Physical and Technological Infrastructure

33.16

Human Capital

11.60

Demand Conditions

24.85

Market Size

36.15

Market Sophistication and Growth

13.56

Industries, Innovation and Entrepreneurship

20.48

R&D, Firms and New Firm Creation

14.36

Industrial Clusters and New Knowledge creation

26.60

Social and Political Institutions

34.25

Healthcare and Educational Institutions

51.85

Financial and Administrative Institutions

16.65

Maharashtra

Scores

State Innovation Index

49.32

Factors of Production

55.65

Land and Labour

56.77

Capital

83.29

Physical and Technological Infrastructure

63.55

Human Capital

18.98

Demand Conditions

47.79

Market Size

56.11

Market Sophistication and Growth

39.48

Industries, Innovation and Entrepreneurship

64.88

R&D, Firms and New Firm Creation

75.73

Industrial Clusters and New Knowledge creation

54.02

Social and Political Institutions

28.96

Healthcare and Educational Institutions

31.84

Financial and Administrative Institutions

26.09

39

The State Innovation Report 2016

40

Manipur

Scores

State Innovation Index

27.40

Factors of Production

35.17

Land and Labour

39.58

Capital

5.58

Physical and Technological Infrastructure

18.32

Human Capital

77.19

Demand Conditions

9.59

Market Size

1.13

Market Sophistication and Growth

18.05

Industries, Innovation and Entrepreneurship

2.74

R&D, Firms and New Firm Creation

3.21

Industrial Clusters and New Knowledge creation

2.27

Social and Political Institutions

62.12

Healthcare and Educational Institutions

91.95

Financial and Administrative Institutions

32.28

Meghalaya

Scores

State Innovation Index

22.86

Factors of Production

22.14

Land and Labour

24.29

Capital

7.17

Physical and Technological Infrastructure

16.72

Human Capital

40.36

Demand Conditions

7.27

Market Size

1.18

Market Sophistication and Growth

13.35

Industries, Innovation and Entrepreneurship

1.45

R&D, Firms and New Firm Creation

2.40

Industrial Clusters and New Knowledge creation

0.49

Social and Political Institutions

60.60

Healthcare and Educational Institutions

90.49

Financial and Administrative Institutions

30.70

41

The State Innovation Report 2016

42

Mizoram

Scores

State Innovation Index

32.47

Factors of Production

36.74

Land and Labour

54.27

Capital

4.13

Physical and Technological Infrastructure

18.18

Human Capital

70.37

Demand Conditions

16.26

Market Size

0.24

Market Sophistication and Growth

32.27

Industries, Innovation and Entrepreneurship

1.71

R&D, Firms and New Firm Creation

2.94

Industrial Clusters and New Knowledge creation

0.49

Social and Political Institutions

75.19

Healthcare and Educational Institutions

96.52

Financial and Administrative Institutions

53.87

Nagaland

Scores

State Innovation Index

22.75

Factors of Production

20.11

Land and Labour

34.57

Capital

5.45

Physical and Technological Infrastructure

15.15

Human Capital

25.27

Demand Conditions

8.91

Market Size

0.69

Market Sophistication and Growth

17.13

Industries, Innovation and Entrepreneurship

1.02

R&D, Firms and New Firm Creation

1.42

Industrial Clusters and New Knowledge creation

0.62

Social and Political Institutions

60.97

Healthcare and Educational Institutions

93.57

Financial and Administrative Institutions

28.38

43

The State Innovation Report 2016

44

Odisha

Scores

State Innovation Index

26.26

Factors of Production

26.70

Land and Labour

34.89

Capital

18.99

Physical and Technological Infrastructure

27.56

Human Capital

25.36

Demand Conditions

15.39

Market Size

20.76

Market Sophistication and Growth

10.01

Industries, Innovation and Entrepreneurship

10.63

R&D, Firms and New Firm Creation

8.26

Industrial Clusters and New Knowledge creation

12.99

Social and Political Institutions

52.30

Healthcare and Educational Institutions

82.84

Financial and Administrative Institutions

21.77

Punjab

Scores

State Innovation Index

33.94

Factors of Production

33.09

Land and Labour

44.43

Capital

10.66

Physical and Technological Infrastructure

36.45

Human Capital

40.80

Demand Conditions

31.71

Market Size

13.62

Market Sophistication and Growth

49.81

Industries, Innovation and Entrepreneurship

17.05

R&D, Firms and New Firm Creation

26.20

Industrial Clusters and New Knowledge creation

7.89

Social and Political Institutions

53.90

Healthcare and Educational Institutions

74.56

Financial and Administrative Institutions

33.23

45

The State Innovation Report 2016

46

Rajasthan

Scores

State Innovation Index

28.18

Factors of Production

27.05

Land and Labour

32.11

Capital

18.79

Physical and Technological Infrastructure

36.09

Human Capital

21.19

Demand Conditions

28.88

Market Size

34.11

Market Sophistication and Growth

23.65

Industries, Innovation and Entrepreneurship

16.84

R&D, Firms and New Firm Creation

15.24

Industrial Clusters and New Knowledge creation

18.44

Social and Political Institutions

39.95

Healthcare and Educational Institutions

60.87

Financial and Administrative Institutions

19.04

Sikkim

Scores

State Innovation Index

33.04

Factors of Production

32.91

Land and Labour

57.01

Capital

8.58

Physical and Technological Infrastructure

13.93

Human Capital

52.11

Demand Conditions

17.26

Market Size

0.00

Market Sophistication and Growth

34.52

Industries, Innovation and Entrepreneurship

0.68

R&D, Firms and New Firm Creation

1.25

Industrial Clusters and New Knowledge creation

0.12

Social and Political Institutions

81.32

Healthcare and Educational Institutions

96.67

Financial and Administrative Institutions

65.96

47

The State Innovation Report 2016

48

Tamil Nadu

Scores

State Innovation Index

45.62

Factors of Production

44.68

Land and Labour

74.66

Capital

27.71

Physical and Technological Infrastructure

55.61

Human Capital

20.76

Demand Conditions

36.13

Market Size

35.91

Market Sophistication and Growth

36.34

Industries, Innovation and Entrepreneurship

56.34

R&D, Firms and New Firm Creation

58.84

Industrial Clusters and New Knowledge creation

53.84

Social and Political Institutions

45.34

Healthcare and Educational Institutions

62.26

Financial and Administrative Institutions

28.42

Tripura

Scores

State Innovation Index

27.15

Factors of Production

29.90

Land and Labour

54.17

Capital

6.72

Physical and Technological Infrastructure

19.30

Human Capital

39.40

Demand Conditions

12.45

Market Size

1.54

Market Sophistication and Growth

23.37

Industries, Innovation and Entrepreneurship

1.11

R&D, Firms and New Firm Creation

2.04

Industrial Clusters and New Knowledge creation

0.19

Social and Political Institutions

65.13

Healthcare and Educational Institutions

95.71

Financial and Administrative Institutions

34.56

49

The State Innovation Report 2016

50

Uttar Pradesh

Scores

State Innovation Index

37.91

Factors of Production

28.54

Land and Labour

25.19

Capital

26.30

Physical and Technological Infrastructure

45.47

Human Capital

17.19

Demand Conditions

61.71

Market Size

100.00

Market Sophistication and Growth

23.43

Industries, Innovation and Entrepreneurship

39.90

R&D, Firms and New Firm Creation

38.37

Industrial Clusters and New Knowledge creation

41.43

Social and Political Institutions

21.51

Healthcare and Educational Institutions

26.80

Financial and Administrative Institutions

16.22

Uttarakhand

Scores

State Innovation Index

30.73

Factors of Production

31.96

Land and Labour

39.73

Capital

15.40

Physical and Technological Infrastructure

36.04

Human Capital

36.66

Demand Conditions

21.13

Market Size

4.76

Market Sophistication and Growth

37.50

Industries, Innovation and Entrepreneurship

12.00

R&D, Firms and New Firm Creation

17.50

Industrial Clusters and New Knowledge creation

6.51

Social and Political Institutions

57.82

Healthcare and Educational Institutions

85.40

Financial and Administrative Institutions

30.25

51

The State Innovation Report 2016

52

West Bengal

