Innovativeness as the determinant of the economic development in India. Indian economy in comparison with the world innovation leaders

Prystorm, Joanna Working Paper Innovativeness as the determinant of the economic development in India. Indian economy in comparison with the world innovation leaders Institute of Economic Research Working Papers, No. 95/2017 Provided in Cooperation with: Institute of Economic Research (IER), Toruń (Poland) Suggested Citation: Prystorm, Joanna (2017) : Innovativeness as the determinant of the economic development in India. Indian economy in comparison with the world innovation leaders, Institute of Economic Research Working Papers, No. 95/2017, Institute of Economic Research (IER), Toruń This Version is available at: https://hdl.handle.net/10419/219918 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Indian economy in comparison with the world innovation leaders Joanna Prystrom Article prepared and submitted for: 9th International Conference on Applied Economics Contemporary Issues in Economy, Institute of Economic Research, Polish Economic Society Branch in Toruń, Faculty of Economic Sciences and Management, Nicolaus Copernicus University, Toruń, Poland, 22-23 June 2017 Toruń, Poland 2017 © Copyright: Creative Commons Attribution 3.0 License Innovativeness as the determinant of the economic development in India. Indian economy in comparison with the world innovation leaders Joanna Prystrom1 Abstract Research background: The advancing globalization processes, the take-up on the strength of competition, or the ever-changing needs of the people are forcing economies and the functioning of these entities, constantly being innovative. Innovation is a kind of “an idea for a better tomorrow”, which can help you to persevere in this turbulent environment, and not “innovate, that is, to die” (Freeman, 1973). It is obvious, that aspect of innovations already tested since time immemorial, but innovation economy of India, which until a few years ago, grew at the fastest pace in the world, seems to be a worthy area to study. Purpose of the article: The purpose of the present discourse is an attempt to present the role of innovations in one of the fastest developing economies – Indian economy, as well as elaboration on the aspects of its innovativeness compared with the group of most innovative, competitive and well developed economies in the world. Methodology/methods: literature analysis, data analysis, statistical analysis of the data source, Pearson's correlation coefficient. Findings & Value added: The Indian economy is one of the most innovative in BRICS group. India is aware of the role of innovation in economic development, which confirms, among other things the fact that many institutions and government action is aimed at supporting innovative activity in the country (for example DRDO, ISRO, IIP, FICCI, or NIF and C-DAC). In the state of changing customers’ expectations, modern technologies successfully develop not only in the Europe, United States or Japan. To the circle of innovative tycoons candidate also India where in the recent years, economic development is significantly dynamic. Modern technologies in India are considered better. Innovations constitute important area of Indian economy and decisive solutions and interesting methods can be interesting for the European entrepreneurs. After the crisis, the situation of Europe will be more complicated. It is widely known that dynamically developing world will decide on the developing economies. It means that they will need more raw materials for the fulfilment of the growing appetite and huge innovation pressure for the search of adequate solutions for rich and still averagely poor markets. Therefore, not only tablets for 35 USD appear but also new energetic technologies. The Indian innovativeness is giving this to world. 1 University of Bialystok, Faculty of Economics and Management, e-mail: [email protected] India as a country struggling economic crisis and the actions taken in connection with the chance which brings with it innovation, can serve as a worthy model to follow. Courageous, but - it seems - be a matching statement might be: “... you do not have sufficient funds to purchase the newest Ipod, try to create their own, much cheaper ... you will certainly find interest among potential customers ...” JEL Classification: O3 Keywords: innovativeness, economic development, India, world innovation leaders, BRICS Introduction In the face of considerable challenges of the XXI century, constantly progressing globalization processes, rapidly changing economic situations and customers’ expectations, innovations seem to be the valuable tool conditioning the existence in the turbulent environment. The subject performing innovative activity is able to persist on the market and overcome the threat of constantly escalating competition. (Tushman et al., 1997, p. 4) Innovative activity relate to the ability to introduce new innovative products or services on the market, use of more effective and economic methods of production etc. Therefore, it delivers chances of development, entrance on the new potential markets or increased participation in the present markets. It frequently increases the production or the possibility to create new work places. In terms of economic situation it can also influence the growth of GDP or the reduction of the level of unemployment which has measurable effects on economic condition. The purpose of the present discourse