DIALOGUE ON INNOVATION FOR PROSPERITY
NEW DELHI, DECEMEBER 2018
Introduction With India becoming the fastest-economy in the world, the next big challenge for the country is to sustain that pace amidst a slowing global economy. It is almost a no-brainer that innovation is the most crucial element that needs to be pursued for India to develop a competitive edge over other economies. Innovation plays an indispensable role in driving growth and competitiveness of nations. It was this understanding of the importance of innovation that brought prosperity to the West. India also faces further challenges that are vastly different from the West. With a population of over 1.3 billion, which keeps on growing at about 1.1 percent each year — India faces scarcity on a large scale across the board: from water and food to oil and gas and to primary education and basic health care. To overcome these challenges India must transform itself from a factor-driven to an innovation-driven economy by efficiently using its existing resources and in turn become a global innovation hub. To be successful in this endeavor, the country must make the right institutional, industrial, and policy reforms. In recognition of the urgency to act, a roundtable on “Innovation for Prosperity” was organized by NITI Aayog and Institute for Competitiveness on December 4, 2018. The roundtable was an effort to bring together the academia and the industry to discuss India’s innovation ecosystem and its IP regime, talk about the challenges faced in industry-academia interaction, debate the most suitable pathways for improving India’s innovative capacity, and review how the situation differs across regions with the help of a state level innovation index. The eventual objective of the event was to draw actionable policy recommendations for NITI Aayog to work upon to improve India’s innovation capacity. The panellists pointed out why a shift of focus towards innovation is indispensable for a country like India. Amitabh Kant, CEO, Niti Aayog, pointed out that India will keep adding more young people to its population till about 2042 and the challenge for the country will be grow at near double-digit growth rates for at least the next three decades up from its current growth of about 7 per cent on an average. Innovation will play a key role in ensuring such an outcome, he added. If the country is to benefit from the rare opportunity of a demographic dividend, only a relentless pursuit of innovation can provide the required impetus. Moving forward, the core focus of the panelists remained the challenges of India’s education system and its IP environment; both of which are hardly conducive to innovation.
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Quality of Human Capital A key focus of the discussion was the quality of the higher education institutes and how they impact the presence of human capital. The education system ensures functioning of the innovation system by providing quality human capital such as engineers, scientists, researchers who implement new concepts and strive towards new processes. Participants highlighted two main challenges that the Indian higher education system is facing. First, the education system is not industry-oriented and hence produces students that have low employability rates. The industry has to invest in months of intensive training before freshly passed out students can become productive. This deficiency exists because of the weak linkages between the industry and the universities and the lack of co-ordination between the two on designing curriculums. Second, the focus on quantity instead of quality. The universities focus more on “the number of hours taught and not on the quality of education imparted”, said Nilanjan Banik, a professor at Bennett University.
Recommendations: •
Industry and academia need to come together to design syllabus curriculums together to enhance the employability of our students.
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The focus of the universities should be on the quality of education imparted by the professors. This will not only improve the quality of human capital but also provide the professors with the time to focus on research.
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Innovative Capacity, Economic Development and Regional Competitiveness The panellists shed light on the role of universities in shaping the innovative capabilities, how that is impacted by the presence of clusters and their role in explaining the variation in economic differences and competitiveness using Indian state level data. State level data was shown illustrating that innovative states such as Tamil Nadu, Karnataka and Maharashtra have higher GDP levels than less innovative states, a relationship that also holds true for cross-country comparisons. To be precise, innovative capabilities of states explain around 40 percent of the variation in their economic differences. These innovative capabilities of the states are enhanced by the presence of clusters as they help in fostering innovation and eventually economic development by providing an environment of collaborative learning. Data suggests that cluster strength of a region explains around 52 percent of the variation in the innovation scores of the state. Participants agreed that this data provides strong evidence that policymakers should focus on creating an ecosystem in the country conducive to innovation and creativity. The competitiveness and prosperity of the economy will be enhanced if India adopts strategies to become a global innovation hub. The key to the same lies in targeting institutions that are involved in the process of learning or that jointly or individually contribute to the development and diffusion of knowledge. Yaduvendra Mathur from NITI Aayog also pointed out the importance of building a brand value for Indian manufacturing by exemplifying the case of Apple, which has leveraged on the design of its products to unlock market value. So, the concept of innovation needs to be expanded to include ideas like brand and design to enhance competitiveness. Recommendations: • •
A regional analysis that will highlight the strengths and weaknesses of the Indian states and how they can climb up the innovation ladder should be conducted. Manufacturing innovation in India needs to expand into domains of brand and design to enhance competitiveness. Even IP needs to be strengthened across these areas.
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Industry Academia Linkages Panellists discussed that universities across the world are seen as hubs of innovation where experts from varied fields come together to share their ideas for developing new technologies, systems and processes. Such innovation originating from universities usually attracts huge demand from the industry. This results in diversified product and market development, which leads to the nation gaining a competitive edge in the world markets. However, in the Indian universities the focus on research is quite abysmal and the linkages within different universities and industry academia linkages are missing. This leads to challenges in both the roles that universities are supposed to play – knowledge creation and knowledge transfer, said Amit Shovan Ray from JNU. Participants pointed out that many of the universities work on the same issue without interacting with one other, which fails to create crucial synergy effects. Further, there are many research ideas that academicians work on which are not commercially viable and hence industry shows no interest in investing in such ideas. Therefore, it becomes important for the authorities to play a role in finding the right channel of knowledge creation and dissemination. It was also highlighted by the participants that a conflict of interest is created when it comes to co-creating a product by industry coming together with academia. This happens because only 33 percent of Institutions of National Importance, 24 percent of central universities and merely 12 percent of state universities have an IPR policy. This lack of clarity on who owns the IP and how information will be shared between different parties makes the industry hesitant to collaborate with the universities for research work. Recommendations: •
A collaborative platform needs to be developed that will bring together all the stakeholders of innovation - innovators, researchers and investors from the industry. This will help in the strengthening the industry academia linkages and will ease the process of technology transfer by providing a platform for innovators to showcase their inventions.
