INDIA’S CHANGING INNOVATION SYSTEM

Achievements, Challenges, and Opportunities for Cooperation

Report of a Symposium

Committee on Comparative Innovation Policy: Best Practice for the 21st Century

Board on Science, Technology, and Economic Policy

Policy and Global Affairs

Charles W. Wessner and Sujai J. Shivakumar, Editors

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
www.nap.edu



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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium INDIA’S CHANGING INNOVATION SYSTEM Achievements, Challenges, and Opportunities for Cooperation Report of a Symposium Committee on Comparative Innovation Policy: Best Practice for the 21st Century Board on Science, Technology, and Economic Policy Policy and Global Affairs Charles W. Wessner and Sujai J. Shivakumar, Editors NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by: Contract/Grant No. SB1341-03-C-0032 between the National Academy of Sciences and the U.S. Department of Commerce; Contract/Grant No. OFED-381989 between the National Academy of Sciences and Sandia National Laboratories; and Contract/Grant No. NAVY-N00014-05-G-0288, DO #2, between the National Academy of Sciences and the Office of Naval Research. This material is based upon work also supported by the Defense Advanced Research Projects Agency Defense Sciences Office, DARPA Order No. K885/00, Program Title: Materials Research and Development Studies, Issued by DARPA/CMD under Contract #MDA972-01-D-0001. Additional funding was provided by Intel Corporation, International Business Machines, and Google. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-10483-8 International Standard Book Number-10: 0-309-10483-1 Limited copies are available from Board on Science, Technology, and Economic Policy, National Research Council, 500 Fifth Street, N.W., W547, Washington, DC 20001; 202-334-2200. Additional copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu. Copyright 2007 by the National Academy of Sciences. All rights reserved. Printed in the United States of America.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium Committee on Comparative Innovation Policy: Best Practice for the 21st Century* William J. Spencer, Chair Chairman Emeritus, retired SEMATECH Kenneth Flamm, Vice Chair Dean Rusk Chair in International Affairs Lyndon B. Johnson School of Public Affairs University of Texas at Austin and STEP Board Alice H. Amsden Professor of Political Economy Massachusetts Institute of Technology Gail H. Cassell Vice President, Scientific Affairs Distinguished Lilly Research Scholar for Infectious Diseases Eli Lilly and Company Lewis S. Edelheit Senior Research and Technology Advisor, retired General Electric Mary L. Good, Vice Chair Donaghey University Professor Dean, Donaghey College of Information Science and Systems Engineering University of Arkansas at Little Rock and STEP Board Bronwyn Hall Professor of Economics University of California at Berkeley Mark B. Myers Visiting Professor of Management The Wharton School of Business University of Pennsylvania Alan Wm. Wolff Managing Partner Dewey Ballantine * As of December 2006.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium Project Staff* Charles W. Wessner Study Director Sujai J. Shivakumar Senior Program Officer McAlister T. Clabaugh Program Associate David E. Dierksheide Program Officer Paul Fowler Senior Research Associate Ken Jacobson Consultant Jeffrey C. McCullough Program Associate * As of December 2006.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium For the National Research Council (NRC), this project was overseen by the Board on Science, Technology and Economic Policy (STEP), a standing board of the NRC established by the National Academies of Sciences and Engineering and the Institute of Medicine in 1991. The mandate of the STEP Board is to integrate understanding of scientific, technological, and economic elements in the formulation of national policies to promote the economic well-being of the United States. A distinctive characteristic of STEP’s approach is its frequent interactions with public and private-sector decision makers. STEP bridges the disciplines of business management, engineering, economics, and the social sciences to bring diverse expertise to bear on pressing public policy questions. The members of the STEP Board* and the NRC staff are listed below: Dale Jorgenson, Chair Samuel W. Morris University Professor Harvard University Timothy Bresnahan Landau Professor in Technology and the Economy Stanford University Lew Coleman President Dreamworks Animation Kenneth Flamm Dean Rusk Chair in International Affairs Lyndon B. Johnson School of Public Affairs University of Texas at Austin Mary L. Good Donaghey University Professor Dean, Donaghey College of Information Science and Systems Engineering University of Arkansas at Little Rock Amo Houghton Member of Congress, retired David T. Morgenthaler Founding Partner Morgenthaler Ventures Joseph Newhouse John D. MacArthur Professor of Health Policy and Management Harvard University Edward E. Penhoet President Gordon and Betty Moore Foundation Arati Prabhakar General Partner U.S. Venture Partners William J. Raduchel Independent Director and Investor Jack Schuler Chairman Ventana Medical Systems Suzanne Scotchmer Professor of Economics and Public Policy University of California at Berkeley * As of December 2006.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium STEP Staff* Stephen A. Merrill Executive Director McAlister T. Clabaugh Program Associate David E. Dierksheide Program Officer Paul Fowler Senior Research Associate Charles W. Wessner Program Director Sujai J. Shivakumar Senior Program Officer Jeffrey C. McCullough Program Associate Mahendra Shunmoogam Program Associate * As of December 2006.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium Contents PREFACE   xiii I INTRODUCTION   1 II. PROCEEDINGS   25     Welcome Remarks Ralph Cicerone, National Academy of Sciences Ronen Sen, Ambassador of India to the United States   27     Opening Remarks India and the United States: A New Strategic Responsibility Paula Dobriansky, Department of State   30 Panel I:   India and the United States: An Emerging Global Partnership Moderator: David McCormick, Department of Commerce   35      India’s Reforms: Current Challenges and Opportunities Montek Singh Ahluwalia, Planning Commission of India   35      Opportunities and Challenges in U.S.–Indian Science and Technology Cooperation Samuel Bodman, Department of Energy   39