Scores

State Innovation Index

33.01

Factors of Production

35.21

Land and Labour

45.31

Capital

25.33

Physical and Technological Infrastructure

44.21

Human Capital

25.99

Demand Conditions

31.18

Market Size

45.51

Market Sophistication and Growth

16.85

Industries, Innovation and Entrepreneurship

19.24

R&D, Firms and New Firm Creation

19.12

Industrial Clusters and New Knowledge creation

19.36

Social and Political Institutions

46.42

Healthcare and Educational Institutions

74.95

Financial and Administrative Institutions

17.89

5.0 Discussion and Analysis of the State Innovation Index

53

The State Innovation Report 2016

The Major Findings of the Index The index tells broadly areas where the innovation environment at a state level is relatively strong. As it would have been problematic comparing innovation across states at different levels of development it was decided to compute an innovation stage of development index. A stage of development is

built using eleven indicators of innovation, which are important for understanding innovation.

These indicators were aggregated using a PCA at the indicator level as to come up with a stage of development. Finally, the innovation scores according to the stage of development are classified.

Stage of Development Scores and Classification Tamil Nadu

76.82

Maharashtra

64.23

Karnataka

52.08

Gujarat

42.35

Uttar Pradesh

38.75

Delhi

33.51

Andhra Pradesh

30.83

West Bengal

21.80

Punjab

21.79

Kerala

21.05

Madhya Pradesh

17.21

Rajasthan

15.06

Haryana

13.85

Uttarakhand

10.66

Jharkhand

10.66

Assam

7.05

Himachal Pradesh

6.72

Bihar

6.64

Chhattisgarh

6.56

Goa

6.23

Odisha

5.87

Meghalaya

2.15

Tripura

2.14

Jammu & Kashmir

1.72

Sikkim

1.61

Mizoram

0.81

Manipur

0.67

Nagaland

0.05

Arunachal Pradesh

0.00

Table: 5.1 Stages of Development and Classification Source: Authors

54

40 and Above

From 20-40

From 10-20

From 5-10

From 1-5

From 0-1

States

State Innovation Index according to Stage of Development Ranks

Maharashtra

49.32

1

Tamil Nadu

45.62

2

Karnataka

40.35

3

Gujarat

37.70

4

Delhi

40.55

1

Uttar Pradesh

37.91

2

Kerala

37.40

3

Andhra Pradesh

35.43

4

Punjab

33.94

5

West Bengal

33.01

6

Uttarakhand

30.73

1

Haryana

30.05

2

Rajasthan

28.18

3

Madhya Pradesh

26.98

4

Jharkhand

21.42

5

Goa

39.67

1

Himachal Pradesh

33.35

2

Odisha

26.26

3

Bihar

24.27

4

Chhattisgarh

23.69

5

Assam

23.49

6

Sikkim

33.04

1

Tripura

27.15

2

Jammu & Kashmir

26.97

3

Meghalaya

22.86

4

Mizoram

32.47

1

Arunachal Pradesh

28.30

2

Manipur

27.40

3

Nagaland

22.75

4

Table: 5.2 Innovation Index with stages of development Source: Authors

State Innovation Index with Stages of Development The Overall State Innovation Index Also computed here is a stage of index which tells what places should be looked together as a cluster.

Maharashtra, Tamil Nadu, Karnataka and Gujarat are seen to be innovation frontrunners in India.

However it must be said that these states also pale in comparison to states and regions globally which are deemed as innovation hotspots. These states have been innovative largely because some locations and cities within these states have become innovative.

Overall the index seems to tell that the innovation environment is strong regionally in south and western parts of India. Thus there seem to be

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The State Innovation Report 2016

Map 5.1 State Innovation Index36 Source: Authors

a west-south and north-east divide. Delhi and Uttar Pradesh seem to be an exception to this rule and seem to be doing well on the index. States in peninsular India seem to be doing well on innovation environment. The scores on the index are an aggregate of scores at a dimension level in India.

It is important to seen the dimensional scores on the index.

Factors of Production The factors of production tell the basic factors of land, labor and capital in India. On the dimensional level it can be seen that the states where there is low infringement of land rights as well as places where there are higher labour force participation rates, higher credit availability as well as better

36 Note that Andhra Pradesh and Telangana are shown as distinct territories but have same scores. This is because a composite score for undivided Andhra Pradesh was computed, as many indicators were not present for individual states post the division of state of Andhra Pradesh.

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Map 5.2 Factors of Production Dimension Source: Authors

physical and technological infrastructure there are commensurate better scores on the index. However it does not signal or prove causation.

The correlation coefficient is moderate at 0.3 for some of these indicators with State Innovation Index. Another component, which is seen to important, is the human capital, which includes factors like education expenditure, educational attainment as well as nationally ranked universities.

The aggregated scores on these components show Maharashtra, Andhra Pradesh, Gujarat and Karnataka doing well as a cluster in the south.

Similarly in the north a cluster that seems to be there is the northern smaller cluster of Himachal Pradesh, Punjab, Haryana, Delhi and Uttarakhand.

These are relatively smaller states but seem to do well on factors of production.

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The State Innovation Report 2016

Map 5.3 Demand Conditions Dimension Source: Authors

Demand Conditions The demand conditions tell the market size and market sophistication and growth. These pillars include on demand and factors on the consumption side of the economy. These major factors have a lot of indicators like population, purchasing of consumer durables and services like computers, television, and banking.

If one looks at the index demand conditions

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are strong in two pockets. Towards the west, Maharashtra and Tamil Nadu followed by Andhra Pradesh, Karnataka and Gujarat tend to have strong demand conditions.

The second category of states that tend to have strong demand conditions include states towards the north and eastern side from Punjab, Haryana Delhi, UP, Bihar and West Bengal. For UP, West Bengal and Bihar it is understandable given the number of

Map 5.4 Industries, Entrepreneurship and Innovation Dimension Source: Authors

people living in these areas. Over the years these states and companies must look to build innovative products and services, which are sustainable to fulfill this demand. The east and northeast tends to have latent demand and score low on the index.

Industries, Entrepreneurship and Innovation Industries, Entrepreneurship and Innovation dimension has indicators like total number of

research and development institutions, number of factories in a location, number of incubators, entrepreneur’s memorandum, etc. It also has indicators like total number of copyrights/ patent applications and grants, number of MSME clusters, etc.

These explain the conditions for research and development as well as starting up a company and

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The State Innovation Report 2016

Map 5.5 Social and Political Institutions dimension Source: Authors

growth of factory sector in India. Here the bigger states like Maharashtra, Tamil Nadu, Uttar Pradesh, Karnataka and Gujarat seem to be doing well.

A lot of activity of innovation and entrepreneurship is clustered in some specific locations in India. Cities like Mumbai and Pune in Maharashtra, Bengaluru in Karnataka, Chennai in Tamil Nadu and Ahmedabad, Surat and Vadodara in Gujarat are places where

60

some form startup ecosystem support in the form of educational support, mentorship and venture finance is available. Some states like UP where large numbers of MSME clusters are present as well a significant number of R&D labs are located does well on the overall dimension.

