Pathways to innovation in India: India’s policy approaches to manufacturing have failed to create the tipping points innovation needs

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September 13, 2021 6:15 AM

The digital world may provide the most promising routes to Indian entrepreneurial success in the 21st century, but we know that the range of new technologies and profitable innovations is much larger than just software.

artificial intelligenceThe digital world may provide the most promising routes to Indian entrepreneurial success in the 21st century. (Representative image)

The sale of online payments firm BillDesk, which has received tremendous media attention because of the value of the acquisition, offers some insight into how India’s innovation system is working, and how it can be strengthened. The three co-founders met at a multinational financial services firm, but they had racked up work experience before that with Indian firms. Their educational backgrounds (IITs and IIMs) indicate that they had made it through the most selective mechanisms in the world before they started working, and had presumably received good educations there, in terms of what they learned.

When the co-founders started out, online payments were in their infancy, and their success now is the result of two decades of sustained effort, as well as making an intelligent choice for where to focus their energies. Initial funding came from public sector financial entities (presumably their pedigrees and networks helped there), but later, expansion was fueled by infusions of global capital. The acquisition of BillDesk, by a large multinational, will provide capital for further growth, including more innovation and entry into other countries’ markets. While it is not captured in the headlines, I have no doubt that how the company got where it is depended on the ability to hire enough people with the right skills and training, in software engineering, marketing, finance and whatever else is needed to create a successful company. This pool of human capital is being strengthened, not only by education, but by work experience – just as for the founders themselves.

The digital world may provide the most promising routes to Indian entrepreneurial success in the 21st century, but we know that the range of new technologies and profitable innovations is much larger than just software. India’s development of a COVID-19 vaccine is an example of emerging prowess in the life sciences, and in cases like this, manufacturing capabilities are vital. The country’s slow ramp-up of production of vaccines cost India’s people dearly.

There are more mundane examples of innovation, that illustrate possible pathways to success. A former school classmate, and subsequent IIT graduate, after gaining experience in industry, started his own electric lighting firm. Many years later, he told me about LED lighting, which, despite a long history, was not yet a commercial product. But he said that it was going to be the future of lighting. A decade or so later, his company has its own high-quality R&D labs and manufacturing facilities, dozens of patents, and many customers for large scale LED lighting projects, all driven by the energy efficiency and flexibility of the new technology, as it has rapidly evolved.

As far as I know, his is a classic family firm, but clearly with professional management and the ability to hire qualified people at all levels. It may be that there are additional challenges of dealing with state and local government officials that accompany any manufacturing effort in India. I cannot be sure what the obstacles were that had to be overcome. But, as in the case of BillDesk, seeing an opportunity for innovation that solves a big problem, and getting in a position to pursue that opportunity, were the first steps.

In the case of LED lighting, regulatory requirements generated incentives to shift from conventional light bulbs. These helped overcome uncertainties and higher upfront costs. As production and adoption expanded, costs fell, knowledge levels increased, and a tipping point was reached. Perhaps India’s policy approaches to manufacturing and to innovation have failed to create these tipping points. It is true that a more liberal approach leads to more failures, and a landscape of empty, unsuccessful factories is not desirable. This can be where openness to the world can be especially beneficial. The pool of global knowledge also includes lessons about what not to do, as well as what works.

It is also true that taking full advantage of these lessons requires a larger pool of people who have had an opportunity to be trained and educated, and gained the right work experience, to the point where they can learn and innovate effectively. India’s policymakers still have to figure out how to achieve this situation rapidly enough to benefit the nation’s growing number of young people, all eager for a better life.

The author is Professor of economics at the University of California, Santa Cruz

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