Innovation deficit hurts India Inc

Addressing captains of industry from south India in Chennai recently, Union Home Minister,Mr P. Chidambaram, mentioned three important deficits that India Inc needs to pay attention to — regulatory, governance and ethical deficits — in order to ensure8-10 per cent annual growth in the coming years.

Apart from not defining the Government's role in erasing these deficits, the Minister failed to mention yet another important deficit — namely, the innovation deficit that Indian industries face despite the economic liberalisation that began in 1991.

And yet, this deficit has perhaps the maximum strategic implications for the industrial productivity and global competitiveness essential for economic growth.

That the economic status of a country has a direct bearing on the level of innovation prevailing in it is obvious from the fact that the US, which for several years (until 2007) occupied the No. 1 position, slipped to No. 11 following the economic downturn from 2007 to 2010, according to a report from the international business school INSEAD in Fontainbleu, Paris.

The same is true of Germany and many others affected by the recent collapse in global economy. Innovation deficit has become a buzz word in recent times. Many countries including the US, western European nations, Australia and even emerging economies, notably China and India, have identified innovation capabilities as essential for accelerated economic growth.

The US President, Mr Barack Obama, in his 2011 State Of The Union message specially mentioned the US imperative to once again out-innovate other countries if it is to fully recover from the present crisis.

Innovation is the process of converting (translating) an original concept, discovery or invention into an economically beneficial product.

The capability to continuously innovate can ensure a steady flow of profitable processes and products. While they need to be novel, they can be disruptive, incremental or breakthroughs. They should be easy to replicate and should satisfy a specific human need. While the rate of innovation and its precise impact on the economy cannot be easily quantified, the innovation capabilities and deficits of countries can be assessed through various parameters.

Several exercises have been carried out by the Boston Consultancy Group, INSEAD Paris/ CII India, The Economist , Global Innovation Source Board, The World Bank and others. According to the Economist 's Global Innovation ranking, Japan has retained the first place, with Switzerland, Finland, the US, Sweden and Germany following in that order. The Economist , however, relies heavily on the acquisition of patents from the US, European and Japanese patent offices for its innovation ranking.

Other studies have used, besides patents per million population, yardsticks such as scientific publications, R&D spending in the public and private sectors, nature and numbers of skilled human resources, and so on.

Where does India Stand?

In all the surveys on innovations and outcomes, India ranks low in the pecking order, below even countries such as Brazil, not to speak of China.

In the Standard & Poor and Business Week study of 132 countries, India ranks 82. No Indian company figures among the top 100 innovators, with Apple, Google and Toyota rated the topmost in the 2008 Business Week survey. These rankings are also reflected in the global competitiveness index. It is clear that unless India's innovation deficit is erased, it will be difficult to ensure sustained economic growth in the coming years.

Moving from a protected economy to a relatively free market economy brings additional pressures to remain competitive in the marketplace. In sectors such as pharmaceutical industry, innovation is the lifeline for survival and growth. Today, Indian pharmaceutical industry is globally ranked No 3 in production and 13 in value terms.

India is a major hub for outsourcing and the largest producer of generic drugs outside the US. Despite these achievements, discovery and development of new drugs — the next logical step to ensure sustained growth and market presence — is still in its infancy. The global market does not have a single drug discovered and developed in India. While in the mid-1960s to 1980s, MNCs such as Ciba-Geigy, Hoechst , Smith Kline & French (SKF) and Boots ventured into drug discovery R&D, all of them closed down not for lack of innovation, but due to commercial reasons dictated by their global operations.

With the advent of the Indian Patents Act 2005, new drugs will be available to the Indian market only from their innovators (patent holders), which means domestic companies will have to innovate if they want to maintain and increase their market share.

Over a dozen private sector companies have entered this space in recent years and will hopefully develop, over time, not only an innovation culture but also skills required to translate discoveries into beneficial products.

India spends one per cent of her GDP on R&D and most of it through national laboratories (although there has been a shift to the private sector), which are hardly the cradles of innovation-led enterprises.

The need of the hour is to promote an innovation culture backed by large investments in knowledge-based enterprises through agencies such as the Knowledge Commission, National Innovation Foundation and various Science and Technology departments, as well as the implementation of a National Innovation Legislation. The Global Innovation Index (GII) measures the strengths of countries in the innovation space. It is clear that only through utilisation of human resources, science and technology base, and business and marketing skills can India erase the current innovation deficits and attain global competitiveness and sustained growth even at the current growth rate.

(The author is a Chennai-based trade and IPR consultant.)