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A TUCK-IIPM THINK TANK-B&E JOINT STUDY
Decoding India’s innovation DNA
Companies hail the importance of the Indian market, and there is a pleasing buzz around the concept of reverse innovation from the country. But unless the ecosystem as a whole becomes more enabling for innovation, the country will continue to seriously undermine its potential
Issue Date - 30/05/2012
 
The most unique aspect of the UIDAI (Unique Identification Authority of India) project is its scale. It’s all about innovatively applying existing technologies to a grand social goal whose value for its intended audience can hardly be questioned. With a target of over 600 million people by 2014, this is slated to be the largest biometric database of individuals on earth. The total estimated cost is pegged at around Rs.180 billion, but is linked to some Rs.3 trillion in welfare payments in India, at least half of which are estimated to be lost due to leakages and graft.

However, the project has faced considerable challenges, & a major proportion of them have little to do with the technology itself. They include lack of machines at centres, inadequate and unskilled staff, awareness issues, data collection issues, difficulty in finding competent vendors and lack of sufficient cooperation at the state level. Off late, the problems have become more complicated, as the home ministry led by P. Chidambaram feels that the UID is a security risk as it really does not demarcate citizens and residents, and that the National Popular Register (NPR) scheme is much better. On the other hand, the Standing Committee on Finance led by Yashwant Sinha has rejected the National Identification Authority of India 2010 bill in its present form citing a number of issues including the question on whether the bill itself was introduced with any clarity of purpose, since it was supposedly destined for BPL families and has now been extended to all residents of India. The Left, on the other hand, is joined by a number of activists in calling it a breach of individual privacy.

Now let us discuss one landmark innovation that came from the Indian automotive sector and was hailed as a symbol of what Indian innovation could promise the world – the Tata Nano – a unique and valuable proposition for the middle class in theory, but a terrible road to market in practice. It all began when they ran afoul of farmers who owned the land where the Singur plant was set up. They assumed that the support of the West Bengal government would be enough to ensure that all was well. Once it spiraled into a political issue, the company was compelled to pull out of its $292 million factory and relocate to Sanand, Gujarat. This created serious supply issues besides enormous relocation costs, as some suppliers reportedly complained of inadequate compensation. Moreover, the promise of the Rs.1 lakh car became unsustainable very soon as input prices started rising; and the car was eventually caught in a devastating positioning trap, with the perception of a cheap car conflicting with the new price points. The burning Nano incidents made it worse and brought quality issues with suppliers to the fore. Rightfully so, Ratan Tata called it a “wasted opportunity” recently, and the company is looking at removing the ‘poor man’s car’ tag.

What these two isolated examples highlight in particular is that when organisations are looking at innovation, especially path-breaking innovation, and even if they are convinced about the potential of that particular innovation in the market, their due diligence is far from over. They have to look at the entire innovation chain from their suppliers to all the partners and to even a wider gamut of stakeholders who may or may not have a direct stake in the value proposition of the innovation in question.

 
Take a look at the C2A2 model (Capability & Competence Advancement Agenda) conceptualised by Prof. A. Sandeep in his book, Power Business Strategies (Ed. 2009). It indicates how a company’s internal capabilities can be enhanced by a positive ecosystem. But if your ecosystem suffers from serious deficiencies in terms of capability, it can actually erode your competitive advantage and hamper your ability to achieve your strategic goals, which is exactly the situation that the UIDAI and more so, the Tata Nano project have faced.

And when you extend this very idea to India’s current and potential attractiveness as an R&D destination, it is quite obvious that the problem is again, not as much with the market or with consumer demand or even perhaps with constraints in R&D expenditure; rather, it is with the innovation ecosystem in the country. Over time, a number of MNCs have started looking at India as an R&D base and some Indian companies are also hopping on to the bandwagon in certain sectors. But to take these initiatives to the big league, significant ecosystem challenges must be encountered.

The legacy of the license raaj and the policy of import substitution followed by the government post-independence have been extremely cancerous for the innovation temperament in India. There was fairly little incentive to innovate with a regulated market where capital and influence were the key factors that determined success. Moreover, government funded institutions, while they deployed the best of brains, were hardly tuned to the needs of the industry in terms of innovation. The focus was on basic research and hardly on applied research. This is indicative in the performance of Council of Scientific & Industrial Research (CSIR), which is the apex body of government funded R&D institutions in India. CSIR received just 25 patents from the US Patents and Trademark Office (USPTO) between 1991-1995, and only recovered thereafter with 276 patents between 1996 and 2002 (paper titled R&D in India by B. Bowonder, V. Kelkar & N.G. Satish). However, the performance has significantly fallen since, with patents won falling to 53 in 2009 from 133 in 2003. Even after liberalisation, the emphasis has been weak on developing indigenous capabilities. Prof. Y. S. Rajan, Dr Vikram Sarabhai Distinguished Professor at ISRO Headquarters & Chief Mentor, ISRO Strategy Group (ISG), commented in his speech on ‘Pathways for an Innovative India, “The entire dialogue (from the government’s perspective post-liberalisation) was in terms of macroeconomics, financial markets, structural reforms for easing access, tax reforms et al. (But) Equally essential was the need to build technological capabilities of linking science, technology, engineering & businesses to use global markets.”

The Thomson Innovators 100 report for 2011 listed the top 100 companies in terms of innovation globally via analysis of success ratio in terms of winning patents, ability to protect it in global markets, influence of patents through citations and number of innovative/basic patents. India wasn’t there on the list, and interestingly, neither was China! However, China became the top country for resident patent applications last year with 293066 patent applications; beating Japan, which had 290,081. India reached just 34,287 applications as per data available in 2009. When Thomson’s India Innovation Awards were given out last year, only two sectors were covered – pharma and hi tech, showing how imbalanced the scenario is across industries.

          

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