Vijay Kumar Gaba

 The NITI Aayog recently published “India Innovation Index 2021” report, which presents “an in-depth analysis of the state of innovation in the Indian economy”. The India Innovation Index 2021 presents state-wise rankings based on the innovation landscape and performance of the country’s states and union territories. The latest framework of the index has been mapped from the Global Innovation Index, published annually by WIPO (World Intellectual Property Organization).

The report earnestly recognizes that human capital is the source of innovative ideas, knowledge, and practices. It notes that high innovation capabilities need heavy investment in human capital development at all levels to develop skills beyond technical knowledge, e.g., imaginative thinking, devising methods to tackle complex issues and keeping pace with the times.

The report emphasizes “the practice of promoting innovation at the grassroots is necessary to fully utilise the potential of the indigenous knowledge bases by engaging the local communities in the process.11 The exercise is of greater significance in a country like India where a considerable share of the population is engaged in the informal sectors. To monitor and promote grassroots innovation, the Government of India in 2000 established the National Innovation Foundation (NIF) as an autonomous body of the Department of Science and Technology. The foundation aims to drive innovation at the grassroots through documentation, protection of Intellectual Property Rights (IPR) and commercialising innovation and innovative techniques devised by unaided small-scale innovators. The institution was able to file 114 patents in the year 2019-20.”

R&D has played a significant role in the growth of developed countries. The countries that have high per capita R&D expenditure tend to have higher per capita GDP as well.

Innovation in India

In India, R&D investment has been relatively low. In the past few years, R&D investment in the country has declined from 0.8% of the GDP in 2008–09 to 0.7% in 2017-18. This is lower than the other BRICS nations—Brazil spends about 1.2%, Russia about 1.1%, China just above 2%, and South Africa around 0.8%, with the world average being about 1.8%. On the other hand, developed countries like the United States, Sweden, and Switzerland spend about 2.9%, 3.2% and 3.4%. Among all nations, Israel spends the most, 4.5%, of its GDP on R&D.

Dismal private participation in R&D

Besides very low R&D spends, another challenge in India is lack of private participation in the innovation process. About 60% of all R&D spend is incurred by the government against USA 10%, UK 6%, and Israel 1.5%. A major chunk of India’s R&D expenditure is thus on defense and space research; whereas healthcare and manufacturing account for ~13% of public sector R&D spending.

Huge regional disparities

The ability to innovate is dependent on the quality of human capital. It rests on the opportunities in terms of research and development. Lower spending on R&D, and less innovative opportunities may lead people to move from one region to another region - state/ country for better opportunity.

Overall Global Innovation Score for India is a dismal 14.56. Besides, there exist huge regional disparities within the country. Most of the R&D effort in India is concentrated in few states and cities. Some clusters in NCR, Karnataka, Tamil Nadu Maharashtra, Telengana and Gujarat account for a large proportion of overall innovation effort in the country.

Suggestion for improving the innovation rank of India

The report makes the following suggestions for improving the global innovation score of India to aid faster economic growth and development.

1.    GERD needs considerable improvement and should touch at least 2%, which would play an instrumental role in India achieving the goal of a 5 trillion economy and further influence its innovative footprint across the globe.

2.    The role of the private sector in research and development needs to pick up pace.

3.    The expenditure on human capital has been unable to create that knowledge base in the country, which could be due to the intricate reasons of bureaucracy, administration, outreach, etc. It is observed that innovation is skewed against the manufacturing sector. This requires inexorable efforts to overcome challenges and make the best use possible.

4.    India has been able to provide a conducive environment for businesses to thrive, in terms of a business environment, safety, and a legal environment, but we have not been able to support the same in terms of investment and knowledge workers. We need to harness the energy and potential of youth to augment knowledge workforce.

5.    We need to sincerely fill the gap between industry demand and what we produce through our education system.

6.    India needs to undertake efforts in creative goods and services, which have been ignored for a long time.

7.    In India, intangible assets like patents and trademarks filing process are complex and face procedural delays. We need to streamline this.