Social and Political Institutions Conventional economic theory suggests that places

where social and political institutions are stronger tend to be where more innovation activity takes place. However this is not the observed trend in this index. The northeastern as well as the Jammu and Kashmir tend to be locations where there is strong institutional presence of the government.

of the report the authors are taking industrial policies for states due to their ability to foster innovation as these can bring in competition with the private sector. However it must be kept in mind that innovation policies are more akin to science and technology policies.

However these are not locations, which seem to be doing very well on entrepreneurship, innovation or other aspects of entrepreneurship. There may be other reasons for their not doing well on entrepreneurship and innovation as well. These could include turmoil, instability and lack of an environment, which fosters innovation and provides growth.

But since very few states have a science and technology policy we decided to look at the industrial policies at state level. It was decided not to look at the education policies for research as cutting edge research carried out by institutions of national importance again are decided upon by the central government with little say of the state government. The state governments do look at the state level universities but large focus in these policies is still laid on primary, secondary and college level education. The industrial policies of states will be discussed elsewhere in the chapter on innovation policies.

State Level Innovation Policies After evaluating the index, it is a logical extension to look for policies that have lead to the development of the science and technology ecosystem in the country. However for the purpose

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The State Innovation Report 2016

6.0 Sectoral Innovation in India

62

Innovation and Manufacturing Innovation in manufacturing can imply a host of things. These could include but are not limited to usage of technologies that are novel and their application to the manufacturing process. It could also be used to mean the manufacturing process and the innovation activities that can happen along the distinct elements of the manufacturing process like sourcing, processing as well as outbound activities, etc. It could also be used to mean innovation along distinct sectors of manufacturing.

There is an ongoing debate on high-tech versus low-tech in manufacturing. At present India’s high tech manufacturing as a percentage of total manufacturing is one of the lowest in the world. Added to this is the problem that India’s manufacturing as a percentage of GDP has been more or less stagnant at a level of 15 percent over the past thirty years. Another major challenge is job growth in the sector with the coming in of industrial

automation. A way forward on these conundrums could be innovation in manufacturing sector.

In the manufacturing sector as a whole there are a lot of SME’s as well as big companies across distinct sectors. These SME’s and companies if they can imbibe innovation as a paradigm can help unleash a revolution in Indian manufacturing. A major problem at the SME level is the lack of trust between competing companies and even suppliers in the market. Adequate mechanisms to safeguard the business interests in the form of trade secret protection and ensuring swift resolution of disputes through special courts can help unleash a revolution in SME innovation and competitiveness. Also making land labour and capital markets more free can help solve many problems. However it must be stressed that despite some of the mentioned issues a lot of innovative activity is being witnessed in several distinct sectors of manufacturing.

Figure 6.1: High Technology manufacturing as a percentage of World over the years Source: National Science Board Science and Engineering Indicators 201437 37 Accessed from http://www.nsf.gov/statistics/seind14/index.cfm/chapter-6/c6s1.htm

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The State Innovation Report 2016 The opening up of the Indian economy significantly in 1991 unleashed several sectors where growth was originally missing due to policy bottlenecks.

Significant liberalization and change in Industrial policy as well as FDI policy impacted some of these sectors significantly. The transformation of food, automotive, biotech, pharmaceuticals and electronics sector is testament to this fact.

Figure 6.2: Evolution of Food processing Industry in India Source: India Food Report 201638

Figure 6.3: Key Segments Source: India Food Report 201639

Major Sectors in India’s Innovation There are six sectors, which have been studied here for understanding India’s innovation ecosystem.

These sectors are also important for the recent ‘Make in India’ program of the Indian government.

These sectors have evolved over the years with an interaction with successive policy regimes as well have developed over time into robust engines of Indian economy. Some of these sectors have had a long history while others are relatively novel.

Food Sector The food sector in India is dependent on the agriculture sector in which India is among the top nations of the world. Food production in India underwent distinct evolutionary changes and adequately changed from the era of scarcity to the era of economic transformation. Several business models have done well in the Indian context. The ‘cooperative model’ of GCMMF better known as Amul is famous for helping in the white revolution in the country.

There are several segments in the Food Industry with dairy being one of them. These include commodity, staples, dairy, meat, beverages

38 Accessed from http://competitiveness.in/wp-content/uploads/2016/02/Food_Chapter.pdf 39 ibid.

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Some of the sectors have lagged behind due to overt dependence on public sector. A pertinent example is defense production, which seems to be lagging behind at present in India. This is where the government plans to cut defense procurement from outside and instead develop indigenous and collaborative defense both with domestic and international defense players.

However promising signs are being witnessed with India showing willingness to rope in more players.

and convenience foods, etc. Opportunities for innovation exist in each of the distinct segments of the agro-processing sector. With the opening up of FDI the sector has seen robust collaboration and partnerships.

Also packaging and branding offer opportunities for innovation. Apart from this several challenges like lack of storage facilities, perishable nature of goods, lack of proper skilled manpower, etc. offer opportunities for innovation for companies.

Regulation for food standards in the sector is done by Food Safety and Standards Authority of India (FSSAI). The sector is seeing a deepening of regulation, which has forced some players to alter their strategy.

The growth drivers and trends within the industry show the how companies are responding Growth Drivers

• •

Changing consumer preferances and tastes resulting from rise in disposable incomes

Greater Integration with World Economy Greater FDI Inflows and Corporate investments Changing face of Storage Facilites and Food Retailing

Entry of International Food Processing Players

Changing consumer preferences in terms of lifestyle choices will determine the product offerings within the segment. Innovation opportunities exist across the value chain of the product right from new kind of product to branding and packaging around the product.

Challenges in Food Processing Industries that require Innovative solutions •

Lack of Processing in the perishable segment: This arises due to a variety of reasons like lack of processing technology and facilities, unorganized nature of processing, lack of adequate infrastructure for storage etc. this results in a lot of wastage and loss of perishable

Key Trends •

Robust Domestic Demand for processed foods

innovatively to consumers changing preferences and lifestyle choices. Overall the sector appears poised for growth over the next 10 years.

• • • • •

Food constitutes almost half of our consumer expediture and will continue to do so over the next 10 years.

Product Innovation especially with respect value addition is being looked upon as the key for domestic expansion.

Procurement through direct farm linkages by corporate players.

Focus on greater processing towards fruits & vegetables as a result of a shift in consumption.

Focus on healther foods e.g, low carbohydrate content and low cholestrol oils.

Greater consumption of horticultural crops.

Move towards better techniques for processing and targeting overseas markets for exports.

Emergenece of Indian Players with presence across the world examples include- Bikanerwala and Haldiram

•

Improved processing technology and greater product standardarization

• • •

Focus on Frozen and Processed Food.

Better Packaging for Products looked upon as sign of inherent quality Building a strong distribution network and brand is seen as key to success

• •

Emergence of JV’s in the Food Processing Industries Plants being set up at strategic locations as India is seen as a key sourcing hub and offers opportunity in terms of cost competitiveness.

Table 6.1 Growth Drivers and Key Trends within the Food Sector in India Source: India Food Report 201640 40 Accessed from http://competitiveness.in/wp-content/uploads/2016/02/Food_Chapter.pdf

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The State Innovation Report 2016 number of people are employed along the various activities of the value chain, the fact remains that a large fraction of them are unskilled.

There is scope for providing them with training for betterment within the sector.

• SME Competitiveness: A crucial element and a major challenge is value capture by the SME segment that remains largely unorganized.

Value capture can happen when these players comply to international standards and look for growth opportunities after achieving scale in the domestic market.

• Lack of Branding and Packaging: Branding and packaging are of critical importance within the sector.

SME’s trying to compete with multinationals have to keep these two factors in mind apart from local distribution and quality product offering.

