India's National Innovation System: Key Elements and Corporate Perspectives

East-West Center Working Paper

76 Pages Posted: 3 Apr 2010

See all articles by Cornelius Herstatt

Cornelius Herstatt

Technical University Hamburg-Harburg (TUHH)

Rajnish Tiwari

Hamburg University of Technology (TUHH)

Stephan Buse

affiliation not provided to SSRN

Dieter Ernst

East-West Center; Centre for International Governance Innovation (CIGI)

Date Written: August 1, 2008

Abstract

In recent years India has emerged as a major destination for corporate research and development (R&D), especially for multinational corporations. India’s domestic institutions like Indian Space Research Organisation (ISRO), Defense Research and Development Organisation (DRDO), and the Centre for Development of Advanced Computing (C-DAC) have set prestigious milestones of international standards. Not surprisingly, at Governmental levels a number of international cooperation agreements in the field of science and technology have been signed with India. After years of self-imposed seclusion, principally motivated by post-colonial India’s insistence on the “development of indigenous technology,” India finally seems to have joined the global mainstream of innovation.

In January 2007 the Institute of Technology and Management at Hamburg University of Technology (TUHH) launched a research project titled “India's Innovation System: Exploring the Strengths.” The one-year project was initiated in cooperation with Honolulu-based East-West Center. The aim of the project was to better understand the emergence of India as an increasingly important R&D hub for both large and medium-sized multinational firms, which in a certain sense may be regarded as curious since India is generally thought to suffer from disadvantages caused by poor infrastructural facilities, red tape and corruption. This project therefore aimed to examine, evaluate and ultimately comprehend the elements and inherent strengths and weaknesses of India’s innovation system and its chances for the global economy, particularly in knowledge-intensive sectors.

A preliminary field study was carried out in National Capital Region of Delhi in February 2007, by conducting 22 explorative talks/interviews. The participants included Government officials dealing with issues related to India’s National Innovation System, researchers and senior level management of some publicly-funded research institutions, one representative of a major industry association and some privately-held firms. Later in summer 2007 a 6-weeks field research was conducted by the authors in the National Capital Region of Delhi, Ahmedabad, Mumbai, Pune and Bangalore. In addition to that a small number of pre-operational interviews was conducted in Germany. The authors interviewed representatives of private firms as well as Governmental/Institutional bodies (85 in total). This study is unique in the sense that it not just undertakes an extensive effort to bring out comprehensive, factual data on various components of India’s innovation system – many hitherto not widely known – but also in the sense that it enables an empirical characterization of this system as perceived by various stakeholders, both domestic and foreign.

Based on our research we draw the following picture concerning India’s Innovation System of today:

India is in the process of emerging as a major R&D hub for both large and medium-sized multinational companies in various industries. This development is mainly owing to the availability of skilled labor produced in world-class elite institutions. Cost advantages, e.g. in the form of low wages are still present but receding due to substantial wage hikes often ranging between 15 and 25% per annum. The striking finding is however about market-driven factors. Of late, India’s market potential, in the meantime ranked as 3rd largest worldwide by the Global Competitiveness Report 2007-08, has emerged as a crucial driver. Rising income levels of India’s billion-plus population are creating unique market opportunities for firms, both domestic and foreign.

In India the Government has historically played a major and in most cases a singularly positive role in the formation of its innovation system. India, ever since its independence from British rule, has invested much time, resources and efforts in creating a knowledge society and building institutions of research and higher education. Despite explosive population growth literacy rate in India grew from 18.3% in 1950-51 to 64.8% in 2001 thanks to concerted Government efforts; female literacy rose from a mere 8.9% to 53.7% in the same period. Moreover the quality of education in India is generally ranked as very good. According to the Global Competitiveness Report 2007-08 the quality of mathematics and science education in India is ranked as 11th best in the world, much ahead of 29th placed Japan, 36th placed Germany, 45th placed United States and 46th placed United Kingdom.

Nevertheless, India is faced with major challenges related to infrastructure and bureaucratic hurdles. The quality of education, notwithstanding such excellent rankings as stated above, 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, which generally lay in a double-digit range.

With the Government maintaining a pro-active role many of these problems may however be expected to get resolved to a manageable extent. In its Eleventh Five Year Plan (2007-12) the Government has announced massive investments in infrastructure and education sectors to enhance both the quantity and the quality.

Industrial firms in India have recognized their chances and are investing heavily in R&D capacities. India is also a beneficiary of global mobility and exchange of talents, technology and resources as much as the world, especially the developed Western countries, have profited from India’s export of brain power.

In sum all these developments raise hopes for a further improvement in the conditions of India’s National Innovation System.

Keywords: India, Innovation System, National Innovation System, Global Innovation, Internationalization of R&D

Suggested Citation

Herstatt, Cornelius and Tiwari, Rajnish and Buse, Stephan and Ernst, Dieter, India's National Innovation System: Key Elements and Corporate Perspectives (August 1, 2008). East-West Center Working Paper . Available at SSRN: https://ssrn.com/abstract=1583699 or http://dx.doi.org/10.2139/ssrn.1583699

Cornelius Herstatt

Technical University Hamburg-Harburg (TUHH) ( email )

Hamburg, D-21071
Germany

Rajnish Tiwari (Contact Author)

Hamburg University of Technology (TUHH) ( email )

Hamburg, D-21071
Germany

HOME PAGE: http://www.global-innovation.net

Stephan Buse

affiliation not provided to SSRN ( email )

Dieter Ernst

East-West Center ( email )

1601 East-West Road
Honolulu, HI 96848-1601
United States

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

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