You are on page 1of 21

INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

Impact of Innovation on the Growth of


Indian Economy
Business Research Methods Proposal

Harini Ravishankar
PGP/16/020

Impact of Innovation on the Growth of Indian Economy

Abstract
This paper examines the contribution of Innovation towards growth in India. Given the fact
that the Indian Economy has been growing at 6-8% per annum, this is possible only with a
combination of factors like rising capital, productivity of labour, enabling environment,
innovation and improved quality of good and services. While other countries primarily rely
on innovation, that is not the case in India. Initial problem structuring involved the analysis of
Behaviour over Time which included key variables like Innovation Capacity Index, Quality
of Research institutions, Number of researchers and engineers, Utility Patents per million
people and Public Procurement of Advanced Technology. The paper also includes a rich
theoretical framework in terms of the academic research done on the effect of Innovation in
growth of India. The research would make use of both Primary and Secondary Data from
firms throughout India both small scale and large scale firms. Both public and private sector
enterprises would be covered. The nature of data collected would be qualitative as well as
quantitative in nature. The paper looks into the key trends in growth and innovation,
contribution by various sectors and the barriers to innovation. The paper concludes by saying
that to realize Indias full potential in Innovation, a lot of parameters such as systematic
reformation of higher education, cumulative synergies of industries, government and mostly
importantly innovation at grass root level needs to be worked on.

Impact of Innovation on the Growth of Indian Economy

Introduction (Problem Description)


India has been known for its pioneering innovations from time immemorial. These
innovations have been in various fields like art, culture, science and technology, mathematics,
philosophy and have survived through all these generations. However in the recent times, the
path of innovation has been slightly skewed with the desire to imitate the western models of
innovation instead of focusing on the needs of the society as a result of which the
contribution of innovation towards growth of this country has not been very significant.
Problem Definition
The rise in innovations in India can be attributed to a lot of factors like:

Improvement in Indias rank in the Global Innovation Index

Innovations in the service and health care sectors

Increase in the knowledge intensity

Growing competitiveness in hi-tech areas

Increase in FDI flows into the country

All these factors imply that innovation has been concentrated or limited to very few sectors
like pharmaceuticals and software as a result of which the contribution of innovation towards
growth unlike other nations like Brazil and China has been very low.

Impact of Innovation on the Growth of Indian Economy

Problem Structuring
Behaviour over Time Graph
The following are the Variables:

Improvement in rank in Global Innovation Index

Availability of institutes

Availability of scientists and engineers

Increase in Knowledge intensity

Increase in FDI

Contribution of innovation towards growth

Theoretical Explanation of the BOT Graph


It is observed that from 2007 till now, there has been a steady increase in the availability of
scientists and engineers, good institutes, knowledge intensity, improvement in the ranking in
the Global Innovation Index and increase in FDI which has led to increase in innovation in
the country. However unlike other countries like Brazil, China, USA and Japan where
innovation has been a major contributor towards growth, such has not been the case in India.
Infact the contribution of innovation towards growth has been decreasing.

Impact of Innovation on the Growth of Indian Economy

Diagrammatic Representation on the BOT Graph

TIME

Impact of Innovation on the Growth of Indian Economy

Research Objective and Research Questions


Research Objective
The overall objective of this research is to suggest ways to improve the contribution of
Innovation towards the growth of the country which has been declining and much skewed
over the past 5-6 years.
Research Questions

What are the factors which provide a conducive environment for innovation in a
particular sector?

What are the barriers to innovation in India?

What is the role of innovation in the growth of an economy of a developing country


like India?

What measures are needed to be taken to fully realize Indias innovation potential?