Biotech Sector The Biotech sector in the country is relatively novel.

The evolution of the sector has been phenomenal over the past three decades. It started with the development of National Biotechnology Development Board in 1982.

Figure 6.4: Evolution of Biotech Industry in India Source: DBT Coffee Table Book41

•

•

•

agricultural commodities.

Lack of Adequate Storage Facilities along the value chain: Lack of proper storage facilities along the value chain results in lack of problems of processing as well as problem of wastage.

Poor Value Chain Linkages: A fragmented value chain results in suboptimal outcomes that inhibit the growth of the sector. Linking from farm to fork is critical for benefits to flow to the farmers.

Lack of skilled manpower: Though a large

Biotech sector can be divided depending on the products and services being offered. Based on the revenue figures Bio-pharma continues to be a major segment in India. The regulatory framework consists of the two ministries with the Department of Biotechnology falling under the Ministry of Science and Technology.

Several major trends are observed in the biotechnology space. These are listed in table. An

41 Accessed from http://www.dbtindia.nic.in/wpcontent/uploads/DBTCoffeeTableBook_February_2016.pdf

66

Figure 6.5: Major Products and Services in Biotech Industry Source: IBEF- Biotech Sector Report42

Regulatory Framework for Biotech Industry

Figure 6.6 % Revenues in 2015 Source: IBEF43

Figure 6.7 Regulatory Framework for Biotech Source: DBT44

42 http://www.ibef.org/download/Biotechnology-January-2016.pdf 43 ibid.

44 http://www.dbtindia.nic.in/

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The State Innovation Report 2016 Major Trends in Biotechnology Sector India is among the top 12 biotech destinations in the world India a strong destination for Biotechnology

India ranks second in Asia, after China India is the world’s largest producer of recombinant Hepatitis B vaccine

Bio and Pharma and Interlinked

Ranbaxy, Cadila Healthcare, Lupin, Wockhardt and Dr Reddy’s are among the major Indian pharmaceutical companies operating in the bio-pharma segment

Global Companies Entering and Collaborating in India

Several companies have entered India in the past through the JV or even on the own to drive manufacturing and commercialization activities in India

GM to remain an area of Growth

Bt Cotton along with several important crops has led india to being the country with the 4th Largest area under cultivation of GM Crops

M&A activity

M&A Activity is strong in the sector with companies wanting to upgrade and strengthen their presence through their Portfolios. Dr. Reddy’s Laboratories acquiring UCB (India) for USD131.02 million is a good example.

Ramping up Service Offerings

Several companies are ramping up service offerings and even evolving their product mix. These include companies like Biocon, which have recently launched Bionesp, an antibody for managing anaemia in earlystages.

Entry of Personalized Medicines

Personalized Medicines are attracting a lot of attention from Biotech and Pharma firms in India. DNA technology is used in several cases to provide information on lifestyle related diseases.

Table 6.2: Major Trends in Biotechnology Sector Source: IBEF- Biotech Sector Report45

important component of the development of the sector and innovation is seen with proliferation of biotech sector in some specific clusters like Karnataka. The reason for this is presence of strong pharmaceutical cluster, which along with the IT cluster has resulted in a strong life sciences and biotech cluster.

Another reason is incubators in biotechnology are located towards the southern cities and a strong cluster has emerged in these cities. There are also a number of PG programs in biotechnology across several universities in India. However it is important 45 http://www.ibef.org/download/Biotechnology-January-2016.pdf 46 http://web.mit.edu/lawclub/www/Bayh-Dole%20Act.pdf

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to note that India is still not at the forefront of technological development.

It would be important here to look at the success of other countries particularly America in fostering a system of technology transfer and innovation which helped it to not only regain but boost its economic competitiveness in the area of biomedical research and industry with a key legislation called BayhDole Act. Prior to this Act (1980)46 patents could be granted to small business and non-profit institutions but the government retained ownership of all the patents granted using government money. India

on its part did try to introduce The Protection and Utilization of Public Funded Intellectual Property Bill, 2008.47 But the bill was later withdrawn post consultations. The reason was it was moved quickly and without due considerations to the ground realities in India. However, the positive impacts it has had in the U.S. economy cannot be negated. Thus

being at the forefront of generic drugs development (till today 70% of the revenues are from the generic Industry). During the 1990’s India became a signatory to TRIPS agreement of the WTO and in consonance with the international regime modified its Patent law in 2002 and 2005. The industry structure is fragmented in India and has two

Figure 6.8 Biotech Parks & Incubators Source: DBT48

Figure 6.9 Universities engaged in Courses Source: DBT49

it is recommended that the government studies the system in US and more importantly the system of public funded research in India in greater detail and then reintroduce the a bill that will help transform the biotechnology and pharmaceuticals sectors in the years to come.

components namely the API (Active Pharmaceutical Ingredients) and Formulations. If one looks at the value chain of drug discovery and manufacturing Indian industry has followed the low cost route and has abstained from taking risks associated with drug development. In the years to come India Industry should look at moving up the value chain and invest in R&D and new drug development. India cannot hope to compete just on the basis of cost and replicate medicines from the western world. It is because newer disease patterns are emerging and thus there is need to rise up to the challenge and lead in global innovation.

Pharmaceutical Sector The Pharmaceutical sector has considerable success in India. This is because in the 1970’s there was a system of process patents and pharmaceutical companies post the Patent Act of 1970 doing process reengineering to make drugs. This resulted in India

47 http://www.prsindia.org/billtrack/the-protection-and-utilisation-of-public-funded-intellectual-property-bill-2008-83/ 48 Accessed from http://dbtindia.nic.in/wp-content/uploads/FICCI-Report-May-15.pdf 49 http://www.dbtindia.nic.in/wp-content/uploads/PGTP-2015_LR.pdf

69

The State Innovation Report 2016

Figure 6.10 Evolution of the Pharmaceutical Industry Source: IBEF and Authors’ analysis50

Figure 6.11 Structure of the Industry Source: IBEF Pharmaceutical Sector Report51 50 http://www.ibef.org/download/Pharmaceutical-January-2016.pdf 51 ibid.

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Figure 6.12 Revenue Share of Sub Segments Source: IBEF52

Figure 6.13 Pharmaceutical Segments Source: IBEF53

Figure 6.14: Value Chain of Drug Discovery Source: Paper by Wadhwa et al. (2008)54 52 ibid.

53 ibid.

54 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1143472

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The State Innovation Report 2016 Automotive Sector The automotive sector like the Indian Pharmaceutical sector has had a long history in India. The initial years post independence upto the 1980’s saw the prevalence of license raj with little or very few options for consumers and very little incentive for companies to innovate and compete.

However being one of the first sectors to see industrial delicensing, the sector quickly turned around. Lots of multinationals signed JV’s and clusters emerged in prominent industrial hubs in India. The industry saw a transformation with collaborations between private players in India and global corporations, which helped, offer more innovation and more choices to the consumers. Over time the ecosystem has developed significantly.

A remarkable thing has been that the sector has produced several innovations in the product and processes, which have been exported to other parts of the world. For instance the development of small cars like Nano have changed the price performance matrix completely. Similarly several cars have been introduced in India, which are now being exported around the world. Frugal engineering has been popular among the developed world, which emerged from low resource settings over time.

The development of the automotive industry is an example of calibrated policy that resulted in growth of the sector with both creation of jobs and better choices for consumers. However environment is seen as a negative externality in the case of the sector. Therefore the need from policymakers

Figure 6.15: Evolution of Indian Automotive Industry Source: Competitiveness and Urban Mobility a case from India55 55 http://www.umtri.umich.edu/sites/default/files/Amit.Kapoor.India_.New_.Mobility.2015.pdf

72

Figure 6.16: Total Vehicle Sales Category Wise Source: OICA56

is to look for options like biofuels, hybrid vehicles etc. and this presents opportunities for innovation in the sector. Driverless cars is another area where there is a lot of opportunity in the years to come.