8.    Our states and Union Territories need to break silos and start working in tandem, as no state/UT can thrive alone endlessly without taking care of its peers.

A visit to here tier two cities of Uttar Pradesh over last weekend was quite educating. I came back with few new learnings and stronger conviction in couple of themes that I have been following for past couple of years.

We visited the temple of our family deity in Agra. The temple is being renovated completely from the inside. The donations for the renovation are being accepted in digital mode. The devotees, many of them from lower middle and poor families were pleased to pay Rs10-50 through UPI etc. It was very clear that people across the socio-economic strata have internalized the digital mode of payment. Another evidence of this trend was available at Fatehpur Sikri monument.

The CNG bus that takes the tourists from parking upto the monument charges Rs10 as fare. The bus operator was accepting payment of Rs10 through digital mode. All tourists, villagers and urbanites alike, were happy to scan the QR codes. The monument entrance fees Rs45 per person, is payable only in digital mode now and even the ticket needs to be booked online. This may be a temporary Covid-19 measure, but no one seemed bothered about this. All tourists appeared happy about the procedure as it saved them from standing in long ticket queue. Poor phone connectivity though was an annoyance with some. WiFi enabled smartphone was no issue as all tourists were carrying one. The local tourist guide, the local handicraft shop and local dhaba all accepted digital payment as if it was a norm.

I came out even more convinced that digitalization of financial transaction shall become a norm rather than exception in net 5-7years. A further simplification of the procedure and improvement in digital connectivity may even accelerate the process. Cash economy that is believed to have impeded the growth of Indian economy for past 7 decades shall shrink materially with this. The government however needs to make sure that the cost of digital access does not increase from the present level and quality of digital access improves materially.

The second theme that has bothered me for past few years is the general public attitude towards respect for intellectual property rights of others. Use of pirated software, photocopied books, spurious books sold on traffic signals and footpaths, unauthorized copies of branded clothes etc. is unapologetically common. Propriety and ethics are not taught in schools. It is common to see parents encouraging their wards to buy the “cheaper” alternative regardless of its legality and authenticity.

Travelling to Moradabad from Agra via Ghaziabad and Hapur, I registered something that I would usually ignore.

In Ghaziabad there is a fast food joint called “Bhatura King”. The name and logo used by this chain is cannily similar to the global chain of quick service restaurants, “Burger King”.

On 25kms stretch from Hapur to Garh Mukteshwar, there are at least 50 Shiva Dhaba, each claiming to be the “original”. The people who have traveled on NH24 from Delhi to Moradabad, Rampur etc. would remember that Shiva Dhaba is a popular food joint having a strng recall value. Similarly, there are over 50 Gulshan Dhaba, each claiming to be “original” between Mathura and Palwal. Panchhi Petha is a world famous brand of Agra. In Agra city itself there over 500 shops claiming to be Panchhi Petha stores. Similar is the story with Bikaner Sweets, Aggrawal Sweets in Delhi NCR region.

There are two points in this:

(1)   The respect for the intellectual property rights of others is scant.

(2)   The recognition of brand value and need for its protection is also scant, though it has started to grow in recent times.

I have highlighted this earlier also that many mega Indian business ideas are nothing but poor copies of the globally successful businesses. Some examples are, PayPal – PayTM; AirBnB – Oyo; Swiggy – Zomato; Walmart – Big Bazaar; Amazon – Flipkart; etc.

The theme in this is Jugaad.

The culture of Jugaad, in my view, has harmed Indian economy and society much more than it has helped. This culture has hampered the growth, innovation, scalability, and competitiveness significantly, in my view.

For investment purposes, I have been consciously avoiding business, ideas and themes that are based on Jugaad and/or violate the IPRs of other entities. I would like to see a strong and comprehensive initiative on part of the government, civic administration, academia etc. to change this culture.

On a side note, I wonder which sector the Fintech companies will fit in – IT or Financials; or we will have to define a new sector for all new business that help in digitalization of our lives.