India's Changing Innovation System Achievements, Challenges, and Opportunities for Cooperation: Report of a Symposium (2007) / Chapter Skim
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III Research Paper: India's Knowledge Economy in the Global Context
III Research Paper: India's Knowledge Economy in the Global Context
Pages 137-164
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From page 139... ...
The fifth section benchmarks India's position in the global knowledge economy using a four-part framework that includes the economic and institutional regime, education and training, the information infrastructure and its use, and the innovation system. It summarizes some of the key challenges and policy issues in the first three of these.
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From page 140... ...
This is part of what is driving global offshoring of knowledgeintensive services, such as back office functions, as well as engineering design, and even contract innovation services.2 The result of these trends is that innovation and high-level skills are becoming the most important determinants of competitiveness. Thus countries such as India need to develop more explicit strategies to take advantage of the rapid creation and dissemination of knowledge and to develop their own stronger innovation capabilities.
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TABLE 1 Growth of output overall and by sector (average annual % growth) Agriculture Industry Manufacturing Services GDP 1990– 2000– 1990– 2000– 1990– 2000– 1990– 2000– 1990– 2000– 2000 2004 2000 2004 2000 2004 2000 2004 2000 2004 Low income 4.6 5.5 3.1 2.7 4.9 6 5.8 6.5 5.9 6.7 India 6.0 6.2 3.0 2.0 6.3 6.2 7.0 6.5 8.0 8.2 Low middle income 5.2 6.0 2.6 3.8 6.4 7.3 NA NA 5.1 5.4 China 10.6 9.4 4.1 3.4 13.7 10.6 NA NA 10.2 9.8 Upper middle income 2.1 2.7 0.3 2.2 1.5 2.5 4.5 2.1 2.8 2.7 High income 2.7 2.0 1.0 –1.3 1.9 0.3 NA 0.7 3.0 2.0 World 2.9 2.5 1.8 2.1 2.4 1.4 NA 1 3.1 2.3 SOURCE: World Bank, World Deelopment Indicators 200, Washington, D.C.: World Bank, 2006, Table 4.1.
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3 Using PPP exchange rates, India already is the fourth largest economy in the word. Moreover, using average growth rates for the period 1991–2003 to project future size, India surpasses Japan by the end of next year to become the third largest economy in the world.
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Merchandise Trade Trade in Services FDI 1990 2004 1990 2004 1990 2004 Low income 24.1 37.8 6.5 9.4 0.4 1.4 India 13.1 25 3.4 8.2 0.1 0.8 Lower middle income 31.5 57.5 6.2 10.3 0.7 2.7 China 32.5 59.8 2.9 7.0 1.0 2.8 Upper middle income 38.3 67.0 8.1 10.2 1.0 2.8 High income 32.3 41.5 8.0 10.5 1.0 1.3 World 32.4 44.9 7.8 10.5 1.0 1.6 SOURCE: World Bank, World Deelopment Indicators 200, Washington, D.C.: World Bank, 2006, Table 6.0.
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Low education reduces the flexibility to respond to new challenges. Poor infrastructure and high costs of doing business constrain domestic and foreign investment.
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In this scenario real GDP per worker increases 112 percent. Projection 4 assumes a TFP growth rate of 4.25 percent, which was that achieved by Ireland for 1991–2000, a country which has been very successful at leveraging knowledge for its development.
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INDIA IN THE GLOBAL KNOWLEDGE ECONOMy The World Bank Institute has developed a useful benchmarking tool that helps to rank countries in terms of their readiness to use knowledge for development.5 The methodology consists of examining a country's rank ordering in four pillars based on a series of 20 indicators in each pillar. The four pillars are: 1.
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9 For more details of the analysis, see Dahlman and Utz, 2005, op. cit., Chapter 2 on economic and institutional regime, Chapter 3 on education and skills, Chapter 4 on the innovation system, and Chapter 5 on the information infrastructure.
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Based on a more detailed analysis, including surveys of foreign and Indian businessmen, some of the key issues that have to be improved in the economic and institutional regime include:10 10 See World Bank/International Finance Corporation, 2006, Doing Business in 200: Creating Jobs, Washington, D.C.: International Bank for Reconstruction and Development, for how India compares to other countries on a large number of indicators of the domestic business environment.
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SOURCE: World Bank Institute, KAM 2006, |
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This is also a pillar in which India has slipped compared to its relative global ranking in 1995. Some of the key issues that India needs to address in education and training include: • expanding quality basic and secondary education to empower India's rapidly growing young population; • raising the quality and supply of higher education institutions, not just the Indian Institutes of Technology and the Indian Institutes of Management; • embracing the contribution of private providers of education and training by relaxing bureaucratic hurdles and putting in place better accreditation systems; • increasing university–industry partnerships to ensure consistency between education, research, and the needs of the economy; • establishing partnerships between Indian and foreign universities to provide internationally recognized credentials; • using ICT to meet the double goals of expanding access and improving the quality of education; • investing in flexible, cost-effective job training programs that are able to adapt quickly to new and changing skill demands.
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Clearly, because of India's large critical mass of scientists and engineers engaged in R&D, India is a major player in global R&D. However, it is instructive to compare India's share of the world in scientists and engineers, scientific and technical publications, and patents with its share of population and GDP measured in nominal as well as PPP exchange rates (Figure 6)
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If this were to be scaled by population (i.e., scientists and engineers in R&D per million population, scientific and technical publications per million population, patents in the United States per million population) , India's relative position would fall to the 67th percentile of the Dahl fig 5 country distribution.
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This includes the knowledgeGDP brought in through direct first foreign investment or technology transfer. The fourth is the informal acquisition, adaptation, and use of knowledge acquired through the import of capital goods, S&T Publications component products, and services that are new to the economy.