Impact of Innovation on the Growth of Indian Economy

Literature review
One of the major factors for the development of the country is investment in innovation
across all sectors. The survey conducted by Ernst and Young states government policies and
the stimulation of the innovation culture as the main reasons for the poor contribution
towards growth. Also the study conducted by them suggests that the vision of Indias
innovation capacity is solely dependent on the sector. For example, in the survey conducted
by Ernst and Young respondents from the life sciences and technology believe that India will
become the innovation destination for those sectors than respondents from sectors like
agriculture and consumer products. In order to address these issues, it is necessary that
innovation is used as a tool to address the issues of growth; employment and poverty which
will in turn lead to sustainable development. Innovation needs to go beyond Research and
Development of a firm and should include organisational processes and service mechanisms.
It should be inclusive. Government Incentives for innovation should be explored further. This
is the primary reason for declaring the decade 2010-2020 as the Decade of Innovation. [1]
Research indicates that India is a growing hub for Research and Development for various
small and large multinational firms which is mainly due to the availability of skilled labour
who are products of world class institutions. According to the Global Competitiveness
Survey in 2007, India is ranked 3rd in terms of market potential. In spite of this, India is
unable to achieve high growth rates which can be attributed to its infrastructure and
bureaucratic hurdles. The Government of India has announced massive investment in
infrastructure to achieve a high growth rate in the Eleventh Five Year Plan. [2]
The discussion on Indias innovation and its impact on the growth of the economy has arisen
only due to factors like Improvement in the Global Innovation Index, innovation in service
6

Impact of Innovation on the Growth of Indian Economy

sector especially healthcare, increase in knowledge intensity and increase in FDI inflows
from 2007-08. Even though formal attempts have been made to measure innovation over the
past 50 years, it is only recently with the rising trends has the National Innovation Act been
drafted. There is no single metric which can measure innovation as it involves many
intangible factors such as knowledge which cannot be quantified. However with measures
such as the Global Innovation Index shows that innovation in the industrial sector has gone
up in the post reform period. Hi-tech industries contribute to 5% of Indias GDP. However
this has been confined only to the private sector. Increasing MNC operations in India have
also increased innovation; FDI flows have increased the Research and Development
expenditure. Significant growth is also seen in the Pharmaceutical sector. Although the
supply side factors seem to be productive, in order to sustain this growth in the long run
efforts will have to be made to increase the quantity and quality of scientific manpower. The
government should rethink its financial support schemes in order to reduce distortions which
are present currently in this area. [3]
There is a continuous need for reforms in Indias culture, innovation and infrastructure to
sustain the growth of innovation. A comprehensive analysis is necessary to understand this
which is done both at the regional and national levels. The national level analysis explores the
challenges and opportunities of Indias innovative capacity using a semi-structured
questionnaire. The regional level analysis forms groups within India by mapping firms,
educational/research institutes and innovation parks. This paper brings out the major factors
necessary for building up an innovative system in India which include creating a strong base,
upgrading the existing base and creating and promoting awareness about innovative systems.
[4]

Impact of Innovation on the Growth of Indian Economy

Even though India has the capability to be a leader in future economic growth, it has been
unable to do so as growth needs to be supplemented with strong structures and capabilities.
Most of growth in India at present is fuelled only by domestic demand. The report by
Accenture identifies three key trends that hold enormous promise for India emerging
markets surge, rise of new technologies and the growing resource economy. Interaction with
the emerging markets will create new business opportunities in a lot of areas like banking,
health care, trade, tourism etc. Technology is a necessary condition for improvement in
standard of living. It will also foster the innovative culture in the economy which is needed
for growth of the economy. The gap between demand and supply of resources has been
widening and there is an urgent need to exploit renewable sources of energy like wind power,
solar energy, using alternate fuels, building green infrastructure etc. All this requires
innovation which will indeed have a direct impact on the growth rate of India. [5]
If Indias needs to achieve its full potential of growth, it is necessary that growth needs to be
backed by innovation. Sustained economic growth over the past decade has raised questions
as to when India will become the world leader in economic growth. The increasing MNC
operations, inflow of FDI and software exports has brought the vision of India being at the
forefront of economic growth. This requires a detailed analysis of the strengths and
weaknesses of the current innovation system, recent trends in the system, making predictions
for the short term and long term evolution of the innovation system and finally assessing the
implications in the various sectors. [6]
Innovation and innovative solutions will not provide competitive advantage in a market but
also are the path to solve the challenges we face. If Innovation has to become a part of
economic growth, it has spread to all sectors of the economy and to people of all levels. India

