Innovation is considered to be a key driver of a growing economy. In the context of the Indian economy, innovation as a major driver has gained momentum. With the number of startups increasing faster in India, the discussion on the innovation ecosystem in India has occupied the center-stage. Innovation in India has the potential to play a major role in the fields of employment generation and poverty alleviation. Thus, there needs to be a detailed discussion on the innovation ecosystem in India and what is the government doing to promote it.
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What is innovation?
Innovation is a work that generates something new or novel. It is the application of creative ideas to generate value. Innovation is usually useful.
History of innovation in India
- From ancient times, India is known for its various innovations. The excavations from the Indus Valley Civilization indicate how innovative the Indians were. Some examples include the flush toilet system, diamond mining, plastic surgery, the Pythagorean theorem, the decimal system, the invention of zero, and others.
- The contribution of Indians in the field of science and technology is remarkable. Ramanujan’s contribution to the field of mathematics, the discovery of boson, and the Raman effect are such examples.
- After independence, the government through various policies and measures tried to introduce innovation in India. The second five-year plan gave a boost to industrialization in India. The introduction of the Green Revolution in the 1960s can be termed as a classic example of innovation readiness of the innovation ecosystem in India.
- The 1991 economic reforms acted as a landmark reform in setting up the ground for the innovation ecosystem in India. The policy of liberalization, privatization, and globalization gave a thrust to the rising innovative capabilities of India.
Factors determining innovation ecosystem in India
- Scope and features of the market in India – India being one of the largest growing economies, has a huge innovation potential. It can offer a bundle of opportunities for innovative ideas. The purchasing power parity shows the capability of the Indian economy in attracting innovation.
- Rising technological advancement – Indian society is undergoing a remarkable change due to technological changes taking place at a faster pace. India has developed a lot in terms of communication and digital connectivity which is a positive point for innovation growth.
- Market access – Accessibility to the market plays a deciding role in providing a healthy innovation ecosystem. If there are a lot of market barriers, they hinder the growth of innovation capabilities.
- Open innovation ecosystem – A closed innovation ecosystem acts as an obstruction in innovation development and thus markets prefer an open innovation ecosystem where there is an easy exchange of ideas.
- Government support – There is rising support by the government in the various sectors for innovation. The government through its various initiatives is trying as far as possible to encourage innovation in India.
- Encouraging entrepreneurship- The changing perception towards entrepreneurship has far-reaching potential for the Indian innovation ecosystem. The success stories of the various successful entrepreneurs have changed people’s perceptions.
- Research capabilities- With a large number of universities and institutions, India has a huge potential for research which can prove to be helpful for the innovation ecosystem in India.
Challenges to the innovation ecosystem in India
- Lack of capital- There is a problem of capital crunch plaguing the Indian innovation ecosystem. In a large number of cases, it is argued that ideas are there but there is no capital to begin the process.
- Risk aversion- India has a vast pool of innovation strategies but there prevails some kind of anxiety in India when it comes to taking the risk and entering the market.
- Organizational and structural problems- Many startups face the problem of hiring skilled workers, dealing with customers, and a proper marketing strategy. As most of the innovators have a technical background, thus they lack management capabilities.
- Diversity in India- Innovation is not merely a solution to a problem rather there needs to be understanding between the innovator and the user how to use that innovative idea. India is a diverse country with diverse cultures and people speaking different languages. So, there is a communication gap which acts as a challenge to innovation in India.
- Digital divide – A large part of the Indian population is digitally illiterate. This acts as a major problem. The innovators mostly come from a well-to-do background whereas the customers they target belong to digitally backward sections of the society.
- The problem of market penetration- Most of the newly-developed products find it hard to penetrate the market as there is already huge competition from the large enterprises and imitators.
- Lack of willingness to pay- As India is a developing country, the Indian customers are very price-sensitive. They show a lack of willingness to pay for newly-developed products and services. This leads to startups managing their cost of production at the expense of quality.
- The complexity of the regulatory environment- The problem with bureaucratic processes, the registration mechanism, the tax structure, granting of patent rights, and others hinder the growth of innovation in India.
- Lack of spending on research and development- India does not spend enough capital for the promotion of research and development and even if it spends, there is a lack of support for the small and rural innovators.
Present status of the innovation ecosystem in India
In the last few decades, the innovation ecosystem in India has witnessed a dynamic change. With the spread of technology and knowledge, India has emerged as a hub of innovation. From a handful of startups operating in a few sectors of the economy, there are thousands of startups operating in India now. The investment in the innovation sector has risen exponentially. The Indian innovation sector has attracted a huge sum of foreign direct investment in the last few years. India has climbed 4 spots ahead and has been ranked 48th in the Global Investment Report,2020. India is about to emerge as a major part of the innovation ecosystem in the world.
Government initiatives to promote innovation in India
- The government has tried to provide funding through a number of channels. These include funding through the banking sector like SIDBI (Small Industries Development Bank of India), reducing tax compliance, and giving tax benefits to the innovators. The government also offers a credit guarantee mechanism through the National Credit Guarantee Trust Company.
- The government has established a number of innovation centers, startup centers, technology business incubators, research parks, and Atal Tinkering Labs. Private sector incubators have also been established which are funded by the government.
- Change in the Intellectual Property Rights(IPR) regime is also a step ahead in promoting innovation in India. The government has initiated the facility of fast-track startup patent applications and offers rebates in the filing of patents. It also bears the facilitation cost.
- The government has facilitated legal support through self-certification and compliance practices through its Startup India web portal.
- The government organizes startup fests and talk shows to showcase innovation and providing a platform for collaboration.
- The establishment of the easy exit process as per Insolvency and Bankruptcy Code to promote innovation
- Startup India Initiative, launched in 2016 seeks to increase wealth and employability by providing support to the innovation sector in India. It provides tax benefits to the entrepreneurs thus promoting innovation in India.
- Atal Innovation Mission provides a promotional platform to academicians to gather national and international experiences to promote the culture of innovation, research, and development.
- ASPIRE (A Scheme for Promoting Innovation and Rural Entrepreneurship) seeks to promote innovation in rural areas thus changing the socio-economic scenario of rural India.
The innovation sector in India has a lot to contribute to the Indian economy in terms of increasing employment, providing economic stability, and encouraging further innovation. To fulfill these obligations, the problems plaguing the innovation ecosystem need to be addressed. The government is taking every positive step ahead to counter the problems and develop an innovative ecosystem. However, it all depends on implementation and there are several positives that show that India is in the right direction and soon will emerge as a leader in innovation.