is an attempt to present the role of innovations in one of the fastest developing economies – Indian economy, as well as elaboration on the aspects of its innovativeness compared with the group of most innovative, competitive and well developed economies in the world. Method of the Research The essence of innovation is today raised in numerous publications and scientific reports. Many institutions such as the WEF, the World Bank, WIPO, OECD, EC or IRI try every year to share the most current data on the state of innovation national economies and functioning in the framework of their businesses. Extremely interesting and worthy of dissemination of information is provided by Indian sources, showing how there tends to reinforce the innovative capacity, as seen in the rankings accurately, because India rise rela- tive to other economies, and as mentioned the Indian economy is one of the most innovative in BRICS group. This article is based on literature, data source and statistical analysis, and Pearson's correlation coefficient. Innovations – the issue and importance for the economic growth The concept of innovation is understood and examined extremely thoroughly. J. Schumpeter as an example of innovation enumerated introduction of new product, modification of the present one, implementation of new production method, possession of new sources and possibilities, use of untouched, until now, areas and markets, new means of business organization. (Schumpeter 1932, p. 66) More specific, through the innovation understood opening of new markets where the introduced process, product or service were unknown until this time, use of new means of sales or purchase or the possession and use of new sources of raw materials and semifinished products. (Schumpeter, 1960, p. 104) Figure 1 Influence of innovations on the economy Innovations and technical progress New possibilities of acquiring production factors Productivity Price reduction New production and service Reduction of employment in the traditional production Economic revival Development of the innovative economic subjects Creation of new work places Production increase Increase of the region attractiveness and investments flow Economic growth Source: own elaboration on the basis of: Krelle (1989, p. 22). In this meaning innovation is the new combination of existing possibilities, characterized by high developmental function, first of all in relation to economic condition. (Fagerberg, 2004, p. 6) Innovation refers to an iterative process of developing commercially successful inventions, whereas innovativeness rewers to the orientation of an organization to adopt product, processes, or organizational innovations. (Rodriguez, Wiengarten, 2017, p. 2425) As Ch. Freeman claimed “not introducing innovations means dying”. (Freeman, 1973, p. 21) In emerging economies, where competition in the industry is fierce, technological innovation is often considered widespread and an effective business method employed by most firms to compete with others. (Cui et al., 2016, p. 29) Innovativeness of domestic economic subjects is the determinant of the economic condition of the country. Among the effects of the innovation influence it is possible to distinguish increased production, expansion of the present or opening of new enterprises which, in fact, result in the chance of create of new workplaces and decrease of the level of unemployment which leads to the economic growth. (figure 1) Innovativeness of Indian economy In the recent years India has appeared as one of the ideal destinations for conduction of international R&D activities. India’s national institutions such as DRDO, ISRO, Defence Research, or the C-DAC have established significant milestones of international standards. Not surprising is the fact that at institutional and governmental levels a great deal of international agreements for cooperation, in the field of scientific research, have been signed. After many years of self-imposed seclusion, ideologically motivated by post-colonial India’s insistence on the development of native technology, deep absorption and successful adaption of imported technology, which has finally led to more than reverse engineering of products development elsewhere, India seems to have joined the international mainstream of innovation. (Herstatt et al., 2008, p. 3) Current socio-economic condition in the world, constantly changing customers’ expectations and global trends appearing on the market provoked India to the promotion of innovative activities among its domestic economic subjects. Bearing in mind the fact that innovativeness is treated as the driving force of the modern economies, it has been claimed that the future welfare of India in the new economy based on knowledge, to a great extent will be dependent on the ability to generate new ideas, processes and solutions. One of the activities supporting and promoting innovativeness is IIP, which aimed at creation of network associating people and ideas, exchange of experiences and sources, awake innovativeness in Indian society. (India ...) It is also worth to mention about the IIGP which is an exclusive programme of its kind, since it focuses on teaching using world-class commer- cialization procedures and business development assistance provided. (About ...) In case of creating innovativeness of domestic economy, institutional surrounding constitutes the central issue with government institutions, innovation centres, research centres or institutions