Impact of Innovation on the Growth of Indian Economy

today has a number of strengths like good Research and Development, a strong base of
academic institutes, talent pool and a stable macro-economic environment which are
conducive for innovation. The Indian innovation strategy should not merely look at creating a
competitive advantage. It has to focus on inclusive growth and mostly importantly reaching
the people at the bottom of the pyramid. This is necessary to have sustainable growth in the
long run and move from a subsistence economy to a knowledge based economy. [7]
Another important factor that has been ignored for a considerably long period of time is the
Disruptive innovations made at the bottom of the pyramid (BOP). If India wants to achieve
holistic growth, organisations should not only cater to the innovations made for the Top of
the Pyramid but should also focus on those made at the bottom. A scenario planning model is
used to determine the significant impact on sustainability that could arise on account of
innovations happening at both the levels of the pyramid. An ambidextrous approach is
required to be taken by organisations to detect early innovations at the top and bottom of the
pyramid in their industry. [8]
Innovation in a country can also be looked at from the perspective of research undertaken.
Indias research output is growing faster than the worlds research output. India ranks second
amongst its peer research countries, first being China (Brazil, Russia, South Korea and
Singapore). However the quality of research work is done is not of good standard as the
citation impact of Indian research is below world average. Moreover research has been
confined to only very few areas like Pharmacology, Physics and Material Science etc. There
has also been a decrease in the number of Indian research papers published in journals.
Another important factor which is to be noted here is that India has very little international
collaboration which is surprising given its emerging research diversity and capacity. All these

Impact of Innovation on the Growth of Indian Economy

areas need to be worked upon as Research and Development in all areas is necessary for
inclusive growth in the economy. [9]
India has considerable potential in the field of science and technology, but it is far from
realizing its potential. Growth in the area of science will lead the way forward for India. Even
though at schooling level, there is a lot of enthusiasm for science, the same is not carried
forward as only very few opportunities are available. One of the main advantage for India is
the large youthful population. However only 13% of the youth (90 million) are enrolled for
higher education. It is only development in the field of science which has led to striking
discoveries and innovation. If that has to happen in India, there needs to be a change in the
overall innovation eco- system. Reformation in the education sector by emphasising the
importance of science education at the early stages is required. A national or international
council is to be set up to monitor the technical education system. Considerable attention
needs to be given to teachers by providing mass continuing education programmes. Other
measures to change the innovation eco system include easy access to Venture Funding for
projects, Tax Incentives, Less bureaucratic government, Changes in education curriculum,
Strengthening Intellectual property laws and providing packages for small business
initiatives. [10]
The Indian economy today is a product of the ancient scientific achievements, colonial rule
and the post-independence nationalisation. Innovation led growth needs a systematic link
between education, research and commercial activities because there is a constant pressure to
meet the basic needs of one section of the society and to keep up with world class and science
and innovation simultaneously. Innovation should not be an activity associated only with the
elite for it to impact the growth of the economy. One of the major drawbacks in the country is

10

Impact of Innovation on the Growth of Indian Economy

the disjointedness between education and research. Other factors which act as a barrier to
inclusive innovation are variability in the quality of education, bureaucratic system, varying
cultures across the country and lack of infrastructure. India should not only work on
improving these areas but should also capitalize on the fact that it has the largest talent pool
in the world. [11]
India needs to provide a conducive environment for innovation. In spite of increase in
investment in research and development and the growth of the IT sector, entrepreneurial
ventures are on the lower end. Trade and FDI barriers along with administrative red tapes
seem to be the barriers to innovation. This is the primary reason for announcing 2010-20 as
the Decade of Innovation. India should also aim at achieving green security in order to meet
the issues of food security and energy conservation. The key recommendations made by the
OECD committee include reforming and improving the R&D system, enhancing international
operations and increasing investment in R&D and innovation as a share of GDP. [12]
Growth backed by innovation will lead to reduction in poverty and a rise in the standard of
living of people. However in India, innovation in both the formal and informal sector of the
economy seems to be concentrated to a small portion of the economy. 90% of the workforce
is employed in the informal sector which is associated with low productivity and skills.
Productivity is low in the formal sector too. Given the dualism of the Indian economy, the
country should focus on implementing the following strategies to achieve growth led by
innovation building a competitive environment for industries, taking more efforts to create
and commercialize knowledge and encouraging innovation at the grass root levels to achieve
holistic growth. Indias strategy for innovation should be based on building on the
complementarities between knowledge creation and commercialization, knowledge