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A robust IP policy needs to be developed for the universities. The policy formulation process can be aided by studying the IP policies of different universities and creating a model policy framework that can be adopted by other universities.
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India’s IP Regime The participants discussed the two legal aspects of India’s intellectual property that have been at the center of the debate between industry and the policymakers. The first one being the Section 3(d) of the Patents (Amendment) Act of 2005, that sets a higher standard for patentability, in respect to incremental innovation. It requires to demonstrate enhanced efficacy to the previously known substance to be considered patentable. The second one is the issue of compulsory licensing. This provides the Controller with the rights to suspend patent privileges in cases where the best interests of the citizens are at stake due to force majeure or wilful exploitation of patent privileges by the patentee. It was noted by some participants that Section 3(d) is compatible with the TRIPS and should be considered as an inventive step by the Indian government rather than and additional requirement. However, others highlighted that Section 3(d) discourages incremental innovation and adversely impacts the environment for innovation on the whole. Similarly, on the issue of compulsory licensing it was noted that despite it has been used by the Indian government only, there are chances that it is keeping foreign investors out of Indian markets. Since it is widely believed that these issues are impacting India’s innovative capabilities, it is important for the Indian government and the industry to chalk out a plan of action that will be beneficial for both the innovators as well as the general public. Another point of discussion was the valuation of patents. Some participants highlighted that patent pricing needs to be at a level where it both encourages competition and ensures consumer welfare. The practice of downstream pricing needs to be looked into, which encourages both the innovator and does not overcharge the consumer instead of the “smallest sale-able patentable unit” (SSPU) as is often argued, argued Geeta Gauri, former member of the CCI. Recommendations: •
A consultation mechanism needs to be developed before the issuing of a compulsory license. This will enhance the coordination between the industry and the government.
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The issue of Section 3(d) of the Patents Amendment Act of 2005 needs to be deliberated upon with industry members. It is essential for the competitiveness of the Indian economy to maintain a balance between incentivising the industry and providing access to goods and services.
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Discuss the provisions of India’ patent law concerning the use of compulsory licensing with the industry, to ensure transparency and predictability.
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Regulatory Framework Participants, both from the industry and the academia, agreed that the Indian regulatory framework is highly unpredictable. The changes in the framework are made at a very short notice in an arbitrary manner. This unpredictable nature of the Indian system creates hurdles for the industry and makes it difficult for them to work in Indian market. It was also highlighted by some participants that China has recently conducted a lot of reforms in its regulatory framework to facilitate the workings of the industry. Therefore, in order to become an attractive investment destination, the Indian government should work towards these regulatory challenges. Recommendations: •
The Indian government should reduce the regulatory bottlenecks by creating a predictable innovation environment. For the same, discussions should be held with the industry bodies prior to making regulatory changes.
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The changes in innovation policy should be streamlined and the industry must be provided with enough time to make necessary adjustments to them.
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Participants Shri. Amitabh Kant, CEO, NITI Aayog Prof. Vinod Paul, Member, NITI Aayog Shri. Yaduvendra Mathur, Additional Secretary, NITI Aayog Nilanjan Banik, Professor of Economics, Bennett University, India Amit Shovon Ray, Professor, Jawaharlal Nehru University Mallika Shakya, Assistant Professor, South Asian University Pravakar Sahoo, Professor, Institute for Economic Growth Amir Ullah Khan, Professor, Maulana Azad National University Bappaditya Mukhopadhyay, Professor, Great Lakes Institute for Management Ajay Mehra, Managing Director, South Asia, Bombardier Dr. Murali Krishna Kumar, Senior Advisor, NITI Aayog Dr. Vinod Kumar Paul, Member, NITI Aayog Shri. Yogesh Suri, Adviser, NITI Aayog Geeta Gouri, Former Member, Competition Commission of India Sunil Shah, Gujarat Innovation Society Arul George Scaria, Professor, National Law University, New Delhi Uday Bhanu Sinha, Professor, Delhi School of Economics Dr. Amit Kapoor, Honorary Chairman, Institute for Competitiveness, India Manoj Saxena, Managing Director, Bayer Zydus Pharma
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Institute for Competitiveness, India is the Indian knot in the global network of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India is an international initiative centered in India, dedicated to enlarging and purposeful disseminating of the body of research and knowledge on competition and strategy, as pioneered over the last 25 years by Professor Michael Porter of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India conducts & supports indigenous research; offers academic & executive courses; provides advisory services to the Corporate & the Governments and organizes events. The institute studies competition and its implications for company strategy; the competitiveness of nations, regions & cities and thus generate guidelines for businesses and those in governance; and suggests & provides solutions for socio-economic problems.
The Institute for Competitiveness U24/8 DLF Phase 3 Gurgaon 122 002 Haryana, India
Dialogue on Innovation for Prosperity
Phone: +91 124 437 6676 Email:info@competitiveness.in www.competitiveness.in
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