Transcript The Knowledge Revolution and the Need to Develop Country

India’s Innovation System:
Achievements, Challenges
and Opportunities
Presentation at Asian Science and Technology Forum
Innovative India and the United States
Carl J. Dahlman
Georgetown University
December 5, 2006
[Do not circulate without Author’s permission]
Structure of Presentation
 India in the Global Stage
 India in the Global Knowledge Economy



Achievements
Challenges
Opportunities
 The Indian Economy



Stylized Structure
Productivity Differentials
Sources of Technology
 The Indian Innovation System




Formal foreign Innovation Inputs
Informal foreign innovation inputs
Formal domestic innovation effort
Informal domestic innovation effort
 The Indian S&T System



Organization
Main Players
Scorecard Comparison with China and US
 Summary and Conclusions
India’s Position on the Global Stage
17 percent of the world’s population
11th largest economy in the world in 2004
(using nominal exchange rates)
But only 1.7 percent of the world’s GDP
And only 0.8 percent of world trade
Faces increased competition from China and
other countries
Knowledge Economy Framework
The Four Pillars of the Knowledge Economy
Economic and Institutional Regime
EIR provides incentives for the
efficient creation, dissemination,
and use of existing knowledge
Education
An educated and skilled
population that can use
knowledge effectively
Interconnected
Interdependent
Information Infrastructure
To facilitate the effective
communication,
dissemination, and
processing of information.
Innovation
Innovation consisting of
organizations that can tap into
the stock of global knowledge,
assimilate and adapt it and
create local knowledge
Knowledge Assessment Methodology
KAM: 80 structural/qualitative variables to
benchmark performance on 4 pillars
Variables normalized from 0 (worst) to 10 (best)
for 128 countries
www.worldbank.org/kam
Basic scorecard for 14 variables for two points
in time, 1995 and most recent
Knowledge economy index (KEI) which includes
3 variables for each of the four pillars: economic
and institutional regime, education, innovation
and ICTs.
India, China and US Most 1995 (weighted)
India, China and US Most Recent (weighted)
India, China and US Most Recent (un weighted)
Deterioration in India’s Relative Overall
Global Position in Knowledge Economy
India In Global Innovation Index (weighted)
India In Global Innovation Index (un weighted)
India's Achievements
India has made tremendous strides in its
economic and social development in the
past two decades.
Average growth of GDP
 1990-2000:
6.0%
 2000-2004 6.2%
 Last 3 years 8.0%.
Such sustained acceleration needed to
provide opportunities for India’s growing
population and its even faster-growing
workforce.
Trillions of 1995
international $
16
Real
GDP Projections 2004-2015
Real GDP (PPP): Projections 2004-2015 (Using 1991-2003 Average Growth Rates)
India
Canada
Italy
Russian Federation
14
China
France
Japan
United Kingdom
Brazil
Germany
Mexico
United States
China
United States
12
10
India
France
8
Italy
Brazil
United
Kingdom
Russian
Federation
Mexico
Germany
6
Japan
Canada
4
2
0
2003
2005
2007
2009
2011
2013
2015
India’s Strengths
Large large domestic market
Young and growing population
Critical mass of educated and skilled
English speaking knowledge workers
Strong public and private R&D
infrastructure
Strong science and engineering
capabilities centered on pharmaceutical
and software areas
India’s Strengths-2
Becoming world’s service center for
software development, and back office
offshore sourcing
Becoming host for R&D centers by
MNCs
Network of successful Indian Diaspora
in US, Europe and Asia, providing
access to markets, technology, finance
Relatively deep financial markets
Strengthening export orientation and
seeking strategic alliances
India’s Challenges-1
Large and rapidly growing population
 1,080
million
 Av. Annual growth rate
• 1990-2004: 1.7% actual
• 2004-2020: 1.4% estimated
Low average educational attainment
 Illiteracy
of 52% for women, 27% for men
 4.8 Av. years of education for adults
Low per capita income
 $620—159th
in world
India’s Challenges-2
Over regulated economy
Poor physical infrastructure
 Electricity
 Roads,
ports, and airports
Competing in very demanding
global economy with rapidly
changing windows of opportunity
A Special Window of Opportunity
India has important window of opportunity
to undertake key reforms to leverage its
strengths
Has all the critical ingredients--what is
holding it back is itself
Needs to leverage its strengths to improve
competitiveness and improve well being of
its people
Time is of the essence
Choices matter
India’s Choice Set in Determining Future Growth Path
India: Real GDP Per Capita - Alternative Projections 2001-2020
1995 US$
3,000
Actual
Proj 4
Projection 1: 2.09 % TFP Growth (Actual)
2,500
Projection 2: 1% TFP Growth (India 1961-70)
Proj 3
Projection 3: 3% TFP Growth (India 1981-90)
2,000
Projection 4: 4.25% TFP Growth (which is Ireland's
actual TFP growth rate for 1991-2000)
Proj 1
1,500
Proj 2
1,000
500
0
1995
2000
2005
Year
2010
2015
2020
Stylized Structure of Indian Economy
Structure of Employment
Labor Productivity
Productivity Dispersion
Productivity Calculations
Sources of New Technology
Innovation in the Context
of a Developing Economy
Innovation in developing country should
not be confined to pushing back the
global technological frontier but also as
adopting products, processes, business
and organizational models that are new
to the domestic environment
Assessment of Indian Innovation System
Comparisons on Acquiring Knowledge
Low Exploitation of Global Knowledge
 Analysis