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium      New Synergies in U.S.–Indian Cooperation Ram Shriram, Google   43 Panel II:   Synergies and Gaps in National and Regional Development Strategies Moderator: Praful Patel, The World Bank   53      Building Regional Growth: Elements of Successful State Strategies T. S. R. Subramanian, Government of India (retired)   54      India’s Knowledge Economy in a Global Context Carl J. Dahlman, Georgetown University   58      Manufacturing Innovation as an Engine for India’s Growth Surinder Kapur, Sona Group   67     Keynote Address: India’s Changing Innovation System Introduction: John Marburger, White House Office of Science & Technology Policy Kapil Sibal, Ministry of Science and Technology   77 Panel III:   Growing the Science and Technology, Research, and Innovation Infrastructure Moderator: George Atkinson, Department of State   88      Renewing the National Laboratories R. A. Mashelkar, Council on Scientific and Industrial Research   89      National and State Investments in Science and Engineering Education P. V. Indiresan, Indian Institute of Technology (retired)   94      Opportunities for U.S.–Indian Materials Cooperation Thomas A. Weber, National Science Foundation   100

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium     Panel IV: Building U.S.–Indian Research and Development Cooperation Moderator: Mary Good, University of Arkansas at Little Rock Swati Piramal, Nicholas Piramal India Ltd. Robert Armstrong, Eli Lilly and Company Kenneth G. Herd, General Electric Ponani S. Gopalakrishnan, International Business Machines M. P. Chugh, Tata AutoComp Systems   109     Closing Remarks Charles W. Wessner, National Research Council   135 III. RESEARCH PAPER         India’s Knowledge Economy in the Global Context Carl J. Dahlman, Georgetown University   139 IV. APPENDIXES     A.   Biographies of Speakers   167 B.   Participants List   186 C.   Bibliography   201

