Ejaz Ghani

Ejaz Ghani is currently a Senior Fellow at the Pune International Center. He was previously the Lead Economist at the World Bank and has worked on Africa, East Asia, South Asia, Corporate Strategy, and Independent Evaluation Unit.

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How Can India Promote Innovation And Entrepreneurship?

 The battle for control of the global economy in the 21st century will be won and lost on the pace of innovation and adaptation of technologies

Innovation and entrepreneurship are two key building blocks of any fast-growing economy. It is estimated that 50 per cent of the difference in per capita income between India and the USA cannot be explained by investments in physical capital but by the accumulation of knowledge and innovative capacity of the country. 

In the 21st century, innovation has become the heart and soul of economic policy. 

Developed and developing nations alike are in the race today to adapt to a technology-focused entrepreneurial society. The battle for control of the global economy in the 21st century will be won and lost on the pace of innovation and adaptation of technologies. 

The growing technological rivalry between China and the USA, the desire for new global supply chains and the threat of a global economic downturn have increased its importance. How well placed is India to benefit from these changes? 

Twists and turns 

India has become 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 massive market opportunity, technical competencies and a highly scalable workforce. India has benefitted from the increased policy focus on 'innovation diplomacy' in forging economic ties with other nations. 

The theme of innovation, R&D and startups has been an important agenda point in almost all the bilateral visits of Prime Minister Narendra Modi. The launch of India-Israel Industrial R&D, technological innovation fund and India hosting the global entrepreneurship summit reflects the importance India has placed on innovation diplomacy. 

India has also benefitted from a global talent race and a fast pace of international labour mobility, especially high-skilled immigration. The number of migrants from India with a tertiary degree to the United States, the United Kingdom and Canada has more than doubled over the last two decades. 

Skilled migrants can serve as effective conduits for many forms of global knowledge exchange in a networked world. More than half of the highly skilled technology workers and entrepreneurs in Silicon Valley are foreign‐born. Nearly 25 per cent of ventures in Silicon are run by Indian bosses. 

The positive impact of immigration on knowledge spillovers to India has been shown in scientific publications and inventions. 

Studies focusing on the spillovers to inventions and scientific publications might be capturing only the lower bound of the overall knowledge diffusion taking place due to immigration, given the availability of information and communication technologies and easier access to the Internet with tablets and smartphones, which help individuals to become facilitators of knowledge diffusion. 

Knowledge diffusion and innovation are no longer location specific but become global in nature. The Internet has risen to be a potent force for global knowledge exchanges and knowledge diffusion. The internet links customers and companies together worldwide, it enables labour to be provided at a distance, it provides instant access to information about foreign locations and much more. 

The substantial improvements in connectivity and reduced frictions of the internet have facilitated knowledge diffusion. 

While the online capabilities have provided an effective tool, diaspora connections still matter and influence economic and knowledge exchanges. Diaspora connections have continued to be important even as online platforms now provide many of the features that diaspora networks historically provided (e.g., information about potential developers, monitoring and reputation foundations). 

Despite the rapid progress, India is not yet amongst 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 in the Global Innovation ranking.

India’s investment in R&D is extremely low at less than 1 per cent of GDP, compared to China which has managed to scale up its R&D investment to more than 2 per cent. The number of articles published by China’s scientific community has grown at a furious pace, but in India, it has remained comparatively static. What can India do? 

The new face of globalisation 

Innovation and entrepreneurship are two key drivers that will shape future growth and job creation. 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. 

First, India needs to build a bridge to close the current knowledge gap that exists between various stakeholders in the science and technology space within the country. This bridge needs to be integrated with the private sector. 

Currently, there is no collaboration between CSIR labs and private labs in India. 

Second, innovation has become more global than it once was. Knowing how diaspora connections can act as an important mechanism of knowledge dissemination and brain gain remains a high priority. 

India will benefit from launching the Indian equivalent of the small business innovation research program, like the platform launched in the US that has benefitted small entrepreneurs. 

Third, India has a lot to gain from its youth bulge and demographic dividend, unlike China which is ageing rapidly.  India’s population structure is such that it will remain “young” for the foreseeable future and young demographic trends tend to boost innovation and entrepreneurship.  

The strong diaspora links that India has with the global and U.S. entrepreneurial community will enable it to benefit from changes in global supply chains.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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