Low Share of Merchandise Trade in GDP: just 25% vs.
• av of 38% for low income, 58% for lower middle income
• 60% for China

Low FDI—just 0.7%. Of GDP av FDI inflows (1994-2003)
• 3.4% for Brazil; 1.9% for Russia, 5.1% for China

Low Absorption of Global knowledge• large informal/subsistence economy
 Recommendations





Continue to liberalize trade and FDI
Tap Indian Diaspora
Reduce bureaucracy and corruption
Improve infrastructure
Improve av. educational attainment of population
R&D as % GNP
Indian R&D Expenditures Over
Time as % of Indian Gross
National Income
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.88 0.91 0.9
0.83
0.86
0.82
0.79
0.79 0.78 0.76
0.73
0.71
0.72
0.77 0.79
0.8
0.86 0.82
0.79
0.77
85- 86- 87- 88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 2K- 01- 02- 03- 0486 87 88 89 90 91 92 93 94 95 96 97 98 99 2K 01 02 03 04 05
Year
India’s R&D Effort in Global Context
Total Gross Domestic Expenditure on R&D (PPP$)
Researchers per million
5,800
Japan
4,800
USA
3,800
Russia
2,800
France
Korea
UK
Germany
1,800
Brazil
800
China
India
-200
0.0
0.5
1.0
1.5
2.0
2.5
R&D expenditure as % of GDP
3.0
3.5
Formal Innovation Inputs & Outputs
Brazil
Russia
India
China
Korea
Mexico
Researchers in R&D (2003)
59,838
487,477
117,528
810,525
151,254
27,626
Researchers in R&D/million
population (2002)
351.78
3,414.59.
119.66
633.02
2978.94
274.01
Total expenditures on R&D as
% of GDP (2002)
1.04
1.24
0.85
1.23
2.91
0.43
Estimated spending on R&D in
US billions in 2002
4,705
4,297
4.337
15,572
13,872
2,740
Scientific and technical journal
articles (2001)
7,205
15,846
11,076
20,978
11,037
3,209
Millions of R&D$/ Scientific
and tech articles*.
653
271
392
742
1257
854
Scientific and technical journal
articles/million population.
(2001)
41.80
109.47
10.73
16.49
233.13
32.29
Patent applications granted by
USPTO
(2004)
161
173
376
597
4671
102
Billions of R&D$/patent
granted*
29.2
24.8
11.5
26.1
3.0
26.9
Patent applications granted by
USPTO/million pop.
(2004)
0.9
1.21
0.35
0.46
97.03
0.98
Manufactured trade as % of
GDP (2003)
15.10
17.83
13.52
51.32
48.65
45.99
High technology exports as %
of man. Trade (2003)
11.96
18.86
4.75
27.10
32.15
21.34
Low Total R&D Expenditure
Analysis



Indian Expenditures on R&D averaged 0.8% of GDP
for last 15 years, other developing countries have
been increasing share==China as gone from 0.7% in
1995 to 1.4% in 2004
Total Indian expenditures =just 1% of global R&D
expenditures, less than total R&D spending of major
multinationals
70% of R&D is undertaken by government and bulk
of that is on mission programs
Recommendations



Increase public R&D expenditures (but improve
allocation and efficiency first--see below)
Get private sector to invest more in R&D (see below
for how)
Integrate public and private efforts more into global
R&D system [International R&D Fund ala BIRD}
Low Productivity of Public
R&D
 Analysis


Bulk of public R&D in defense, space, and oceans with little
commercial spill over
Main emphasis has been on production of academic papers,
relatively little focus on patenting and even less on taking it to
the market
 Recommendations



Reallocate more funding from defense, space and oceans to
more pre-commercial and social areas
Put in place clearer legal, institutional and incentive regime to
produce and commercialize knowledge relevant to India’s needs
[Bayh Dole type legislation]
Strengthen monitoring and evaluation mechanisms
• Learn from systems in place in US, and other advanced countries
• Strengthen training in research management in domestic institution
• Send specialists for training in foreign universities, R&D agencies,
labs, and firms

