After a marathon election campaign
that started last September, the Bharatiya Janata Party (BJP) emerged
victorious on May 16, 2014 winning a clear majority on its own (282 seats out
of the total 543 seats in the Lower House of the Indian Parliament). Today the
Union Council of Ministers formally
took oath, including Ms.Nirmala Sitharaman, who is widely seen as the next Minister
of State for Commerce. As most of our readers know, the Department of Industrial
Policy and Promotion (DIPP) which is the nodal department for all Intellectual
Property-related issues, falls under the Ministry of Commerce and Industry.
Given that the Ministry of
Commerce through the DIPP is responsible for formulating manufacturing and
innovation-related policies, it’d be interesting to see what the new
dispensation does to revive the manufacturing sector and to boost innovation. On this blog, we had earlier written two posts
on a National
Innovation Policy and the importance
of investment in innovation and research in times of recession. Following
are a few relevant extracts from both these posts:
“As is wont, the situation today has a macroscopic
perspective and a microscopic one. As far as the macroscopic view is concerned,
the services sector is a tempting seductress which promises returns in a
geometric progression within a narrow time window and is not as
infrastructure-intensive as the manufacturing sector. This makes it an easier
and “softer” option for economies which do not have the political will to
invest in hard infrastructure (Indian economy being a case in point).
The microscopic view, which
is corollarial to the macroscopic one, is that investment in hard
infrastructure requires a highly-skilled and reliable industrial workforce,
which is willing to constantly learn and adapt to newer technologies and style
of functioning (this calls for industry-friendly labour laws as well). This
means, besides private enterprise, the government too needs to play a huge role
in creating, training and nurturing a workforce, and in
chalking out a comprehensive pan-nation industrial innovation policy.
Importantly, the latter
again calls for establishment of well-networked innovative institutions which
have collaboration-friendly structures to combine their research firepower in
good times and in times of dire need to pull out the country’s economy from
doldrums. One of the countries which has such an approach at the heart of its
innovation policy-making is Germany. Not-so-incidentally, Germany happens to be
those rare developed economies which did not buckle under the recession to the
extent that US and UK have.
How has Germany’s
industrial/innovation policy helped it cocoon itself to a significant extent
from the harsh effects of the recession? There is an extremely informative and
insightful paper covering the theme of this post and this specific issue. The paper entitled “Can the Relative Strength of the National Systems of Innovation
Mitigate the Severity of the Global Recession on National Economies? –
The Case of Selected Developed Economies” was presented by A.Baskaran
and M.Muchie this April at the DIME Final Conference at Maastricht, Germany.
On Page 11, the authors of
the paper enumerate what they perceive to be the strengths and weaknesses of
the German system of innovation vis-a-vis its ability to mitigate the effects
of recession. Some of the strengths listed therein are relevant to the post,
which are as follows:
(i) In contrast to ‘Anglo-Saxon model’ of growth based on
financial services (e.g. the UK) and property market, the German economy is
strongly rooted in manufacturing, companies invest in long-term growth, and
workers-managers relationship is based more on close cooperation;
(ii) Structural reforms in the labour market and corporate sector
before the recession helped the German economy to become more competitive;
(xiii) Germany has developed FDI strategies around incentives and
clusters and developed world renowned centres of excellence and developed
globally recognized position as leaders in certain growth sectors such as clean
technology. Germany has also developed well recognized excellence in
innovation, and has created the best environment for R&D, which
continues to attract companies from abroad to work close to the leading German
companies and to access the best talents in the country
The above paper apart, what
is even more educational is the recommendation of the Commission of Experts
(EFI) (a commission established by the German government) to the German
government in its 2009 Report.
Under the head aptly titled “Education,
research and innovation- a particular priority in recession”, the
Commission recommends thus in no uncertain terms:
“The Expert Commission suggests that in the course of implementing
the second recovery package, more
attention should be paid to the concerns of education, research and innovation.
If this is not done, there will be a severe shortfall in the funds available in
future to improve the competitive position of Germany. Currently, the German
innovation system is still competitive in an international comparison. However,
competition is becoming considerably more intense as other industrialised
countries and some key emerging economies redouble their efforts. Germany‘s
position with respect to R&D will therefore come under pressure if the
level of expenditure for research and innovation is only maintained at present
levels. There is an urgent
need to expand education, research and innovation.”
...
“Innovation and SMEs
To finance innovation, the report implicitly
recommends the creation of a vibrant and responsive equity market to fund
innovation by Small and Medium-sized Enterprises (SMEs). What is interesting is
that in the literature that one has come across thus far, the pervasive opinion
is that innovation is primarily churned out of SMEs (and not behemoths,
although it is behemoths which typically flaunt their patent filing
statistics).
In Germany, the report says, 70% of its employees work
in SMEs and 43 % of all SMEs in Germany are innovative. In the report, an SME
is deemed as innovative if it brings new or improved products into the market.