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium Preface The United States faces a changing global environment where the capacity to innovate and commercialize new high-technology products is increasingly distributed worldwide. Governments around the world are taking active steps to renew and strengthen their national innovation systems, recognizing the strategic and economic importance of economic competitiveness.1 In this new global environment, the United States must take up the challenge of maintaining its position of leadership by investing in its own capacity to innovate. The National Academies, in a recent report entitled Rising Above the Gathering Storm, called on the United States to adjust its policies concerning its workforce and research and development (R&D) capabilities to compete successfully in the future world economy.2 This report of a conference considers the opportunities, and some of the challenges of a strategic innovation partnership with India—a rising economic power 1 National Research Council, Innovation Policies for the 21st Century, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2007. 2 National Academy of Sciences/National Academy of Engineering/Institute of Medicine (NAS/ NAE/IOM), Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future, Washington, D.C.: The National Academies Press, 2007. The growing chorus of concern about U.S. innovation policy also included a report by the Council on Competitiveness, “Innovate America: Thriving in a World of Challenge and Change,” Washington, D.C.: Council on Competitiveness, December 2004. Growing concerns about U.S. competitiveness led to the introduction in the Senate of the American Innovation and Competitiveness Act of 2006 and the Protect America’s Competitive Edge Act of 2006. Also, in his 2006 State of the Union Address, President George W. Bush called for doubling commitment to basic research programs in physics and engineering over 10 years at the National Science Foundation (NSF), the Department of Energy (DOE), and the National Institute of Science and Technology (NIST) as a part of his Competitiveness Initiative. These initiatives have yet to become law, as this report goes to press.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium BOX A Innovation Ecosystem and Competitiveness Innovation involves the transformation of an idea into a marketable product or service, a new or improved manufacturing or distribution process, or even a new method of providing a social service. This transformation involves an adaptive network of institutions that encompass a variety of informal and formal rules and procedures—a national innovation ecosystem—that shapes how individuals and corporate entities create knowledge and collaborate successfully to bring new products and services to market. Competitiveness, in turn, refers to the ability of a nation’s firms to produce the goods and services that can successfully compete in the globalized economic environment, while enabling a standard of living for its citizens that is both rising and sustainable. The ability of these factors to collaborate successfully depends on the flexibility and responsiveness of a nation’s innovation ecosystem to recognize emerging opportunities and adapt to new challenges. and an increasingly important locus of advanced research and development—in part through the growth of R&D facilities put in place by U.S. firms eager to draw on the intellectual assets and market opportunities of a rapidly growing India. The conference, held on June 17, 2006, at the National Academies in Washington, D.C., advances the joint communiqué following President Bush’s state visit to India in March 2006, which called for strategic cooperation between the two nations in innovation and the development of advanced technologies.3 Cabinet ministers, senior officials, and academic experts from India and the United States came together at the conference on India’s Changing Innovation System to explain the sources of India’s exceptional recent economic performance, India’s strengths in innovation, and the challenges India faces as it seeks to modernize its innovation system to become more competitive internationally as well as address the challenges of human development for its growing population. The conference, moreover, emphasized the opportunities that a strategic partnership in innovation holds for both the United States and India. The conference, whose proceedings are reported in this volume, sought to highlight a set of complex and interrelated issues concerning India’s changing innovation policies and the role the United States can play in aiding and benefiting from this transition. By necessity, even an ambitious one-day conference cannot (and did not) cover all facets of this rich topic. For example, the conference focused more on India’s emerging strengths in the auto component manufacturing and pharmaceutical sectors than on the already familiar software and service sectors. 3 The White House, “Fact Sheet: United States and India: Strategic Partnership,” March 2, 2006 Press Release. For a broad overview of the evolution of the U.S.–India strategic partnership, see Teresita C. Schaffer, “Building a New Partnership with India,” Washington Quarterly, 25(2):31–44, Spring 2002.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium THE CONTEXT OF THIS REPORT Since 1991 the STEP Board has undertaken a program of activities to improve policy makers’ understanding of the interconnections among science, technology, and economic policy and their importance to the American economy and its international competitive position. The board’s interest in comparative innovation policies derives directly from its mandate. This mandate is reflected in STEP’s earlier work on U.S. competitiveness, U.S. Industry in 2000, which assesses the determinants of competitive performance in a wide range of manufacturing and service industries, including those relating to information technology.4 The Board also undertook a major study, chaired by Gordon Moore of Intel, on how government–industry partnerships can support the growth and commercialization of productivity-enhancing technologies.5 Reflecting a growing recognition of the importance of the surge in productivity since 1995, the Board also launched a multifaceted assessment, exploring the sources of growth, measurement challenges, and the policy framework required to sustain the information and communications technology-based productivity gains and growth that have characterized the United States since the mid 1990s.6 Building on this experience, STEP’s current study on Comparative Innovation Policy is developing a case-based international comparative analysis focused on U.S. and foreign innovation programs. The analysis includes a review of the goals, concept, structure, operation, funding levels, and evaluation of foreign programs similar to major U.S. programs, such as those found in Japan, Taiwan, Flanders in Belgium and now India. Among other activities, this study is convening a series of meetings with senior officials and academic analysts of these and other countries who are engaged in the operation and evaluation of these programs overseas, to gain a first-hand understanding of the goals, challenges, and accomplishments of these programs. As reflected in the conference reported in this volume, the National Academies Committee on Comparative Innovation Policy is also considering the role of innovation systems abroad and opportunities for collaboration that can complement the strengths of the U.S. innovation system in a globalizing innovation ecosystem. 4 National Research Council, U.S. Industry in 2000: Studies in Competitive Performance, David C. Mowery, ed., Washington, D.C.: National Academy Press, 1999. 5 This summary of a multivolume study provides the Moore Committee’s analysis of best practices among key U.S. public–private partnerships. See National Research, Government–Industry Partnerships for the Development of New Technologies: Summary Report, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2003. For a list of U.S. partnership programs, see Christopher Coburn and Dan Berglund, Partnerships: A Compendium of State and Federal Cooperative Programs, Columbus, OH: Battelle Press, 1995. 6 National Research Council, Enhancing Productivity Growth in the Information Age: Measuring and Sustaining the New Economy, Dale W. Jorgenson and Charles W. Wessner, eds., Washington, D.C.: The National Academies Press, 2006.

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India's Changing Innovation System: Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium ACKNOWLEDGMENTS We are grateful for the participation and the contributions of the Defense Advanced Research Projects Agency, the National Institute of Standards and Technology, the Office of Naval Research, and Sandia National Laboratories. We are indebted to Ken Jacobson for his preparation of this meeting summary. Several members of the STEP staff also deserve recognition for their contributions, including McAlister Clabaugh, David Dierksheide, and Jeffrey McCullough for their role in organizing the conference and preparing this report for publication. NATIONAL RESEARCH COUNCIL REVIEW This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Academies’ Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for quality and objectivity. The review comments and draft manuscript remain confidential to protect the integrity of the process. We wish to thank the following individuals for their review of this report: M.P. Chugh, Tata AutoComp Systems Ltd; Vinod Goel, The World Bank; Sarita Nagpal, Confederation of Indian Industry; Kesh Narayanan, National Science Foundation; and T.S.R. Subramanian, Government of India (Retired). Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the content of the report, nor did they see the final draft before its release. Responsibility for the final content of this report rests entirely with the author and the institution. William J. Spencer Sujai J. Shivakumar Charles W. Wessner