financing, supporting and influencing innovative activity of the economic subjects. One of the most important reasons for non-innovativeness is the lack of financial sources. That is why, the role of institutional surrounding, supporting and promoting innovativeness is important for the existence of innovative activity and contributes to creation of new work places, determinates means and effectiveness of the use of employers qualifications which support innovative processes in the economy.. (Making ...) It is worth to mention about NIF in India, which has proved that Indian scientists and innovators can match anyone in the world in case of solving problems creatively. The aim is to assist India become an innovative and creative society and world leader in renewable technologies without social and economic incapability affecting development and spread of green grassroots innovations. (Mission ...) Bearing in mind the fact that innovation is the driving force for the increase of prosperity and national competitiveness in the XXI century, the President of India has announced 2010 as the ‘Decade of Innovation’. And India started to develop a national strategy on innovation with particular focus put on Indian model of inclusive growth. The idea is to form an native model of development suited to Indian requirements and challenges. (India ...) One of the most important determinant of innovative capacity is human capital. (Ederer et al., 2007) India has a long tradition of innovations and significant sources of highly qualified people, engaged in innovative activities. India is too poor to buy solutions and technologies from the West. It should be emphasized that poverty does not constitute a barrier, but it is considered an excellent innovation stimulus. The examples can be multiplied. Nowadays, there is a tablet revolution going through the world – the most popular goods on the computer market are such devices as iPads. In the globalized world the tablet fad appeared also in India, but the price of few hundred dollars was too high. An answer became the Aakash tablet which created, for only 35 USD and is supposed to introduce to digital world for over 220 mln Indian students. Some of the solutions for poor meet with the interest of customers from the richer markets. Approximately 40% of electrocardiographs designed for India, American GE’s sell in Europe. (India ...) “India’s well-developed R&D infrastructure (…) it’s key to success as a leading offshore location.” (Kayser) In case of innovativeness of national economy, the key issue is served by surrounding. In India the basic role falls to the NInC which has elaborated on the following ideas, including the deployment and monitor related to some of the initiatives performed in the past years. Worthy of mention activities taken to improve the innovative capacity of the Indian economy are IIIF and a SEBI-registered venture capital fund, a common projects of NInC, the MHRD and other institutional stakeholders on the propositions like National Talent Search Scheme, Establishing Innovation Centre in each DIET, Mapping of Local History, establishing Meta University and twenty Design Innovation Centres (ODS, NDIN, IITs/NITs) or creating ‘TodFod Jod’ (TFJ) Centres, Global Innovation Roundtable, the NKN. (Herstatt et al., 2008) Figure 2 India’s science and technology system INDIA’S SCIENCE AND TECHNOLOGY SYSTEM Source: Herstatt, Tiwari, Buse (2008, p. 18). For the innovative abilities of national economy is also responsible country’s national innovation system. In case of India it is Indian System for Education and Technology which covers units such as Central Government S&T Departments, Central Socio-Economic & Other Ministries, NGOs, In-House R&D In Private Industry and Independent Research Institutes. Central Socio-Economic & Other Ministries State Government S&T Departments S&T In Non-Government Organizations (NGOs) In-House R&D In Private Industry Independent Research Institutes Central Government S&T Departments Figure 3 Innovativeness of the Indian economy in the light of patent, trademark, industrial design and R&D spending Source: own calculations based on http://www.wipo.int/ipstats/en/statistics/country_profile/, 10.03.2017, http://www.wipo.int/ipstats/en/statistics/country_profile/, 11.03.2017, http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS, 11.03.2017. Certainly, innovative capacity is determined by many diverse factors. One of important are R&D activities that result in patents, trademarks or industrial designs. Another important factor is the level of spending on such activities. As mentioned above, innovation improves the condition of an economy, and one of its best indicator is GDP per capita. (figure 3) Table 1 Correlation coefficient of patent , R&D spending and GDP per capita in BRICS group (analyzed period 2001-2015) Country Correlation coefficient: patents and GDP per capita R&D spending and GDP per capita Brazil 0,69 0,8 Russia Federation 0,69 -0,18 India 0,97 0,77 China 0,98 0,97 South Africa 0,47 0,18 Source: own calculations based on http://www.wipo.int/ipstats/en/statistics/country_profile/, 10.03.2017, http://www.wipo.int/ipstats/en/statistics/country_profile/, 11.03.2017, http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS, 11.03.2017. The use of statistical data and their correlation to the correlation function showed how far the level of GDP per capita depends on the level of R&D spending or the number of patents registered in the country.