Figure 6.17: Clusters in Indian Automotive Industry Source: Competitiveness and Urban Mobility a case from India57

Defense Sector The defense-manufacturing sector despite a significant military expenditure has not taken off in India.

Part of the issue deals with regulations as well as with the mindset of the leadership to not let public and private sector collaborate on production of different systems. Despite this the three main organizations for Defense R&D technology and production under the government have had considerable success. These include DRDO for research and development, and Defense PSU’s and Ordinance factories for defense production.

56 http://www.oica.net/category/sales-statistics/ 57 http://www.umtri.umich.edu/sites/default/files/Amit.Kapoor.India_.New_.Mobility.2015.pdf

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The State Innovation Report 2016 However at a global scale the sector is barely competitive with India importing a bulk (60%) of the equipment it requires for safety and security of the nation. Thus the recent policy moves to try to bring in more FDI by increasing the limits of FDI to 100% is a step in the right direction. Similarly defense procurement over the past years has been slow and the government is in the process of coming Figure 6.18: Production Statistics of Automobiles in India. Source: OICA58 Major Trends in Automobiles Sector Large number of products available to consumers across various segments; this has gathered pace with the entry of a number of foreign players New Product Launches

Reduced overall product lifecycle have forced players to employ quick product launches In 2015, Mercedes launched the whole new Mercedes Benz B-Class Facelift which has new features like LED daytime running headlamps that are integrated into the cluster

Private Sector Innovation Key Driver of Growth

Private Sector Innovation is seen as a key determinant of growth. The example of Tata Nano, Scorpio and several other vehicles are examples of Private sector innovation in the sector

Global Companies Entering and Collaborating in India

Several International Players have entered and collaborated with players in the Indian Market since delicensing. Renault and Mahindra JV, Hero and Honda JV are well known. The acquisition of Jaguar and Land Rover

by Tata was a moment that signified coming of age of Indian automobile industry

New Financing Options

Several car companies especially in the luxury car segment are providing customized car loans to consumers through NBFC's

Newer Alternative Fuels

With the increase in number of vehicles on the roads policymakers are looking at biodiesel and CNG as viable solutions for the problems of pollution by vehicles

Government is supporting some segments

Government is supporting some select segments like Tractors for agriculture and ecofriendly hybrid and e-scooters and vehicles

Growth of Luxury Segment

Luxury segment has grown tremendously over the past few years and this is attracting entry of Global Majors in the segment. Already Mercedes and Ford have announced plans of expansion in their current portfolios in the luxury segment

Table 6.3: Major Trends in Automobile Sector Source: IBEF Automotive Sector Report59

74

58 http://www.oica.net/category/production-statistics/ 59 http://www.ibef.org/download/Automobile-January-2016.pdf

Figure 6.22: Military Expenditure Per Capita Source: SIPRI Military Expenditure Database64 Figure 6.19: Military Expenditure By Country in percentage terms by top 10 Spenders.

Source: SIPRI Military Expenditure Database61

up with a new manual60 for the coming years. The recent Rafael deal thus became imperative. Over time India should move in the direction of enabling collaboration between private sector both from India and abroad with the defense PSU’s for greater innovation and learning within the sector and reduction in costs and a boost to make in India.

Electronics Sector The development of electronics sector in India cannot be separated from the development of the information technology revolution. However the electronics revolution started with the development of transistor radios in 1960’s. Post this came the wave of color televisions and computers in the 1980’s led to the second wave of electronics upgradation.

Figure 6.20: Top 15 Defense Budgets in the World Source: The Military Balance 2016, IISS62

Figure 6.21: Military Expenditure as a percentage of GDP. Source: SIPRI Military Expenditure Database63

Post the 1990’s there has been considerable foreign investments in the sector as well as penetration of electronic products has increased tremendously.

Price of electronic products has come down considerably over time with the improvement in technology and technology life cycles have shortened considerably. Innovation has disrupted several players both globally and in India. Several new product markets have emerged like the mobile smartphone market, which has lead to considerable growth and innovation in the sector.

Companies are increasingly spending on R&D and product development. Sectorally, in India consumer electronics remains the biggest segment according 60 http://pib.nic.in/newsite/PrintRelease.aspx?relid=133534 61 https://www.sipri.org/databases/milex 62 https://img.sauf.ca/pictures/2016-07-19/69039f949de62811836f9743646 299f3.pdf 63 https://www.sipri.org/databases/milex 64 ibid.

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The State Innovation Report 2016 Major Trends in Defense Sector 100 Percent Equity through the Government Route for Foreign Companies Opening Up of the Sector

Boost to Local Manufacturing and Innovation Need to Do Away with JV and lengthy & time consuming deals with Indian Counterparts

Defense Procurement is the Mainstay

Defense Production

Roughly 30 Percent of the Defence budget is spent on capital acquisitions Roughly 60 percent of the requirements are met through imports The total defense production by DPSU's and OFD stood at Rs. 27889 Crore From March to December 2014.

This included production worth Rs. 20751 Crores by DPSU's and Rs. 7138 Crore by OFB's.

The opportunity in the Defense Manufacturing in the Indian case could be from $150- S200 Billion in the coming Decade

Local Demand

Domestic Conglomerates like Tata, Mahindra and L&T are therefore looking to leverage the opportunity India is the largest arms importer from the period 20062015

R&D to be a major Component

R&D constitutes roughly Rs. 15000 Crore in the defence expenditure which is roughly 6% of the Defense Expenditure

Table 6.4: Major Trends in Defense Sector Source: Authors’ Analysis based on Ministry of Defense Website65

to production figures. The sector has great potential in the years to come but much will depend on domestic players innovating and competing with global players in the years to come.

Sector Specific Policies and Performance of Innovation

Figure 6.23: Share in total production of electronic goods. Source: MIETY 65 http://mod.nic.in/

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There are several sectoral polices that are aimed at making several sectors competitive in the Indian context. Apart from this the broad industry policy architecture as well as the foreign direct investment policy and trade policy play a key role in defining the sectoral growth. Multinationals while entering a market look at the market and the prevailing conditions. The seek many things like good human resources, a functional legal system and a stable policy regime, including but not limited to the spheres of tax, and Intellectual property, which

Major Trends in Electronics Sector Increased presence of organised retail and affordability due to technological advancement

Consumer Electronics

Expansion into new segments such as HDTVs, tablets and smart phones Government has revised the excise duty for tablets from 12% to 2% without CENVAT credit or 12.5% with CENVAT credit under the Union Budget 2015-16 Application of state-of-the-art systems such as Decision Analysis, 3–D coordinate systems, smart image processing, Nanotechnology, Nanoscale assemblies, DCS, etc., across various sections of the industry

Industrial electronics

Introduction of robotics to manage process and equipments for sensitive industries like Chemical Industry, Nuclear Power Generation etc.

