Lessons from India's National Innovation System

India is emerging as Research and Development hub for foreign firms mainly owing to the availability of skilled labor produced in world-class elite institutions and cost advantages, e.g. in the form of low wages and low operational costs as it continues to increase in both domestic and foreign market potential, ranked 4th worldwide according to the Global Competitiveness Report 2010-11. Necessitated by different cultural background and tastes, there is also a large demand for localized product, which encourage R&D innovation activities. Their government has historically played a major role in the formation of its National Innovation System ever since its independence from the British rule. India’s government has invested much time, money and efforts in creating a knowledge society and building institutions of research and higher institutions1, consciously and consistently promoted the spread of science and technology in the country. Moreover, it has created and sustained an institutional infrastructure that ensures functioning of a market economy and allows its citizens to invent creative ideas and implement them. Since it began the process of economic liberalization in 1991 it has also supported selected high-tech industries to reach international standards. Its government has constituted fiscal incentives and support funds for spreading R&D in the industry.

Nevertheless, India, still a developing country, is faced with major problems related to infrastructure, e.g. shortage of power supply or transportation problems due to bad logistical infrastructure. In many instances firms and other innovators are faced with bureaucratic and procedural hurdles which often result in corrupt practices and time delays. The quality of education in many institutions does not reach the standards required for (cutting-edge) R&D efforts. Moreover, a booming economy is leading to shortage of qualified and experienced skilled labor – which result in inflationary wage growth and high attrition rates. With the government maintaining a pro-active role in both policy and fiscal arena many of these problems may be expected to get resolved to a manageable extent. The government has announced massive investments in infrastructure and education sectors to enhance both the quantity and the quality. Also, firms in the industrial sector in India – whether domestically or foreign-owned – have recognized their chances and are investing heavily in R&D capacities. These developments raise hopes for a further improvement in the conditions of a National Innovation System, which is unique in the sense that probably no other poor country, starting from a low literacy base of less than 20 percent in 1947, has ever since its political birth, so consistently and systematically tried to create, nurture and enhance its scientific capabilities and has achieved impressively positive results within such short span of time.

The Philippines would definitely get a lot of lessons from India starting from the government support in the National Innovation System to the creation of such policies that would make the system work in the country. Though the Philippines have already passed India in the business process outsourcing in terms of revenues with US$5.5 billion as compared to India’s US$5.3 billion, according to the October 2010 report released by IBM2, this is just one sector of the industry that relies heavily on skills due to the country’s competency of the english language and its adaptability to the Western culture. Yet, dependence on the communication skills alone as well as its reliance on the remittances of the overseas Filipinos are not enough for the economy to catch up with its fast-developing Asian neighbors. Like India, knowledge-based creation or the development of its R&D, should also be prioritized. Based on the Global Competitiveness Report 2010-2011 by the World Economic Forum (WEF) showed that the Philippines placed 85th out of 139 economies for its global Competitiveness, slightly better than 87th place out of 133 economies in the year before report. Even though the country’s competitiveness has slightly improved from last year, it still continues to lag behind in most of its Southeast Asian neighbors. In terms of technological readiness, it ranked 88 out of the 139 economies, for the Foreign Direct Investment and technology transfer. As a continuing challenge for the country to attract FDI particularly in research, the government, business sectors as well as the universities should prioritize the development of its own national innovation system, drafting policies that it can apply from the lessons that may learn from India.

References:
1 Herstatt, et al., Working Paper, April 2008, India’s National Innovation System: Key Elements and Corporate Perspectives
2 IBM Global Location Trends Annual Report, October 2010, Trends by Business Function FC6, Copyright IBM Corporation 2010