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The bulk of that effort (around 70–80 percent) is carried out by the public sector (federal and state)
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7,205 15,846 11,076 20,978 11,037 32.09 Scientific and technical journal articles/million population (2001) 41.80 109.47 10.73 16.49 233.13 32.29 Patent applications granted by U.S.
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These consist of improvements in simple agricultural instruments, and agricultural techniques as well as indigenous knowledge. However, despite all these efforts, it has been difficult to develop appropriate funding and mechanisms to support the improvement, scale-up, and broad dissemination of grassroots innovations because of very high transaction costs and limited resources.16 Formal Acquisition of Foreign Knowledge In India this has been small until relatively recently.
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On acquiring knowledge from abroad informally, China is considerably ahead of India because it is much more integrated into the global system through trade and foreign education, and has a higher level of average educational attainment that facilitates the rapid assimilation of foreign knowledge. On acquiring foreign knowledge formally, China is also ahead because it has had a much more open policy for a longer period of time and has attracted much higher volumes of foreign investment as part of an explicit strategy
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From page 158... ...
Essentially, while China has been very effective at tapping global knowledge informally and informally leveraging these sources of innovation to improve its growth and welfare, it has now decided to do more to innovate on its own account, hence its major drive to increase formal R&D spending. Thus, it will be an even more formidable player on the global stage.
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1 TABLE 5 Summary of assessment and of areas in need of improvement Current Situation in India Areas for Improvement Creating knowledge domestically through formal R&D Government Low public R&D expenditures Increase public expenditures on relative to GDP R&D Low efficiency of public R&D Improve the allocation and expenditures efficient use of public R&D Little transfer of knowledge Strengthen institutions to created in public sector to commercialize knowledge productive sector Consider: • Bayh–Dole type legislation Strengthen: • technology transfer centers at universities and research institutes • science parks and business incubators Indian firms Still low but rising spending Encourage more R&D spending by productive firms by productive firms through • promotion campaign on business advantages of R&D spending • more matching grants for R&D done by consortia • better fiscal incentives for more R&D spending MNCs Rapid increase in MNC R&D Increase the supply of high-level centers in India is creating scientific and engineering talent shortages and increasing costs of scientific and technical personnel Creating knowledge domestically through informal efforts Firms, formal and Significant informal activity informal sector takes place, but there is little information or support Grassroots innovation India has one of world's largest Strengthen institutional support and traditional grassroots innovation systems, through knowledge, including supported by Honeybee, • training in NGOs and other GIAN, and SRISTI networks. technoentrepreneurship networks However, there have been • laboratories for developing, problems with scaling up and piloting, and testing prototypes disseminating the innovations • funding for scale-up and that come through this system dissemination
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Requires companies and domestic more proactive marketing strategy companies and research institutes –Technology licensing India has not made much use Increase formal technology of foreign technology licensing licensing Acquiring knowledge from abroad informally –Through Trade India is still one of most Open economy further to trade closed economies of the world by reducing tariff and nontariff structurally (share of imports barriers and exports in GDP) and in terms of tariff and nontariff barriers –Through foreign Large numbers of Indian Develop good system to track education and training students go for tertiary students who go abroad for study.
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India has many strengths, particularly a young and growing population, experience and institutions of a market economy, a critical mass of entrepreneurs and highly skilled professionals, and a large public research infrastructure. It has the potential to leverage its strengths to improve its competitiveness and welfare.
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12 INDIA'S CHANGING INNOVATION SySTEM There is also tremendous potential for increased U.S.–India cooperation across many areas. This conference is an opportunity to begin to develop this mutually beneficial cooperation.
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Scientific and technical journal articles Patent applications granted by the USPTO FIGURE A-1 Basic scorecard. SOURCE: World Bank Institute, KAM 2006, |
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1 TABLE A-1 KAM ranking: How India compares with world regions and BRICKMs Economic Economic Incentive KEI Incentive Innovation Education ICT Country KEI Regime Innovation Education ICT 1995 Regime 1995 1995 1995 1995 G7 8.70 7.97 9.72 8.48 8.63 8.89 8.06 9.71 8.94 8.87 Korea 7.74 5.38 9.19 7.62 8.75 7.84 6.55 8.78 8.11 7.93 East Asia 6.38 5.54 8.68 4.62 6.68 6.59 6.08 8.22 5.05 7.01 Russia 6.33 2.68 8.91 7.85 5.88 6.22 2.05 9.09 7.78 5.95 Europe and Central Asia 6.17 4.77 6.95 6.67 6.27 5.96 3.66 7.32 6.45 6.41 World 5.99 4.77 8.60 4.26 6.33 6.40 5.04 8.67 4.74 7.14 Brazil 5.94 4.34 8.18 5.59 5.64 5.46 4.75 7.92 3.85 5.30 Mexico 5.74 5.43 7.59 4.37 5.58 5.82 6.07 7.31 4.40 5.52 China 5.24 3.84 9.24 3.60 4.30 4.07 2.32 8.82 3.48 1.68 Middle East and 4.93 3.91 6.24 3.71 5.84 5.05 4.76 5.67 3.83 5.93 North Africa Latin America 4.85 4.02 5.91 4.20 5.28 5.11 4.84 5.87 4.31 5.42 India 3.83 2.47 8.74 2.16 1.96 4.06 2.86 8.59 2.38 2.40 South Asia 3.30 2.27 7.46 1.88 1.58 3.74 3.49 7.56 2.03 1.88 Africa 2.72 2.78 4.05 1.51 2.55 3.14 2.99 4.41 1.61 3.56 SOURCE: World Bank Institute, KAM 2006, |
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