With cumulative industrial growth now gauged in the low decimal points, there’s the pressing need to strategise policy formulation and implementation that effectively boosts the value added in manufactures and beyond. In the past, particularly in the last two decades of economic reforms and opening up – albeit in fits and starts – there have indeed been a few instances of sclerotic growth in industry, over several weeks and months.
But the prolonged lacklustre growth this time around in the industrial economy, and a markedly decelerating trend overall, points at the need to go beyond such explanations as relatively dearer cost of credit, heightened government consumption expenditure (read: loose fiscal policy) or even the lack of investor confidence quite across the board. The downturn calls for a productive technology policy, which is better able to allocate resources for innovation and research.
The Approach Paper to the Twelfth Five-Year Plan does lay emphasis on the objective of enhancing global competitiveness of Indian industry through ‘appropriate policy support’. The report notes that research and development expenditure here adds up to a lowly 0.9% of total output of goods and services.
In the mature and even not-so-mature industrial economies, the comparable figure is two – and often three – times higher. Worse, much of our R&D resources remain dedicated to a few prestige projectsBSE 0.40 % in the public sector, thus considerably limiting their spillover and diffusion effects.
Of late, there are moves underway to rope in outside talent to boost innovative activity. Notice, for instance, the schemes to encourage Indian-origin researchers abroad in such high-potential areas as nanotechnology and biotechnology to relocate and be associated with the leading domestic institutes.
But such initiatives seem much too rigid, with little scope to suit individual circumstances; besides, what’s surely essential is an improved environment that is able to purposefully step up both the demand and supply of innovative activity across industries and sectors. The approach paper does contain bullet points on the need for ‘more flexibility’ for scientists to ‘pursue their ideas’ and for greater mobility between industry, academia and R&D institutes. But we clearly need far better understanding of such interactions and of their potential to rev up innovativeness. The challenge ahead is to firm up networks and linkages that proactively enhance inter-institutional and international collaborative research for increased economy-wide competitive advantage.
New, improved technologies, methods and products essentially require reallocation of resources; the central economic fact is that the myriad processes resulting in innovative activity all call for the production of useful information. And herein hangs a tale. The mavens have shown that information is a commodity with quite peculiar attributes and that there would be a perceptible tendency in any given setting for under-investment in innovative activity, given its information-intensive nature. It can be said upfront that demand for the information would be suboptimal both given its lumpy costs, and of the considerable difficulty generally of gainfully appropriating the information available.
Most research-intensive sectors are, after all, characterised by high uncertainty when it comes to industry trends in the foreseeable future and beyond. Plus, given the resource-intensive nature of modern innovative activity, there can be but much indivisibilities involved, which, in turn, would imply minimum requirements of scale. Also, if innovative effort is quite inappropriable – for one or more reasons – by the main backers, then corporates may not undertake such activity in the first place. The various stylised reasons may well explain the chronic under-investment in our national system of innovation, for years.
The post-1991 reforms have not really augmented R&D activity in proportional terms, despite up to 200% weighted tax deduction on such expenditure now available. The approach paper does contain laudable objectives. It wants private sector R&D expenditure to add up to at least 50% of total expenditure in the current Twelfth Plan period. In parallel, the paper suggests that multiple national missions in such areas as health, water, energy, food and environmental security be launched, with ‘extensive participation of stakeholders’ so as to achieve the goals and targets in a defined time frame. The objectives seem fine but we do need a concrete game plan to connect, say, the National Knowledge Network with the National Innovation Council.
The point is that how we plan to change the economics of knowledge production needs to be fleshed out to better coagulate resources nationally for R&D activity. Innovation does require multiple institutional linkages, in industry, R&D centres and universities, and how we design user-friendly structures and flexible collaborative efforts across institutions would largely determine progress on the ground. In tandem, there is the need to focus resources and strategise R&D in select high-technology areas where new knowledge would have huge externalities (read: benefits). Hence the need for a revamped technology policy framework that leads to synergy in resource usage and attracts talent.