Create special pro-poor innovation fund
Low Private Domestic R&D efforts
 Analysis





Only 800O firms in formal sector do any R&D
R&D heavily concentrated in large firms
Fiscal incentives not used much
MNCs may be doing more R&D than domestic private sector
Why isn’t domestic private sector doing more R&D?
 Recommendations

Support greater R&D effort by private domestic firms
• Not clear that fiscal incentives have produced much additionality
• Expand matching grant schemes
– Scaled up SPREAD for individual firms or consortia
– Scaled up NMITLI for targeted niche projects to attain global leadership



Develop a greater culture of R&D as a business
Subsidize scientists and engineers working for domestic firms
Strengthen Grass Roots Innovation Fund
• Honeybee and Gians
• Tepp type program to support innovators in small towns and rural areas
Very little R&D by
Universities
 Analysis



Very small share of universities in R&D efforts
Few technical publications or patents except for IITs and IIsc
Little incentive for professors to patent or do consulting for real sector
 Recommendations


Pass Bayh Dole type legislation to make it legal for universities (and
public labs) to commercialize R&D and provide supplementary income
to professors and researchers
Develop competitive matching grant fund for research by universities
• NSF type competitive fund for researchers, with transparent peer review
• Expanded NMITLI, advanced technology program


Upgrade virtual research network infrastructure
Increase supply of high quality scientists and engineers
Little Interaction Among Firms,
Universities, Research Institutes,
Analysis



Little mention of collaboration in firm interviews
Few jointly authored papers
Little mobility of personnel among three institutions
Recommendations

Provide matching funds for collaborative projects
involving at least two types of partners
• Like programs in European Union
• US: Advanced technology program, SBIR


Facilitate mobility of scientific and technical personnel
among three types of institutions
National entrepreneurship fund for stimulating
problem solving in civil society
What to do About R&D by
MNCS?
 Analysis

Positive Externalities
• Training Indian scientists and engineers
• Providing demonstration effect

Negative Externalities
• Tapping India’s most valuable human capital and driving up salaries
which raises problems for domestic users
• Siphoning off many of these brains for own needs elsewhere
 What Should Policy be?

Provide same treatment as to domestic firms? or
• Give them special incentives as proposed by some?
• Subsidize researchers working for local firms, or impose a surtax
R&D working for MNCs?

More importantly
• Strengthen support infrastructure for spin-off firms
• Increase the limited supply of high quality scientists and engineers
What to do about Constraints
on Supply of Scientist and
Engineers?
 Analysis




Output of prestigious IITs is less than 7000 graduates per year
Recent study shows growing supply gap
Salaries of graduates of prestigious institutions is rising rapidly
Experienced R&D managers likely to become key constrain in public and private
R&D
 Recommendations

Expand output of top quality institutions
• What will it take to do this?
• Can they have autonomy in salary levels?
• Can they received donations?

Improve quality of other higher level institutions
• Is it possible to move upgrade quality of others” ?Can student tuitions be charged to
address financial constraint


Allow private sector to set up quality higher level institutions
Make big push on training R&D managers
• At Indian IMTs
• At foreign universities
• In foreign public research labs and universities
What to do about Weak
IPRs?
 Analysis


While India has become compliant with WTO Trips regulations,
there as stills some pending issues
Concern in interviews with foreign investors in India about pending
issues and more generally on enforcement
 Recommendations





Set up intellectual property think tank
Maintain maximum flexibility in IPR issues by exploiting any
remaining degrees of freedom
Modernize patent office
Provide more IPR training
Consider establishment of special patents appeal court
Strengthening Innovation - 1
Tap into growing stock of global knowledge,
through increased trade, FDI, technology licensing,
personnel movements
Attract FDI more effectively by removing
regulations on FDI and encouraging FDI R&D.
Make more effective use of Indian Diaspora
Improve efficiency of public R&D resources


Monitor S&T efforts and institutional performance to identify what
works well
Redeploy resources to programs that have a proven track record of
success.
Strengthen university-industry programs (through
matching grants and other initiatives)
Strengthening Innovation - 2
 Create attractive environment to motivate private R&D
investments including


Better tax incentives
favorable tax and other incentives.
 Strengthen supporting institutions such as



