How creative is the Indian economy?

Creativity blooms during periods of extreme turbulence. One such example is the “Doing Business” index, which was initiated in 2003, in the aftermath of the dotcom boom-bust of 2000-2004. 

Back then, state led development had decisively given way to a preference for an open economy, competition, markets and private enterprise. The Doing Business index benchmarked governments on how prepared they were to benefit from burgeoning international trade, private investment flows and the IT industry, which had proved its resilience, by sailing past the Y2K (“millennium change bug”) test on January 1, 2000. 

Global Innovation Index ranks countries on creativity

The Global Innovation Index (GII) – a collaboration between World Intellectual Property Organization (WIPO), INSEAD and Cornell University (supported by our CII in 2020), was similarly initiated in the aftermath of the 2008-2009 financial crisis when the gains from international financial liberalization seemed to be getting overwhelmed by the systemic risks thereof. By then the gains from tweaking past inventions into new products, better industrial engineering or more efficient management and financial systems – had reached saturation levels. The new source for wealth and value addition was knowledge, innovation and data. 

The GII stepped in with a tool, on the Doing Business pattern, for governments to measure where they stood, versus their peers in using their knowledge and creative resources. 

Innovation is a “within reach” value kicker for India

The ongoing economic downturn from the Covid pandemic amplifies the need for a value enhancement kicker. The Pandemic fosters a nurturing ecosystem for innovation in digital services. Profound changes are already visible in the delivery of health care and education services, the use of financial and payment systems and the emerging business architecture and systems. These new social norms and commercial practices will be “sticky” and outlast the pandemic, because they are cost-effective and convenient. 

Managing an economy in transition comes with significant risks and uncertainty. Templates like GII, measure performance globally and point to the necessary next steps for individual countries making complex decisions easier.   

The GII measures five essential inputs for good results – resilient government, regulatory and business institutions; comprehensive human capital development; robust digital and physical infrastructure; competitive markets and sophisticated business capacity. 

Providing these five inputs should result in enhancing the necessary outputs of knowledge, technology and creativity. Fifty measurable indicators gauge the performance of 192 countries annually. 

Templates like the Doing Business Index or GII are not perfect. Every country has contextual opportunities and weaknesses, which escape templates. The GII does well to use a simplified analytical frame to avoid the controversies which emerge from complexity. 

India has moved up the ranks since 2016 but performance remains patchy

The analysis is in four segments. First, a global ranking of countries annually to establish how each country is doing versus the rest of the world. India, as in the Doing Business Index, has done better over the last few years. In 2019 it ranked 52 (versus 60 in 2017) and improved to 48 in 2020.

Top rank in the region

Second, ranking within a geographical region gets the competitive juices flowing. India remains the highest-ranked country in the South and Central Asian region.

Not the best in the lower middle income group

Third, ranking within an economic peer group using the World Bank income classification of high; upper or lower-middle and low-income economies. India is a lower-middle-income economy. It ranks third behind Vietnam and Ukraine in 2020. All three countries performed better than expectations, as suggested by their level of their development.  

India uses scarce resources well but can learn from others who do better

Finally, a ranking of “effectiveness” of each countries innovation strategy using the proxy of input intensity of achieved outputs- much like the Incremental Capital Output Ratio used in economics for assessing the efficiency of capital use. On the global scale in 2019 India was ranked 61 rank (from 52 overall) in providing inputs. In its income category it ranked 2nd after Georgia. In its region, it retains rank 1. 

India showed its mojo in 2019 by “doing more with less” ranking 51 (versus 61 on inputs) on the global scale for outputs. But within its income class there are many others who know better how to maximize results. India ranks 6th after Ukraine, Vietnam, Philippines, Mongolia and Moldova all of whom rank lower than India in providing inputs. Within the region it slipped behind Iran to rank 2. Clearly, we can learn from all these countries how to do better on results.

Indian universities – institutionally abundant but lagging as pools of creativity

Encouragingly, in 2019 three Indian universities rank within the first ten universities in middle-income economies. The top three Chinese universities were ranked highest, followed by Malaysia, Russia, Mexico and Brazil with one university each. The Indian Institute of Science and IIT (D) come at the tail end. 

India ranked second, just behind Malaysia amongst middle-income economies on the “quality” of innovation, as assessed from the quality of its universities, internationalization of its patents and the level of citations for research.

Collaborative clusters are weakening

Knowledge clusters lead to “network gains” and are vital links of productivity. All the top fifty knowledge clusters are in high-income economies, barring China and Tehran – the only two upper middle-income countries. 

Other middle-income countries like Brazil, India (knowledge clusters of Mumbai, Bengaluru and New Delhi) Russia and Turkey figured in the lower half of the top 100 clusters. By 2020 only Bengaluru ranks at 60 – a red flag prompting the need for more collaboration, especially between government and private enterprise.

The GII highlights that investment in innovation and research tends to be procyclical – lower when times are bad and higher when good times return. One of the objectives of the government’s fiscal stimulus should be to safeguard investments in the knowledge economy and digital infrastructure to protect medium term growth prospects. 

Like other countries India allows tax credits for investment in R&D. But we lag in providing individual incentives or financial rewards for excellence, linked to international patents registered or citations for publication of refereed research – a tactic which China has exploited to achieve rapid gains. 

The architecture of India’s knowledge-based economy remains patchy with a strong middle class, urban bias. This neglects two thirds of our human potential and favors the top 20% by income. To compete globally, talent and potential must be harnessed universally and the composition of knowledge stakeholders expanded exponentially. COVID will restrain us from doing anything substantive about the inputs (financial support, infrastructure etc.) but efficiency gains are low hanging fruit, if we focus on getting more bang for every Rs spent. Needed an #InnovationChef to stir the pot?

Also available at TOI Blogs November 28, 2020 https://timesofindia.indiatimes.com/blogs/opinion-india/towards-a-creative-economy/

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