India s Innovation System

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Sunil Mani, BRICS, Aalborg. 2. Outline . Performance of India's Innovation SystemR

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India s Innovation System

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1. India’s Innovation System Sunil Mani and Parveen Arora

2. Sunil Mani, BRICS, Aalborg 2 Outline Performance of India’s Innovation System R&D Investments (PA) Patents (SM) Technology content of exports(SM) Growth of R&D outsourcing (SM) Technology import (SM) Components Overall policy framework (PA) Physical technological infrastructure (PA) Financing of innovation (SM) Supply of scientists and engineers(SM) Intellectual property right protection (SC)

3. Sunil Mani, BRICS, Aalborg 3 Relative performance of India wrt Patenting in the USA

4. Sunil Mani, BRICS, Aalborg 4 Share of local patents in the total number of Indian patents in the USA

5. Sunil Mani, BRICS, Aalborg 5 Technology-wide distribution of Indian Patents, 1995-1999

6. Sunil Mani, BRICS, Aalborg 6 Technology-wide distribution of Indian Patents in the US, 2000-2004

7. Sunil Mani, BRICS, Aalborg 7 Technology-wide Distribution of Indian Patents in the USA: Differences between the two sub periods (Sub period 1: 1995-1999; Sub period 2: 2000-2004) First of all the there has been a significant increase in patenting during the second period by almost 370 per cent; Second, the share of the top 15 per cent has increased during the second period to nearly two-thirds from 57 per cent during the first period. Third, Pharmaceutical patents account for a significant share in both the periods, although its share in the top 15 have decreased in the second sub period; and Fourth, as a corollary of the above, the composition of the top 15 has undergone some changes in the second sub period. As against just one IT and electronic technology (including software) class during the first period, there are now 6 such technology classes in the second period. This shows the breadth of patenting by Indian inventors has increased.

8. Sunil Mani, BRICS, Aalborg 8 Technology content of India’s Exports Studies have shown that only about 7 to 8 per cent of India’s manufactured exports can be termed as high tech. Most of it is accounted by pharmaceutical products; But the sustained growth of IT exports is changing the story. IT exports have two variants. The first one is direct IT exports and the second one is indirect IT exports in the form of remittances of knowledge workers; The direct IT exports now account for over 20 per cent of merchandise exports and over 13 per certcent of total exports.

9. Sunil Mani, BRICS, Aalborg 9 Technology content of India’s Exports

10. Sunil Mani, BRICS, Aalborg 10 Growth of R&D Outsourcing Two variants R&D outsourcing per se and growing clinical trials. No time series data as the phenomena is very new- just two years old, but on definite growth path

11. Sunil Mani, BRICS, Aalborg 11 Growth of R&D outsourcing Evidence of high-end outsourcing is evident from the large number (over 150) established R&D outsourcing centres in India. In fact R&D outsourcing existed even before “outsourcing” became a fad. The R&D story dates back to 1985-86 when Texas Instruments was the first to set up a center in Bangalore. GE and Intel soon followed suit, as did other global technology and telecom companies like Cisco, Microsoft and Motorola. The trend gained strength as not just large but medium, small and even startups set up research bases in India. The R&D outsourcing market for IT in India is estimated to grow more than $8 billion by 2010 from $1.3 billion in 2005, at a CAGR of 30 per cent according to some industry estimates. Outsourcing models for R&D vary, from captive to third party to contract assignments. The pioneers of R&D outsourcing were from information technology. R&D centres in the telecom sector came next, and automobiles, pharmaceutical and biotechnology are the emerging areas where R&D outsourcing is bound to increase. This growth of R&D outsourcing brings to our attention two important dimensions. First of all, it shows that if R&D as a profession is incentivised, it is possible for the country to effect considerable increases in its R&D investments. The fact that foreign MNCs are able to establish contract R&D centres is a clear example of this possibility. Second contract R&D centres can be an important learning tool for the contract research organisations to emerge as important manufacturers in the future, provided that government is able to leverage this important opportunity through appropriate policy support. Such a policy support does not exist as of now.

12. Sunil Mani, BRICS, Aalborg 12 Trends on technology imports to India during the post liberalization period (Number of collaboration agreements)

13. Sunil Mani, BRICS, Aalborg 13 Payments made for technology import during the post liberalization period does not show any growth

14. Sunil Mani, BRICS, Aalborg 14 Components of Innovation Policy Overall policy framework

15. Sunil Mani, BRICS, Aalborg 15 Salient features of the New Innovation Policy of 2003 Optimal utilisation of existing infrastructure and competence; Strengthening infrastructure for S&T in academic institutions; New funding mechanisms for basic research ; Human resource development; Technology Development, Transfer and Diffusion; Promotion of Innovation; Industry and Scientific R&D; and Fiscal measures

16. Sunil Mani, BRICS, Aalborg 16 Public sector allocation to S&T over the Indian five year plans

17. Sunil Mani, BRICS, Aalborg 17 Composition of Indian R&D personnel (number)

18. Sunil Mani, BRICS, Aalborg 18 R&D Personnel Both in absolute number and in density terms the number of R&D personnel in the country is very small; There is an explicit recognition of this fact in the new S&T policy of 2003. In my view it is more of a demand side phenomena. More on this point in my presentation on human resources.

19. Sunil Mani, BRICS, Aalborg 19 Financing of Innovation The country has three broad schemes Research grants Tax incentives Venture capital

20. Sunil Mani, BRICS, Aalborg 20 Research Grants

21. Sunil Mani, BRICS, Aalborg 21 Research Grants Large number of research grants administered by a plethora of organizations Most grants are targeted at public sector research institutes and enterprises The Matthew effect in grant disbursals owing to the principle of accumulative advantage

22. Sunil Mani, BRICS, Aalborg 22 Tax Incentives There are five different types of tax incentives; Considerable year to year changes in its scope; Has not very effective in raising R&D investments with the notable exception of pharmaceutical industry.

23. Sunil Mani, BRICS, Aalborg 23 Venture capital Venture capital was introduced in 1988; The country has a very vibrant VC industry The investment pattern of the VC industry represented an ideal model in phases I and II but no longer appears to be so.

24. Sunil Mani, BRICS, Aalborg 24 Indian VC industry in historical perspective Phase I - Formation of TDICI in the 80’s and regional funds as GVFL & APIDC in the early 90s. Phase II - Entry of Foreign Venture Capital funds between 1995-1999 Phase III - (2000 onwards). Emergence of successful India-centric VC firms Phase IV – US VCs’ increasing appetite to invest in India

25. Sunil Mani, BRICS, Aalborg 25

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