S&T park and incubators
Early stage financing and venture capital
Metrology, standards and quality control
 Enforce IPR to create confidence among domestic and
foreign innovators on protection of their innovations..
 Strengthen support for grass roots innovation
 Make stronger effort to use formal innovation system to
improve conditions for the poor
 Increase intake of students into S&E and improve quality
S&T System In India
Key Public Institutions In R&D
Government of
India
Principal
Scientific
Adviser to GoI
Ministry of
Information
Technology
Ministry of
Science
& Technology
R&D: $20MM
[ 1%]
Department of
Science &
Technology
R&D: $110MM
Department of
Scientific
and Industrial
Research
[ 4%]
Department of
Information
Technology
Ministry of
Defence
Department of
Atomic Energy
R&D: $270MM
Ministry of
Commerce
& Industry
Ministry of
Agriculture
Ministry of
Health and
Family Welfare
Department of
Industrial
Promotion &
Policy
Department of
Agricultural
Research
& Education
ICMR
R&D: $30MM
[ 9%]
Department of
Defence
Research &
Development
[ 1%]
CSIR
R&D: $230MM
DRDO
R&D: $720MM
ICAR
R&D: $300MM
[ 8%]
[ 25%]
[ 4%]
Department of
Space
R&D: $490MM
[ 17%]
Department of
Ocean
Development
Department of
Biotechnology
Ministry of
Human
Resource
Development
University
Grants
Commission
IIMs(?)
Ministry of
Overseas
Indian Affairs
IIT Council
Basic Research By Major
Public R&D Performers
Yr
Space
Atomic
Energy
DRDO
CSIR
ICMR
No.
AIF
N
o.
AIF
N
o.
AI
F
No.
AIF
No.
AI
F
1995
47
0.84
5
48
7
1.35
8
13
1
1.0
05
157
6
0.891
101
1.5
89
1996
31
0.89
7
53
1
1.28
8
13
6
1.0
10
162
5
1.264
79
1997
48
0.90
6
53
6
1.57
8
12
4
0.8
75
156
3
1.467
1998
56
0.98
9
61
2
1.47
1
14
2
1.1
05
152
1
1999
56
0.94
8
62
8
1.23
0
11
6
0.8
84
2000
51
1.18
7
59
8
1.69
1
10
2
2001
70
0.96
9
48
6
1.47
4
2002
82
1.50
8
75
8
2003
10
3
1.31
7
2004
10
0
1.29
4
ICAR
IITS
IISc.
AI
F
No.
AI
F
156
0.6
49
116
5
1.1
40
1.8
94
189
0.7
81
120
2
1.1
05
88
1.3
26
170
0.8
67
112
0
1.1
93
1.512
104
2.8
16
212
1.0
57
128
3
1.1
59
169
9
1.538
109
1.9
48
234
0.8
39
129
8
1.1
60
1.0
31
166
7
1.520
99
1.8
34
200
0.8
05
127
9
1.2
35
13
7
1.0
09
170
0
1.696
111
1.7
80
215
0.9
07
134
7
1.2
58
845
2.1
51
1.54
6
15
5
1.0
75
194
4
1.632
102
2.1
10
269
1.0
21
144
0
1.4
55
799
2.0
71
79
5
1.60
9
16
7
1.1
50
227
3
1.751
136
2.8
14
257
1.0
23
161
7
1.5
14
879
2.1
92
68
7
1.60
2
20
5
1.2
89
266
8
1.899
226
2.7
12
327
1.0
71
182
9
1.6
60
808
2.3
77
No.
No.
AI
F
Source: Bhojwani 2006 p. 38
Public Institutions with Most
Patents in Indian Patent System
(1995-2005)
Institution/organization Number of Patents
(rank among top 50)
CSIR
2760
(1)
Indian Institutes of
Technology
Ranbaxy Labs Ltd
245
(23)
185
(34)
Steel Authority of India 178
(36)
Chief Controller (Min.
of Defense)
Dr. Reddy’s Research
161
(42)
148
(48)
Growth of Patenting by Universities
IIT's and IISc
Other Universities & colleges
120
100
80
60
40
20
0
1995
1996
1997
1998
1999
2000
2001
2002
Innovation Scorecards: China-India
Innovation Scorecard: US-India
Opportunities for US-India Cooperation
 Foreign Investment

US firms into India for
• Production
• R&D

Indian firms to US
 Increased strategic alliances in production, R&D and
services




Basic research
Pharmaceuticals
Software
Auto parts
 Increased trade in goods and services
 Cooperation in education and training


Joint degrees
Distance education
Conclusion
 India has made great progress, but faces daunting
challenges
 India has the potential to leverage its strengths to
improve competitiveness and welfare
 Needs to continue reforms and develop effective
knowledge strategies
 Needs a three pronged innovation strategy



Become more effective in tapping into global knowledge,
disseminating and absorbing it
Harness formal domestic R&D capability to address needs of
the poor
Improve public and private innovation capabilities for the
modern sector
 There is tremendous potential for increased US/India
cooperation across many areas
Carl J. Dahlman
Luce Professor of International
Relations and Information
Technology
Georgetown University
Email: cjd42
@georgetown.edu