11

Impact of Innovation on the Growth of Indian Economy

diffusion and absorption and explicit promotion of inclusive growth supplemented by


enhanced skills, better infrastructure and enhanced innovation finance.[13]
Most of the innovation strategy at India focuses on improving Research and Development in
the formal sector and development of the formal sector in total. However India is a
heterogeneous economy and most of the workforce is employed in the informal sector. When
efforts are concentrated in improving the formal sector, the inequalities are bound to rise
unless special efforts are taken to address the issue of the poor. Mere provision of basic
facilities will not suffice. It is important to open up employment opportunities which are
sustainable in the long run. The innovative capacity of the poor is limited by lack of skills,
inadequate services, no access to markets and high risks. Efforts should not only be taken to
improve the innovative capacity of the poor but should also focus on building strong
incentives, policies and institutions. This requires community collaborations, public
investment in research and development, involvement of NGOs and better global networks.
[14]

The role played by innovation in growth has been very small, but significant. The Innovation
Intensity or the percentage of revenue derived from products/services which are less than
three years old has increased for large, small and medium enterprises but the portion being
higher for the small and medium sized firms. Although innovation intensity is higher for
manufacturing vis a vis service sector, but the intensity has been higher for the service sector
as a result of the IT exports.Innovation has been concentrated in the areas of operations, sales
and marketing and the drivers of innovation are competitiveness, profitability and reduction
in costs. The external barriers to innovation are lack of focus on industrial innovation,
problem solving skills, design, experimentation; few collaborations with research and

12

Impact of Innovation on the Growth of Indian Economy

development institutes and government regulations. The internal barriers are lack of focus on
innovation strategy, improper knowledge management systems and poor understanding of
consumer mind set and market dynamics. Innovation led growth requires reformation of the
education system, creating a sync between the efforts of education system, Research and
Development and consumer demand and most importantly this should spread to all sectors of
the economy.[15]

13

Impact of Innovation on the Growth of Indian Economy

Proposed Methodology and Methods


Methodology
The research would make use of both Primary and Secondary Data from firms throughout
India both small scale and large scale firms. Both public and private sector enterprises
would be covered. The nature of data collected would be qualitative as well as quantitative in
nature. The methods of collection would include questionnaires and personal interviews.
Methods
1. Personal Interviews
A total of around 60 firms across various sectors would be interviewed. Personal
interviews would be conducted with the Research and Development heads of the various
companies and the average time period per interview would be approximately an hour.
The interview would gauge the following:

Level and scope of innovation

Reasons for innovation in the particular sector or otherwise

Investment in Research and motives behind the investment

Crucial factors for selecting India as the hub for innovation

Strategies followed by the company for innovation

Barriers and constraints to innovation and further scope for improvement

14

Impact of Innovation on the Growth of Indian Economy

2. Questionnaires
Detailed questionnaires would be sent through mail to firms across sectors and of various
sizes as taking an interview for all firms is not possible. These questionnaires will analyse
the investment trends in innovation, the attitude of firms with respect to investment in
innovation, the benefits derived from innovation, scope for improvement, barriers in the
sector and amount spent in innovation over the years. This will give an insight into what
the ground reality is, what firms are willing to spend and what actions does the
government need to take to foster innovation led growth in the economy.
3. Secondary Data
In addition to the primary data collected, the research would require secondary data based
on the reports published by the National Knowledge Commission, Accenture, Ernst and
Young and other government departments in order to analyse data with respect to impact
of innovation on GDP, numbers of firms involved in innovation, rising trends in
innovation, amount spent on research, talent pool and institutions available and
inclination to invest in research.

