Innovation challenges

Promotion of innovation has been a key element of India’s policy-making. Almost all the policies framed over the first 40 years of Independence...

Written by Keshab Das | Published:August 20, 2010 12:44 am

Promotion of innovation has been a key element of India’s policy-making. Almost all the policies framed over the first 40 years of Independence—whether relating to science & technology,industry,trade,investment or fiscal measures—were intended to influence innovation. The government had set up agencies to promote innovation in almost all sectors of the economy and encouraged the private sector,through policy tools,to begin innovation and in-house R&D activities.

Public research laboratories spread across the country are a testimony to that vision and have remained a major source of technology for small and medium enterprises (SMEs).

Within the general policy framework,a major initiative has been the setting up of the Technology Development Board to extend financial assistance in the form of equity,soft loans or grants. This was followed by the launch of technology business incubators in 2001,through which grants-in-aid are given by the government department on capital and recurring costs for a given period. Another notable initiative has been the setting up of the National Innovation Foundation to harness traditional knowledge and grassroots innovations.

The Small Industries Development Bank of India (Sidbi) has selected about 20 small industry clusters for technology upgradation. Other national level institutions that support the small-scale sector are the National Research Development Corporation,Bureau of Indian Standards,National Productivity Council,Consultancy Development Centre and Electronics Test and Design Centres.

Elaborate institutional arrangements for promoting innovation and R&D notwithstanding,assessing the innovation performance has been tricky,partly because of paucity of relevant data. Moreover,R&D expenditure,considered a key indicator of innovations in terms of new products and processes,remains a poor indicator in India,especially in the spheres of organisation and markets.

It is evident that in industrial R&D,though the share of small-scale sector has risen fast,their share remains meagre. The share of small firms’ industrial R&D investment had risen from about 2% in the ’80s to about 4% in the ’90s (up to ’96-97; no government data is available after that.) This compares very poorly when seen with the sector’s contribution in national industrial output,employment or export earnings. It is strange that comprehensive R&D data on such a crucial sector is almost impossible to come by; the concerned Prowess database brought out by the Centre for Monitoring the Indian Economy is a poor excuse.

The R&D activity is confined to about a dozen industries and others have a negligent presence there. In fact,the R&D intensity (R&D expenditure as a proportion of sales) of small firms across different industries during 1980-81 to 2005-06 had declined. Also,R&D expenditure in most industries is erratic. This may partly be attributed to the fact that it includes both current and capital expenses,especially import of equipment,which does not take place every year. A study estimating the revealed R&D advantage (RRA) and the R&D base of select sectors found a very poor level of integration between different agents engaged in innovation,pointing to the immature nature of India’s innovation system.

While the available evidence,mostly from the developed world,indicates that interaction with universities and public research institutions (PRIs) is an important source of innovation in manufacturing enterprises,in India,however,industry-university interaction is still in its infancy.

A survey of 462 large industrial units by innovation academics KJ Joseph and Vinoj Abraham indicated that even the large Indian firms are mostly inward looking and depend mainly on their own manufacturing process and customers as the major sources of knowledge for innovation. Neither universities nor PRIs have any notable role as sources of information either in terms of suggesting new projects or in helping complete existing ones. Only 11.3% of the firms claimed they had any form of collaboration with a university or a PRI. While the overall level of interaction is found to be low,for those who have interacted,the collaboration has been a success in terms of meeting the objective.

However,many SMEs are increasingly making use of the testing tool room and other facilities in public research laboratories and universities. Though the relevance of interactive learning—as articulated in the systems of innovation framework—is yet to be appreciated explicitly in policy circles,recent national committees like the National Commission on Enterprises in the Unorganised Sector have underlined the need for greater interaction with the PRIs and universities.

Moreover,a distraction to innovation is the hype around global production networks (GPNs). Participation in GPNs has been touted as the key to the success of SMEs in developing nations. This has acted almost as a bait to SMEs getting entrapped in a production arrangement where the anchor or leading firm engages in what has been termed as ‘rent-poor’ activities,whereby typically labour-intensive and low value-adding tasks are subcontracted to SMEs in poorer countries,inter alia,to benefit from cheap labour. The GPN has been active in many modern and often labour-intensive sub-sectors,for instance,cosmetics,garments,furniture,furnishing textiles,leather goods,pharmaceuticals,computer/electronic goods,automobile parts,agro-processing,scientific equipment and so on.

Being integrated into these ‘quasi-hierarchical’ value chains,where buyers (MNEs,typically) from industrialised countries not only determine the specific manner in which processes to be undertaken but also practice exclusion by which the local producers/assembly units hardly have any access to facilities to upgrade,diversify or even to know the full details of the final output and its market. A reason for this could be that local firms are unable to offer the complementary capability set required by MNEs and that,in turn,leads to an unequal participation in GPNs.

In a discussion on the ‘downside’ of GPN promotion,a recent study has wondered whether firms are able to achieve functional upgrading,and “to determine the role buyers play in furthering,neglecting or obstructing functional upgrading by their suppliers”. Non-transparency of the global production systems and their exploitation of cheap labour in developing nations are issues of concern.

The stringent criteria adopted in selecting a particular sub-contractor and also disallowing opportunity to participate in non-labour or high technology stages of a given process are instances of highhandedness in an obviously asymmetrical business ‘partnership’.

In the Indian context,the software and garment sectors,the two most typical examples of ‘globalising’ SMEs,have been feeling the heat of such blatantly hazy and essentially exploitative business relationship,where the participating enterprises do not have complete information about the entire processes involved.

The growing incidence of contractualisation,informalisation and casualisation of workers,mostly women,have prompted various labour and social organisations to voice concerns over the systematic subversion of workers’ legitimate rights and social security issues.

It will be a sad development if India’s innovation efforts in SMEs eventually end up in the ‘borrowed’ innovations of GPNs.

The author is a professor at the Gujarat Institute of Development Research,Ahmedabad

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