To win tech race, invest in knowledge creation

In the 21st century, innovation has become the cornerstone of economic policy. Developed and developing nations are racing to adapt to technology-focused entrepreneurial societies. The battle for control of the global economy in this century will be won and lost over the control of innovative technologies.

Innovation and entrepreneurship, two key drivers of a fast-growing economy, are shifting from developed to developing countries. India, emerging as one of the largest exporters of modern services, exemplifies this shift. During its presidency of the Group of 20 (G20), India dedicated significant efforts to boost the innovation and entrepreneurship agenda. The theme of innovation, R&D, and start-ups has been an important agenda point in almost all the bilateral visits of Prime Minister Narendra Modi. His visit to Houston captured the global diaspora connections for a rapidly expanding digital services sector in India. India has produced CEOs of Indian origin for Google, Facebook, Twitter, and the World Bank.

India is home to the second-largest internet subscription market in the world. Digital innovation has gained popularity in policy circles with the launch of the Atal Innovation Mission, a flagship innovation programme aimed at scaling start-up incubation centres and promoting innovation culture. Delphix Corp, a Silicon Valley-based MNC that has changed the dynamics of managing and consuming data for Fortune 100 companies, has decided to launch a new research and development centre in India. India is becoming a global hub for state-of-the-art R&D, with some of the brightest minds in the world, which offers a unique blend of market opportunity, technical competencies, and a highly scalable workforce.

Twists and Turns

India’s march in this global race on innovation and entrepreneurship will be a long one, with twists and turns. India is not yet among the top innovative nations in the world, whether it is measured by the efficiency of tertiary education, patent activity, researcher density, or spending on research and development. India currently ranks low among 130 economies in the Global Innovation Ranking. India’s investment in R&D is abysmal, at 0.7% of GDP, compared to China, which has managed to scale up its R&D investment from 1% in 2006 to more than 2% in 2022.

The stagnation in India’s R&D intensity at less than 1% of GDP and low levels of efficiency in tertiary education are serious concerns. The number of articles published by China’s scientific community has grown at a furious pace, but India’s has remained comparatively static. Unless more investments are made in education, skill shortages are likely to become a constraint on growth.

India’s ecosystem of innovation and entrepreneurship remains lopsided. Unlike in China and the US, where research centres are spreading, in India it is centred around three mega-city clusters—Bangalore, Delhi, and Mumbai—and it has not spread to tier two cities. This has created a paradox for India. As India is a global leader in exports of modern technology services, the benefits of technological advances have not spread to small towns and cities. Spatial differences in productivity gains from technological advances remain huge between megacities and tier-two cities.

India needs to close the gap between urban and rural areas, the public and private sectors, and various stakeholders in the science and technology space within the country and with the rest of the world. Currently, there is no collaboration between CSIR labs and private labs in India. India will also benefit from launching the Indian equivalent of the Small Business Innovation Research programme, like the platform launched in the US that has benefited small entrepreneurs.

Innovation has become more global than it once was, and it has shifted from the industrial to the digital revolution. The old Industrial Revolution ushered in the factory system, mass transport, and electricity. The digital revolution is shaping a new future as emerging technologies reshape entire industries, transform jobs, and change the way we relate to one another.

Five decades of rising capabilities and falling costs in digital communications, information storage, and data processing have given rise to a number of powerful, multi-use technologies, such as machine learning algorithms, secure and distributed forms of data sharing and management, advanced materials, biotechnologies, and neurotechnologies, among many others. Intellectual assets, including human capital, patent valuations, brand value, and firm-specific knowledge, are rapidly becoming the key to value creation. Investment in software has contributed significantly to business performance and economic growth, accounting for as much as one-third of the contribution of ICT capital to GDP growth.

India’s trade patterns are much more oriented towards modern services, particularly information technology-related business services. Our fear that India’s de-industrialization will restrain growth may not be the case, as new digital growth escalators have already emerged. Services are now contributing more than manufacturing to India’s output, productivity, and job growth.

Unlike in China, where demographic trends are ageing rapidly, India’s population structure is such that it will remain “young” for the foreseeable future. Young demographic trends tend to boost education, innovation, and savings. India will also benefit from very strong diaspora links with the global and US entrepreneurial communities.

Policymakers need to look at a broader array of investments in innovation and knowledge creation, including a more prominent role for the private sector that is necessary for transforming investments in innovation and knowledge into growth and jobs.

India needs to give a bigger push to “e-governance” to improve access to and the quality of public services delivered to citizens and businesses. Many more user-centred service designs can be introduced so that citizens have access to digital services that they prefer to use, leveraging wide-spread mobile technologies through the transformation of business processes to be digital from end-to-end, using authoritative data rather than documents for decision-making, introducing and using common services consistently across government by renewing their ICT architecture, upgrading their ICT infrastructure, and consistently moving to the cloud, and much more aimed at developing new leadership on e-governance models.

(The writer is a senior fellow at the Pune International Centre. He has formerly worked with the United Nations and World Bank)