15

Impact of Innovation on the Growth of Indian Economy

Significance of the Study


Innovation is a key driver of growth in the economy. Innovations not only require inputs and
capacity but also political economy of reforms. This means that a constituency for innovation
needs to be created with the joint participation of the government, citizens, industries and
academicia.
The Innovation Intensity or the percentage of revenue derived from sales of products which
are less than three years old has significantly increased over the years. There has been an
increase in the investment in innovation as well. However the contribution towards the
growth of the economy has been very low.
When compared with countries like Japan, USA, Brazil and China; India has a larger pool of
researchers and engineers and many good institutes and patents; however the global
innovation capacity index has been very low. Moreover the innovation is very skewed
towards sectors such as pharmaceuticals and health care. The external barriers to innovations
like excessive government regulation, inefficient pricing power and internal barriers such as
poor understanding of customer needs and market dynamics have been studied in detail.
In order to impact the growth of India, Innovation strategy needs to be balanced across all
sectors. It needs to focus on providing sustainable and quality solutions for the various
problems faced by the economy such as poverty, education, health care, agriculture, energy
etc. Innovation needs to be initiated at the grass root levels. Reformation of the education
system is also required to promote innovation.

16

Impact of Innovation on the Growth of Indian Economy

Limitations of the Study


The study is proposed to study the quantitative and qualitative aspects of the impact of
innovation on the growth of the economy. Large samples are required and there are logistical
difficulties present in gathering large samples. Moreover using large samples will increase
the cost of research. The interviews taken would be very rigid as quantitative analysis will not
allow for flexibility.
Factors specific to a particular industry or location which affect innovation might be ignored
while analysing the data collected. As the research uses secondary data, knowledge produced
might be too abstract and general for direct application to specific local situations, contexts,
and individuals.
Another major disadvantage is that participants in the research will become familiar with the
outcome and remember responses for later testing. Influences due to time outside of
experimental treatment might be ignored. The results cannot be generalized to past or future
situations. The research cannot be generalized to individuals who do not have characteristics
of the participants and to individuals in other settings.
It is difficult to form a sample which is large enough and representative of the population as it
has to cover the entire country across various sectors and industries. Moreover firms of large,
medium and small sizes need to be taken into account as the contribution of each of these
firms to innovation needs to be analysed.

17

Impact of Innovation on the Growth of Indian Economy

References
1. Growing beyond Ready for the transition- Ernst & Young's 2012 attractiveness survey
India
2. Indias National Innovative system: key elements and Corporate Perspective: Cornelius
Herstatt, Rajnish Tiwari, Dieter Ernst, and Stephan Buse, 2011
3. Is India becoming more innovative since 1991?Some disquieting factors: Sunil Mani,
2009
4. India's National and Regional Innovation Systems: Challenges, Opportunities and
Recommendations for Policy Makers: Pankaj Sharma, Srinivasa .B.S. and Anubhav
Sharma, 2011
5. New Waves of Growth for India Unlocking Opportunities: Accenture, 2011
6. Can India become an innovative power house: Rishikesha T Krishnan, IIM Bangalore,
2009
7. Creating a roadmap for a decade of innovation: Towards a more inclusive and innovative
India, Office to advisor to Prime Minister, Department of Public Information and
Infrastructure, 2011
8. Disruptive innovations at the bottom of the pyramid: Can they impact on the
sustainability of todays companies? Baiyere Aboyami and Roos Jaspar, University of
Tilburg, Netherlands, 2011
9. Bibiliometric analysis to support the mapping of research and innovation in India:
Research Councils UK Consortium, 2012

18

Impact of Innovation on the Growth of Indian Economy

10. India as a global leader in science: Science advisory council to the Prime Minister, 2010
11. India: the uneven innovator, Kirsten Bound, Demos (www.demos.co.uk), 2012
12. India sustaining high and inclusive growth, Organisation for Economic Co-operation and
Development (OECD), 2012
13. Unleashing Indias innovation: Towards sustainable and inclusive growth, Mark A Dutz,
Editor, The World Bank Washington D.C., 2007
14. Promoting inclusive innovation (India): Anuja Utz and Carl Dahlman, World Bank
Institute, 2007
15. Innovation in India, National Knowledge Commission, 2007

19

Impact of Innovation on the Growth of Indian Economy

THANK YOU

20

You might also like