Integration of production and business operations Artificial Intelligence has been made available which would help the sector to improve its quality control thereby making it more efficient One of the fastest-growing IT systems and hardware market in Asia Pacific

Computers

Notebooks segment have recorded a growth rate of 17 per cent in FY15; tablet ownership registered a growth of 27 per cent in 2014 – 15 from the previous year Total exports were USD441 million in FY13 Expansion of server market into smaller cities, and small and medium businesses Semiconductors lead segmental growth

Electronic Components

High growth in key determinants for electronic components, namely consumer electronics, telecom, defence and IT verticals Total Semiconductor market in India is estimated to reach USD9.66 billion by the end of 2015 India’s defence sector is poised for substantial growth; the country is expected to be one of the top five markets for defence equipment by 2015

Strategic Electronics

Economic growth and low costs are likely to provide impetus to aerospace market Nuclear power to play a large role in India’s energy security needs

65 http://www.ibef.org/download/Electronics-january-2016.pdf

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The State Innovation Report 2016 Growing broadband subscriber base C&B equipment's

Increasing Consumption and potential for production

As on 30th September 2015, the total telephone subscribers in the country was 1,022.61 million covering total wireless subscribers of 996.66 million and wireline subscribers of 25.95 million respectively Increasing PFCE on Recreational and Educational services, and Home appliances are expected to contribute to the rise in consumption and production of Electronics and IT Hardware.

Growth of 17 per cent is expected with major contributors being Consumer Electronics, Telecom and Computers

Table 6.5: Major Trends in Electronics Sector. Source: IBEF66

guarantees protection compatible with global regimes for fostering growth and innovation.

Sector specific policies have had a bearing on performance of innovation in almost all the sectors discussed. These include sector specific policies in Biotech, Electronics, Automobile, Defense Procurement and Electronics. Like the Automotive Mission plan was aimed at improving the automotive industry. Likewise the Defense Procurement Policy is aimed at reducing foreign dependence and build indigenous capability in

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defense production. How much these distinct policies have a bearing on innovation in the sector is difficult to gauge. However in sectors where there has been an ‘opening up’ and contact with domestic private sector and foreign private sector companies have done well in both innovating and competing.

In the years to come much will depend on not just the policy but also their implementation on the ground. Over time Indian sectoral innovation potential has increased tremendously and this is a part of India's economic transformation.

7.0 Innovation Policies in India

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The State Innovation Report 2016

Innovation Policy and Actors in India The history of innovation policy is relatively well documented in the developed countries. Much of the work in this regard has happened since the 1980’s when the concept of national innovation system entered the policy lexicon. Post this since the late 1990’s OECD has done Innovation reviews of several countries. In developing countries too, much has been done in this regard now. The World Bank too has undertaken some books and reports on innovation policy in developing

countries. Broadly speaking an innovation policy is often linked to the development of science and technology development and also enabling research and development ecosystem. Before moving to the components of what the enabling environment should be let us focus on the east west conception and their differences with respect to innovation.

These are important to look at differences in conceptions.

East-West Contrasts in Socioeconomic Systems West

East

Innovation

Importance of science based innovations

Technology and production driven innovations

Educational values

Individualism,exploration of the unknown

Collective values, imitation

Institutions

Public/private systems regulated by the rule of law, formal contracts

Connection-based systems with informal relations

Table 7.1 East West Contrasts in Socioeconomic Systems. Source: Innovation Policy, A guide for Developing Countries, The World Bank, Jean-Eric Aubert (2010)

At a conceptual level an innovation policy is important to create an enabling environment for innovation in a particular location. Some important dimensions of creating an enabling environment Components of enabling

apart from innovation policy include institutions and capabilities.

An innovation policy has many important

Policies

Institutions

Capabilities

Policies to promote more

Public labs, universities

High-level human capital for

private R&D

Private R&D labs

R&D (scientists, engineers,

• Intellectual property rights

IPR institutions

technicians)

regime

Technology transfer offices

Techno-entrepreneurship

• Matching grants

Science and technology parks

• Tax subsidies

Technology incubators

Public spending on R&D

Research and education

• National mission programs

networks

• Competitive grants

Specialized nongovernmental

• Peer reviews

institutions

Support for pro-poor

Grassroots networks

innovations

Early stage techniology

environment Creation and commercialization of new knowledge

development finance and venture capital

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Diffusion and Absorption of existing knowledge in new locations

Openness to global

Technical information services

Formal education and skills

Knowledge flows

Technology upgrading

Engineering consulting firms

Trade

Productivity organizations

Business support services

Foreign Direct Investment

Metrology, standards, testing

Technology Licensing Policy

and quality control systems

Foreign Education and

National research and

attracting the Diaspora

education networks Networks at cluster level Technology absorption finance for micro, small, and medium enterprises

Broader investment

Competition and trade

Efficient financial system

Literacy

Regulatory policies, especially

Flexible labor market

Secondary and higher

toward infrastructure

Effective courts and judiciary

education graduates

Entrepreneurship support

Market-responsive formal

Managers

Good rule of law

education institutions and

Entrepreneurs

Macroeconomic stability

lifelong learning system

Table 7.2: Enabling Environment for Innovation Source: Unleashing India’s Innovation, Dutz and Dahlman The World Bank (2007)

components. These include components like research, trade, education, industry and finance.

These components are important from the

viewpoint of innovation policy.

Union Level Innovation Policy in India: The use of the word ‘Innovation’ in the national

Figure 7.1: Dimensions of an Innovation Policy. Source: Innovation Policy, A guide for Developing Countries, The World Bank, Jean-Eric Aubert (2010)67 67 http://documents.worldbank.org/curated/en/251181468340760891/pdf/548930PUB0EPI11C10Dislosed061312010.pdf

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The State Innovation Report 2016 science and technology policy lexicon is rather new in India. India’s Scientific Policy Resolution 195868, sought the ‘cultivation of science and scientific research in all its aspects’. The focus was on ‘early and large scale development of science and technology’ for the wealth and prosperity of the nation.

The 198369 ‘Technology Policy Statement’ focused on the need of technology competence and selfreliance. It also mentioned technology acquisition and transfers and mentioned a critical facet, which was hitherto missing from policy debate in India, i.e., implementation.

The idea of ‘Innovation’ was inserted with a view to strengthening the national R&D infrastructure and creating a ‘National Innovation System’ in the Science and Technology Policy 200370. Innovation implies ‘S&T based solutions’ that are successfully deployed in the economy or the society. Also, mentioned was the need to develop and leverage India’s traditional knowledge, as well as generate and manage India’s intellectual property resources.

Monitoring for speedy implementation of the policy was also given weightage.

The most recent STI Policy 201371 in India is the most comprehensive policy statement from the point of view of India STI policy framework and mentions the deepening of the science and technology system in India. It recognizes that due importance to innovation has not been accorded by the ‘instrument of policy’ in India. India had accordingly declared the decade 2010-2020 as the ‘decade of innovation’ as an important step and had established the National Innovation Council. However since the coming of the new government this has become almost non functional. It also alludes to the need of understanding science, technology and innovation as not disconnected from each other but as something that needs to be integrated for new value creation.

Also, it has a focus on creating an innovative ecosystem that is also inclusive. The policy has also mentions some points on developing an ecosystem that works for inclusion. It includes promoting mechanisms like ‘small idea-small money’ and risky idea funds to support incubators. In addition the

policy also talks about ‘STI driven entrepreneurship’ with viable and scalable business models. Another important point is that the policy focuses on promoting academic and industry linkages. In terms of manufacturing sector, the policy put emphasis on the high-tech exports while recognizing the low R&D intensity among SMEs. Thus, there have been several considerable changes that have been envisaged in the STI 2013. These include India’s increasing Gross Expenditure in Research and Development (GERD) from under 1% in 2011 to 2% of the GDP that had been a national goal for some time before the policy was envisaged.

For this to happen the policy envisages the role of private sector and expects its R&D investment to at least match the public sector R&D investment from the ratio of around 1:3 in 2013.72 India has also made considerable progress as mentioned by some of the parameters for measurement namely the fact that India ranks ninth globally in the number of scientific publications and 12th in the number of patents filed. While these show considerable maturity of the science and technology ecosystem the fact remains that the technology landscape is understood by the Ministry of Science and Technology in quite broad terms.

