Global Innovation Index 2021 | India needs a big push in infrastructure

Innovation is a key factor in shaping the growth and the development trajectory of an economy. From the first industrial revolution to the COVID-19-pandemic-induced digital revolution, all highlight the significance of innovation.

Given its importance, investment, and expansion of innovative activities are key objectives of all economies. With the onset of the pandemic, most governments have prioritised their resources for combating COVID-19. It was expected that the level of investment in innovation would plummet.

However, the Global Innovation Index 2021 (GII) report, released on September 20, highlights that investment in innovation was resilient during the COVID-19 pandemic. Prior to the pandemic, investment reached an all-time high with R&D experiencing a growth of 8.5 percent in 2019. Despite the pandemic, the innovation performance has been resilient with IP filling, R&D, and venture capital deals still growing, highlighting innovation as a key driver in the battle against the pandemic.

The 2021 GII report highlights the performance of 132 economies, documenting the changing landscape of innovation across economies and regions. India is ranked 46th in this report, marginally improving by two positions from 2020. Within the income group of lower-middle income economies, India is ranked second after Vietnam.

The GII report also highlights that India has been successful in developing sophisticated tradable services. Further, India continue its dominance in ICT exports, and performs exceptionally well in domestic industry diversification (ranked 12th), and producing science and engineering graduates (ranked 12th). India also tops the region’s ranking in the knowledge and technology output pillar (29th).

Despite India’s impressive progress in the GII 2021 rankings, the picture is far from being perfect. For instance, five Asian economies — the Republic of Korea (5th), Singapore (8th), China (12th), Japan (13th) and Hong Kong (14th) — maintain their top position. India is quite away from these economies.

Further, the GII highlights that besides China, economies such as Turkey, Vietnam, India and the Philippines are catching up. A close inspection of the ranking components reveals that India’s catching up needs a big push. For instance, Turkey jumped 24 positions during the past decade to reach the 41st position. Similarly, Vietnam jumped 32 positions and the Philippines improved by 40 positions to reach 44th and 51st position respectively. During the same time, India improved by 16 ranks, which shows that the catch-up process is a slower rate compared to other economies.

Therefore, it is important to understand the hurdles and bottlenecks restricting the pace of India’s catch-up process. Drawing inference from the GII 2021 report, India’s innovation performance was commendable, and above the average for the upper middle-income in most pillars of innovation.

However, India performs below average in the case of infrastructure, which unambiguously point towards the need for push towards infrastructure improvements. In this regard, with the onset of pandemic, the focus of investment has been on recovery. Given the high fiscal requirements for infrastructure associated projects, particularly for large-scale infrastructure development projects, dependence on public investment alone for meeting the financial needs will not suffice.

This brings us to the widely voiced recommendation of encouraging private-public partnerships. In this regard, India can take cues from other emerging economies such as Brazil, where it formed a group — the Entrepreneurial Mobilization for Innovation (MEI) — which provides a space of public-private dialogue, and encompasses of the top 300 business leaders in that country. Such a space could help provide an ecosystem to present, discuss, deliberate, and implement projects, and in turn improve the innovation ecosystem of a country.

An ecosystem of this nature will help reduce the academia-industry disconnect. It will also promote interdisciplinary, and international collaborations, which could help India improve its performance on the creative innovation pillar — another pillar in which India performed below average.

Moreover, the need for finance is not confined to the public-private partnership sphere. In this regard, India’s expenditure on research and development (R&D), though it has increased in absolute terms, it has remained stagnant at 0.7 percent of its GDP, much lower compared to BRICS and other East Asian economies.

This highlights the need for finding sources of finance to push India’s innovation ecosystem forward. In this regard, the digital revolution can help advance the adoption of fintech and Internet-based crowd-funding for start-ups. Microcredit is another important source of entrepreneurial finance, which when combined with digital finance can help overcome its major limitation of high transaction cost, and allow such sources to achieve scale. In terms of opportunity, to make the economy more resilient to future shocks, and the challenges posed by the climate change, we need to promote green innovation. Green innovation will also help in meeting the sustainable development goals.

Ketan Reddy is Assistant Professor of Economics, Christ University, and Subash S is Associate Professor of Economics, Indian Institute of Technology, Madras.

Views are personal and do not represent the stand of this publication.