India’s unemployment rate at 6.1 per cent of the total labour force during 2017-18 is at a 45-year high. But the trend of joblessness is not something new for the Indian economy. It has been a long-standing reality for the country due to its factor driven (labor arbitrage) pattern of growth. Even during the high-growth years between 2004 and 2009 – Indias historical best in terms of growth – only a million jobs were created in the entire five-year period when more than a million jobs were needed each year, as per a study conducted by the Planning Commission.
So, the Indian economy has a structural reason for its lackof a job-creating capacity. The country needs to enhance its competitiveness,that is its productivity levels, to overcome such a limitation. A promising wayto achieve such a boost in competitiveness is to work upon the innovativecapacity of the economy. Both US and China have become economic superpowers byworking along similar lines.
The by-products of the innovation-building efforts by thesecountries justify the idea of driving competitiveness by itself. The combinedmarket cap of the three-largest IT companies from the US – Apple, Microsoft andAmazon – equal India’s GDP as a whole. In the case of China, the market cap ofits largest company, Alibaba, equals 20 percent of India’s GDP.
Such comparisons show why India needs to transform itselffrom a factor driven to an innovation-led economy. If the country can develop acompetitive advantage over other nations through innovation, it becomesdifficult to be upstaged by another economy on the world stage. But India’sinnovation policies have a series of challenges that it needs to address first.
The first issue that India needs to work upon is thestrengthening of its industry-academia linkages. Universities are seen as hubsof research and innovation around the world. There are two specific roles thatuniversities are intended to play – knowledge creation and knowledge transfer.In India, the latter is often overlooked. Even if the process of knowledgecreation is fulfilled albeit with issues of quality, the mechanism of knowledgetransfer between universities themselves and with industry is quite limited.There are a few issues which arise due to such lack of linkages.
First, as universities work on the same issues in isolationwithout consulting and collaborating with one another, they fail to createcrucial synergy effects that impede the flow of knowledge and ideas. Second,the Indian education system is hardly industry-oriented due to lack ofinteraction between the two. As a result, the industry has to invest in monthsof intensive training for freshly hired graduates. This adds to theiroperational costs and proves inimical to the ease of doing business within thecountry. The government can possibly address this issue by providing a platformfor collaboration between industry and academia that would foster greaterknowledge creation and dissemination.
A structural reason for the lack of proper linkages betweenindustry and academia is the creation of a conflict of interest between the twowhen it comes to collaborating on innovation. Hardly a few universities have anIPR policy. There is, therefore, a lack of clarity on who owns the IP and howinformation will be shared between the different parties. Thus, such grey areasmake the industry hesitant to collaborate with universities.
The second challenge in India’s approach towards innovationarises from its low investment in research and development. India’s R&Dexpenditure is low not only compared to the mature economies but also comparedto emerging economies. India invests 0.67 per cent of GDP in R&D whilemature economies like US, Japan etc invest around 3 per cent of their GDP. Itis more worrisome that this has consistently fallen in the last decade afterreaching a peak of about 0.86 in 2008. The impact of this low investment inresearch and development is quite evident in the lack of world class R&Dinfrastructure facilities in India.
The third challenge lies in the country’s IP regime. The two main aspects of India’s IP Regime that are at the core of conflict between the government and the industry are: Section 3(d) of the Patents (Amendment) Act of 2005 and the propensity to grant compulsory licenses. Most of these issues primarily pertain to the Indian pharmaceutical industry but they are a serious challenge, nonetheless. Section 3(d) is mainly criticised for setting a higher standard for patentability than mandated by TRIPS. The industry is of the view that the additional requirement of enhanced efficacy by India discourages incremental innovation and impacts the foreign investment. The government, however, maintains the stand that it is TRIPS compliant. Compulsory licensing gives rights to the Controller to suspend patent privileges in cases where the best interests of their citizens are at stake or there is a wilful exploitation of patent privileges by the patentee. The industry claims that lack of clarity from the government is keeping many firms out of India. However, the government holds the view that the country has used this privilege just once in the past. In such a case it is important for the Indian government and the industry to chalk out a plan of action that will be beneficial for both the innovators as well as the general public. The challenges facing the Indian economy to become innovation-led do not end there. There are further issues which need to be ironed out with time, but these would be a good place to kickstart that journey. Innovation begets competitiveness and competitiveness begets jobs. And the latter is the thorniest issue facing the economy and the new government as of today. IANS