Industrial Policy Architecture in India The industrial policy of any region can be a major enabler of innovation and competitiveness of a region as this defines the focus and the rules of the game, which the corporates will have to follow while operating in any location, region or country. The industrial policy is also responsible for the kind, structure, ownership patterns and competition within industries in any given location, region and country.

The Industrial Policy 1991 initiated several policy measures in the Industrial segment, which have had a bearing on the future of the Indian Industry.

Several industries were opened up simultaneously and this allowed for FDI’s and equity investments upto 51% in 33 industries. The salient features of the

68 For details see, http://www.dst.gov.in/stsysindia/spr1958.htm , accessed on July 3, 2016 69 For details see http://www.dst.gov.in/stsysindia/sps1983.htm, accessed on July 3, 2016 70 For details see http://www.dst.gov.in/stsysindia/stp2003.htm, accessed on July 3, 2016 71 For details see http://www.dst.gov.in/stsysindia/stp2013.htm, accessed on July 3, 2016 72 For details see http://www.dst.gov.in/sites/default/files/Thoughts%20on%20Indian%20STI%20future_0.pdf , Accessed on June 3, 2016

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Industrial policy 1991 involved the repealing of the MRTP act, which was replaced by the Competition Act of 2002. This act enabled the formation of the Competition Commission of India under section 7 of the mentioned act. The function of the Commission is prohibition of anti-competitive agreements and abuse of dominant position in any industry. There were several industries, which were reserved for the public sector. For several sectors even 100% allowance was provided for foreign investment.

These included Atomic energy and Railway transport.

The various prior Industrial Policy statements73 and their importance is mentioned below: Industrial Policy Resolution, 1948: The Policy aimed at outlining the approach to Industrial growth & development. It emphasized the importance to the economy of securing a continuous increase in production and ensuring its equitable distribution.

Industrial Policy Resolution, 1956: Under the Policy the role of State was given more importance as an engine for accelerating the economic growth and speeding up the industrialization as a means of achieving a socialist pattern of society.

Industrial Policy Statement, 1973: The thrust of this Policy Statement was an identification of high-priority industries where investment from large industrial houses and foreign companies were permitted.

Industrial Policy Statement, 1977: The Policy emphasized on decentralization and growth of small-scale industries.

Industrial Policy Statement, 1980: The Policy emphasized promoting competition in domestic market, technology up gradation and modernization.

The policy laid the foundation for an increasingly competitive export based and for encouraging foreign investment in high-technology areas.

Post the 1991 resolution, several sectors were opened up and this helped in the development of a collaborative and innovative environment for the private sector to grow. The states along with

the national government were at the forefront of developments in industrial development. It is therefore pertinent to look at the state level policies of innovation.

Some Selected State Innovation Policies Gujarat74 The industrial policy of Gujarat, 2015 is quite extensive and drives home several important points.

The vision is to make Gujarat ‘globally competitive and innovative industrial destination’. The industrial policy specifically seeks to strategize around the following broad areas: 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

Innovation and technology transfer Jobs Creation Investments Startups Infrastructure Skill Development Competitive Business Environment Environmental Protection Measures Ease of Doing Business Research and Development Value addition

The policy specifically has incentives to make Gujarat an attractive “Total Business Destination”.

The policy further talks about innovation and entrepreneurship among youth. An important feature of the policy is to strengthen the linkages between universities and industries by using various platforms like seminars, workshops, trainings, contract research, patenting, etc. The policy also seeks to improve the research and development ecosystem of the industry. In addition the policy also seeks to promote specific sectors where it has a competitive advantage.

A pertinent feature of the policy is its focus on promoting university-industry linkages and allocation of tasks to specific agencies and bodies of Gujarat Government. The policy also lays focus on skill development and labour intensive manufacturing. In addition it seeks to make Gujarat a destination where it is easier to do business. The policy also encourages young entrepreneurs to come

73 For more information kindly see http://www.dipp.nic.in/English/Policies/Industrial_policy_statement.pdf 74 http://ic.gujarat.gov.in/wp-content/uploads/2015/01/INDUSTRIAL_POLICY_2015.pdf

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The State Innovation Report 2016 forward with the innovation and promote them at even the idea stage.

Maharashtra75 The Industrial Policy statement of Maharashtra 2013 has a vision for Maharashtra to ‘become a globally competitive manufacturing destination and promote faster sustainable and inclusive growth’.

The policy targets are quantified and goal oriented with the state expected to achieve a manufacturing growth rate of 12-13 percent per annum. Apart from this another target is creating 2 million jobs and attracting Rs. 5 lakh crore of investment.

The validity of the policy is till March 31st 2018.

The policy has a strong manufacturing and infrastructure feel. The state again divides projects based on their location into distinct zones, which have certain incentives. The policy also promotes cluster promotion. The policy seems to be silent on innovation and new business creation and startups.

Karnataka76, 77 Karnataka has both an Industrial Policy and a Policy on IT, ITES, Innovation and Incentives also known as the I4 policy. The Industrial Policy vision is to make Karnataka the ‘most preferred investment destination through inclusive, sustainable and balancedgrowth.’ The policy like Maharashtra’s Industrial Policy seeks to attract an investment of Rs. 5 Lakh Crore. The policy also wants to create an employment of 15 lakh people by 2019.

The policy focuses on technology transfer as a strategy for industrial development. The state also has technology upgradation scheme with incentives.

In addition the policy also directs department of Industries to help in collaboration between technology transfer agencies and individuals. The policy also promotes setting up a R&D unity within a specific zone being eligible for a 50% capital subsidy limited to INR 500 Lakhs. The special focus areas of the policy are Defense and Aerospace, Automotive, Pharmaceutical, Steel, Cement, Agro food Processing and Sugar Industry.

The I4 policy seeks to create a quality entrepreneurial ecosystem in the state of Karnataka by connecting Startups, Mentors, Funds and Activities. The policy is aimed at primarily the IT, ITES and BPO sectors with newer areas as well like ESDM, animation and graphics as well. The vision is to make Bengaluru the Biggest IT cluster in the world. Lands outside Bangalore will be provided at concessional rates to both corporates and startups based on certain conditions.

Tamil Nadu78 The Industrial policy statement of Tamil Nadu was launched in 2014 and looks at Vision 2023 of Tamil Nadu for industrial development. Tamil Nadu’s industrial policy seeks to ‘leverage its manufacturing prowess and draw in incremental investments of more than 10 percent per annum’. Another of the stated objectives of the policy are making Tamil Nadu an ‘innovation hub and knowledge capital of India’.

The policy also seeks to look at sectors like Biotechnology with its first incubation park becoming operational in 2004. The park was set up with the collaboration of the Cornell University.

Another facility is being planned with the state-ofthe art equipment for Microbiology and Molecular Biology facilities. The government policy lays stress on four special areas namely: Automobile and Auto components Sector, Renewable Energy Equipment manufacturing Industries, Aerospace industry and Biotechnology and Pharmaceuticals Sector. The policy also proposes public private partnership between ITI’s Polytechnics and Engineering Colleges.

The policy in addition also mentions technology parks with higher learning institutions universities to be facilitated. Another area where the policy is vocal is ‘development of Centers of Excellence and innovation’ in areas such as chip design, leather product design and automotive design.

