Has India become innovative since 1991?

Dr. Sunil Mani
Centre for Development Studies, Trivandrum
14-Oct-2009

“Innovation is not essentially building new ideas, but serving the existing ideas in a better manner” - Dr. Sunil Mani, was speaking about his research on whether India is progressing since 1991. The idea of innovation is mainly to introduce new products across different markets on a cheap basis.
In 2009, India ranks 58th in the Global Innovation Index that grades the level of innovation in a country. Innovation is measured mainly from manufacturing sectors. The reason behind this is that while there might be a high growth rate for capital and labour in manufacturing sectors, it is pretty low for technology.

Indian companies are moving abroad for acquisitions to acquire new technology which might otherwise take a lot of time and capital to develop indigenously. The reason behind foreign acquisitions therefore, is not solely to gain a foothold in the foreign markets.

Any firm can acquire technology from two sources – through its own Research and Development (R&D) department and or by acquiring technology from other companies, mainly abroad. Of late, Indian companies are increasingly purchasing technology through consultants. This is because if the company is not affiliated, the multi national companies might not be willing to transfer their knowledge of technology. The Average Propensity measure shows that the rate of innovation is increasing and therefore the companies are being independent of technology or they are moving to consultants for acquiring them.

Before 1991 there were only about 14,000 companies that were formed every year. For the period 1991-2008 around 23,000 companies were formed every year, therefore the Knowledge Intensive Entrepreneurship has increased. From the Space Competitiveness Index that covers three components Government, Human Capital and Industry, India shows a high degree of competitiveness.

Dr. Mani used two indicators to measure innovation - Input and Output Indicators.
Input indicator is the amount of money spent as expenditure on R&D. This helps in creating innovation. India spends only 0.78% of its GDP on R&D against the target of 2% of GDP. Pharmaceuticals industries have strong R&D against other sectors, as R&D is located within the company as opposed to other sectors where R&D happens not in synch with its progress and requirements.

Output indicator is the number of U.S patents being granted to the Indian scientists. This also indicates that even though large numbers of patents are being awarded, the actual money that arrives in this form to India is little. Thus innovation is yet to reach the target growth rate.