The report further observes that investment in
innovation by SMEs is integrally dependent on the state of the economy. To
ensure that such investment remains insulated from the health of the economy in
some measure, the report recommends an innovation-friendly tax system. Even if
an innovation-friendly tax system is put in place and an active venture capital
market is promoted, how does one generate demand for the products of such
innovation?
The question is, what exactly is expected of such
innovation? Is innovation during recession meant to create products/processes
which can kick-start the economy? Or is it meant to bring back pre-recession
growth figures once the recession dies its cyclical death? Or is it meant to
reduce future vulnerability to recession by creating a strong post-recession
technology base? Can a single approach bring about any or all of these outcomes?
I guess that would be entering the realm of a trained economist, which I am
not, hence opinions are welcome.
Anyways, the report recommends a combination of
topic-independent R&D support in the tax system and project-specific
funding, both of which are intended for SMEs.
The University Angle
Among the other recommendations, there are two which
deal with universities. The first one is about creating an attractive
science/technology labour market. This came as a surprise to me because I did
not expect an advanced technology regime such as Germany to have trouble
attracting scientific talent.
Besides working on qualitative development of the
German education system, the report recommends creating a framework to
encourage retention of home-grown talent and relaxation of immigration norms
for highly-skilled foreign nationals (recently,
Australia welcomed highly-skilled human resources from India under its Global
Non-discriminatory Immigration Programme).
The second recommendation relating to universities was
to boost university-industry interaction to “intensify and improve knowledge
and technology transfer”. One of the suggested steps, which I felt was nuanced,
is to avoid imposing a universally binding technology transfer framework which
spell out the minutiae for all research institutions and universities.
It is probably best to lay down a common policy which
encourages a culture of research accountability and incentivization, without
using a straitjacketed approach that is blind to the dialectics of individual
technology sectors. But there is definitely a consensus on the need for
universities to play a more active role in facilitating commercial application
of their own research, and not restricting themselves to merely providing
skilled manpower to the applied sciences industry.
Tapping the Knowledge-intensive Services Industry
The report seeks to tap the under-utilized
knowledge-intensive services industry in Germany. “Knowledge-intensive
services” refer to provision of services by way of high-end technology and
engineering consultancy. This is one sub-sector of the services sector which
ensures that there is an area of the economy which, although “soft”, still
requires highly-qualified technology professionals, as opposed to other areas
such as legal, business and financial consultancy services (the so-called
Anglo-saxon model).
The reason knowledge-intensive services are a
relatively untapped area in Germany is probably because its business houses are
globally-renowned brands for product development, be it the chemicals industry
or the auto industry. Considering the fact that exports drive the product-based
industries of Germany, and the fact that the Chinese low-wage model makes it
difficult to compete price-wise, it is strategically important for Germany to
rapidly ramp up the scale of its knowledge-intensive services.
Lessons for India
From my limited understanding, most of the
recommendations in the report for the German economy seem applicable to India
as well. Given the on-going discussions on the need or otherwise for the
Public-Funded Intellectual Property Bill (the so-called Indian Bayh-Dole), I
now see the wisdom in the calls for undertaking a thorough study on the
nature of Indian research institutions and universities, and their
core-strengths and weaknesses, before introducing a cut-and-dried legal
framework.
As for the industrial policy, India must look at
increasing the contribution of the manufacturing sector to the GDP, which is
currently hovering at around 15%. Although knowledge-intensive services already
form a respectable part of the Indian services sector (since quite a few Indian
arms of foreign multinationals play the role of engineering services division),
it is just not enough to remain content with our role as sidekicks to product
developers.
India has the natural resources to play a prominent,
if not dominant, role on the global manufacturing scene. Along with China,
India too has embarked on a quest for more minerals in African markets;
therefore, what now needs to be scaled up along with our quest for natural
resources, is the ability to produce goods for domestic and global consumption.
Today our population and its increasing panache for
diverse consumption give Indian players a chance to test their manufacturing
capabilities before they venture into foreign markets. Indian SMEs in
particular must seize the initiative, but I think the hurdle before them is to
attract engineering talent which either opts for cushy management positions in
business consultancy majors, or gravitates towards non-Indian manufacturing
giants.”
Taking forward this
train of thought, I think it may be important for the HRD Ministry and the
Ministry of Commerce to work together to develop a trained workforce and to
provide avenues to utilize the skills of the workforce. Further, the National
Manufacturing Policy needs to lay stronger emphasis on innovation, IP creation
and IP protection. The High
Level Committee constituted under the Policy must include an expert on
innovation and IP, preferably a committee of MHRD IP Chairs.
Having said the above, it
is clear that there’s a lot that can be done and there is no dearth of suggestions
coming from all quarters. But if the last ten years have proved anything, it is
this- execution above all needs political will, and hopefully the new
dispensation has what it takes to once and for all prove that India does not
need to cite democracy as an excuse for poor execution each time it is compared
with China. Here’s wishing the new Government the very best in its sincere
endeavours!
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