These centers will work with Venture Capitalists for providing mentoring and financial support to start-ups. In addition incentives are also provided

75 http://www.midcindia.org/documents/20182/24867/Industrial+Policy+of+Maharashtra+2013/21d620d5-ede4-4ba9-a5cd-f41998004cee 76 http://www.bcic.in/wp-content/uploads/2014/04/final-2014-19-Policy-draft-17-Feb-.pdf 77 http://www.bcic.in/karnataka-i4-policy/ 78 http://www.investingintamilnadu.com/tamilnadu/doc/policy/Tamil_Nadu_Industrial_Policy_2014.pdf

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according to categories of projects to investors according to the policy. In addition the Government will reimburse 50% of the expenditure incurred by an industrial units subject to a maximum of Rs. 1 lakh for patents.

in policy inconsistency. Also there is a need to improve the institutional functioning between what is proposed in the policy and how awareness is brought about in potential innovators and entrepreneurs.

Policy Lacunae

Another area of policy lacunae is bring in more coherence between science and technology, research and development, education and industrial policies.

So far few state level industrial policies look at the problems holistically. A logical extension thus should be to find common elements between innovation and industrial policies for science, technology and industrial development of India.

There do not seem to be much in terms of policy lacunae as there is in terms of implementation of proposed policies. Most of the policies at the state level appear to be be similar in content. Another point is that with changes at a political level often newer policies are announced and this results

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The State Innovation Report 2016

8.0 Recommendations and Conclusions

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Learning and Recommendations At a National Level Despite the challenges the national system of innovation has performed well in India given the constraints. However a few things can be done to improve it further. These include, things like • Implementing the technology roadmap prepared

by TIFAC for 2030.

• Increase in the spending on R&D at a national level. This is because at present the spending on R&D as a percentage of GDP is dismal.

• Along with spending the focus should also be to look at broader and specific areas of technology for India to be able to innovate. India should focus on technologies that are ahead of their time at the same time have potential to generate economic wellbeing, Mangalyaan was possible only because the country looked far ahead of its time. The same needs to be the approach for looking at Science and Technology programs today. The same needs to be the approach to technologies like robotics and 3D printing today.

• Getting more human resources to opt for a research profession. At present there is no death of talent but a dearth of opportunities at the national level in India. The need is also to look at opening research universities.

• Improving the capability of both central and state universities and the associated colleges and IIT/IIM/AIIMS system for looking at producing greater innovation outputs. By greater it does not mean reducing the quality but means in greater numbers.

• Taking a broader view of innovation policy to include industrial manufacturing and its linkage to research and development. The need is to focus on innovations that are helpful for the welfare of people.

• Another important element is understanding the role of Intellectual Property and building Policies, which enable people to share more and trust each other more. Such a policy framework would enable people from all spectrums to come together and find solutions to problems facing people today.

•

• •

•

Improvement along dimensions that are critical for economic development. These include dimensions like improving intellectual property rights regime. Also the need is for greater awareness among both the researchers as well as common people for understanding IP in India.

Encouraging the human resources for generating greater innovation output.

Providing incentives for MSME’s to undertake and scale up innovations. A big linkage, which is missing at present, is between educational institutions and MSME’s, which can benefit from research and development programs in universities.

Bringing more policy and actor sustainability.

The national announcement for a decade of innovation as well as the National Innovation Council is almost a forgotten institution with the coming of new government. There should be a consistent focus on innovation at a national level in the long term.

At a State Level At a state level very few initiatives are actually taken.

Here there is tremendous scope for improvement along the science and technology dimension.

• Leveraging science and technology for greater good of MSME’s in the location. At present very few locations use the technological know how for MSME’s. The government’s at the state level should promote such idea sharing.

• Focusing on scaling up the grassroots innovations in the Indian context.

• Employing a mix of technology push and market oriented technology development. The latter had been missing in India but post liberalization a steady rise is being witnessed. This needs to improve further.

• More focus in making states kick start an ecosystem of research and development within the states.

• Cross sharing of ideas on innovations that can be scaled at a national and international level.

• Fostering industry- university and industry

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The State Innovation Report 2016

•

state sponsored R&D linkages at the state and national level.

Even cluster development programs are run in top down manner. The need is for the state to look at cluster where the state thinks it can intervene and make a positive impact in the lives of people.

•

At a Sectoral Level •

•

•

•

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At a sectoral level there is a need to understand what has worked for India and what has not. This includes seeing the evolution of sectors witnessing growth. In the case of Pharmaceuticals, Biotechnology and Automobiles the openness to MNC’s has benefitted India in developing not only a robust R&D capability but also helped in bringing MNC’s to India which has generated jobs and helped Indian industry become innovative and globally competitive.

In the Pharmaceuticals case, the decision of India to join TRIPS and putting in place a robust IP system has helped MNC’s wanting to come to India. Added to this is the low cost of labour, which has led many pharmaceutical companies to open R&D centers in the country. This has had a positive impact on the evolution of pharmaceutical industry in India.

In the case of Biotechnology the initial push from the side of government along with an enabling research and development ecosystem with incubators and development of a Department of Biotechnology at a national level and Departments of Biotechnology in various universities has helped the development of the sector.

In the case of Food Processing an open FDI regime has again boded well for the sector.

Today the companies operational in the sector are exporting as well as moving up the value chain and generating better realizations for all the stakeholders. However the companies in the food processing industries are not spending too much on R&D due to the nature of the business.

•

The investment in R&D here again is from the side of agricultural universities and research institutions of the government. In the years ahead the need is to improve the spending on R&D from the side of food processing industry.

In the case of defense sector, India has recently opened up (for 100% participation) the sector for foreign participation. Largely, till date, defense production been done by Ordinance Factories and Defense Public Sector Undertakings in collaboration with other defense sector research institutions like DRDO. Only now has the government been seen keen on private sector participation with players like M&M, L&T Godrej, Tata, Bharat Forge in addition to international players like Lockheed Martin. The defense production and its linkage to a robust R&D system has suffered in the past due to several policy implementation bottlenecks. However, defense production remains a critical sector, which is uncompetitive at present. Despite the bottlenecks the DPSU’s have been able to shift some critical technologies to the defense forces. But the sector sees huge imports from outside India. It is high time that the country becomes self reliant in this regard.

In the electronics sector too India is still a huge importer. However the government has formulated a plan to make the sector competitive in the years ahead.

Conclusions The national system of Innovation in India is becoming more robust with time. From a technology push orientation it is moving towards being more open and collaborative. The government has enabled this transition in the initial years with funding to research and development organizations. The university and college system as well as the sectoral systems have all deepened with time in the India.

Nationally, regionally and sectorally there are distinct learning and recommendations which if implemented can enable India to be more innovative and competitive in the long run.

Select References Reports, Books and Journal Articles

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(2005), Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data. Paris: OECD. http://www.oecd.org/sti/inno/ anualguidelinesforcollectingandinterpretinginnovationdata3rdedition.htm Pachouri, A., and S. Sharma. (2016), Barriers to Innovation in Indian Small and Medium-Sized Enterprises. ADBI Working Paper 588. Tokyo: Asian Development Bank Institute. http://www.adb.org/publications/barriersinnovation-indian-small-and-medium-sized- enterprises/

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Cisco, ‘A new ranking of the world’s most innovative countries’ http:// graphics.eiu.com/PDF/Cisco_Innovation_Complete.pdf http://competitiveness.in/wp-content/uploads/2016/02/Food_Chapter.pdf https://img.sauf.ca/pictures/2016-07-19/69039f949de62811836f97436462 99f3.pdf OICA Production Statistics (2015), http://www.oica.net/category/ production-statistics/ OICA Sales Statistics (2005-2015), http://www.oica.net/category/salesstatistics/ SIPRI Military Expenditure Database, https://www.sipri.org/databases/milex Zinnov ‘Global service providers ratings-2015’ http://zinnov.com/global-rdservice-provider-ratings-2015-2/

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Institute for Competitiveness U 24/8. DLF Phase 3, Gurgaon, Haryana - 122 002, India Website: www.competitiveness.in Š Institute for Competitiveness, 2016