India is increasingly becoming a top global innovator for high-tech products and services, says a World Bank report recommending new ways be explored to leverage the entrepreneurs and technologists of its diaspora.
Some two per cent of Indians living abroad together earn almost 2/3rd of India's GDP, notes the report - 'Unleashing India's Innovation'. It emphasises how creating and commercialising "new to the world knowledge", as well as diffusing and absorbing existing knowledge can help India to sustain faster growth.
To spur broad innovation efforts, more needs to be done to increase competition, build stronger skills, improve information infrastructure, and provide more public and private finance for R&D and its commercialisation, it says.
"The world has acknowledged India's R&D potential and more than 300 multinational corporations have set up R&D and technical centres in India," said Isabel Guerrero, World Bank country director for India.
Innovation in India must be thought of as improving practices across the entire economy, the report said. While India is emerging as a top global innovator in sectors such as biotechnology and information technology, less than three per cent of the Indian workforce is in the modern private sector, while roughly 90 per cent remains in the informal sector.
"The disparities in productivity levels across firms within manufacturing sectors is wider in India than in China, Mexico, the Russian Federation, and the Republic of Korea," said Mark Dutz, World Bank senior economist and editor of the report.
"The output of the economy could increase more than five-fold if all enterprises could achieve national best practices based on knowledge already in use in India."
The report also stresses that new domestic R&D and knowledge needs to be better converted to commercial use. Of the top 50 applicants for patents in India between 1995 and 2005, 44 were foreign firms. Only two were private Indian firms.
India has one of the largest systems of higher learning in the world, with some institutions of world-class quality. But, India's small numbers of high-quality institutions are not enough to meet the country's growing demand for skilled personnel.
To maintain its share of global knowledge services, India will need 2.3 million knowledge professionals by 2010. Instead it may face a deficit of 0.5 million workers. The higher education system therefore needs to respond adequately to the economy's rapidly changing needs.
Actions are needed to promote commercialisation and to strengthen links among industries, universities and public R&D laboratories.
These could include providing support to technology transfer offices, creating a patent management corporation, strengthening innovation infrastructure including metrology, standards & quality systems, and technology parks and incubators, promoting angel investing and early stage pre-venture capital financing, and improving India's regime for intellectual property rights.
India would especially benefit from fostering more inclusive innovation, the report says. This could be achieved by promoting more formal R&D efforts for the poor people and more creative grassroots efforts by them, as well as by improving the ability of informal enterprises to better use existing knowledge.
"Existing pro-poor initiatives need to be scaled up," said Mark Dutz. "Inclusive innovation can play a critical role in lowering the costs of goods and services and in creating income-earning opportunities for poor people.
"Grassroots innovation networks should be formally evaluated and supported, and government programmes should promote more knowledge absorption in the productive sector and help extend the power of innovation to the common man."
To achieve this, the report recommends an increase in the fiscal and managerial autonomy of universities and colleges, and the encouragement of greater private participation in higher education.
Encouraging stronger competition among enterprises is particularly important. Since the Indian economy opened up in 1991, the vast majority of private sector investments in R&D were in sectors most open to competition.
The report calls for more intense competition among enterprises and suggests removing non-essential regulations in product, land, labour, capital and infrastructure markets. It also recommends making it easier for enterprises to take risks, and reallocating resources when new ventures don't turn out as planned.
It suggests the easing of remaining limits on small industries, restrictions on foreign direct investment, and barriers to import competition.