Page 255 - ES 2020-21_Volume-1-2 [28-01-21]

238 Economic Survey 2020-21 Volume 1

inbound mobility; 108 on ICT access as well as ICT use; 105 on ease of starting a
th
th
business; and 101 on females employed with advanced degrees. Also, as the 5th largest
st
economy, India’s aspiration must be to compete on innovation with the top ten economies.
The business sector in India contributes much less to gross expenditure on R&D (about
37 per cent) when compared to businesses in each of the top ten economies (68 per
cent on average). This is despite the fact the tax incentives for R&D were more liberal
in India when compared to those in the top ten economies. The Government does a
disproportionate amount of heavy-lifting on R&D by contributing 56 per cent of the gross
expenditure on R&D, which is three times the average contributed by governments in
the top ten economies. Yet, India’s gross expenditure on R&D at 0.65 per cent of GDP is
much lower than that of the top 10 economies (1.5-3 per cent of GDP) primarily because
of the disproportionately lower contribution from the business sector. Indian government
sector contributes the highest share of total R&D personnel (36 per cent) and researchers
(23 per cent) amongst the top ten economies (nine per cent on average). Indian business
sector’s contribution to the total R&D personnel (30 per cent) and researchers (34 per
cent) in the country is the second lowest amongst the top ten economies (over 50 per
cent on average). Indian residents contribute only 36 per cent of patents filed in India as
compared to 62 per cent on average in the top ten economies. Indian firms also perform
below expectation on innovation for their level of access to equity finance, which is the
most crucial for innovation.

India must significantly ramp up investment in R&D if it is to achieve its aspiration to
emerge as the third largest economy in terms of GDP current US$. Mere reliance on
“Jugaad innovation” risks missing the crucial opportunity to innovate our way into the
future. This requires a major thrust on R&D by the business sector. India’s resident firms
must increase their share in total patents to a level commensurate to our status as the fifth
largest economy in current US$. India must also focus on strengthening institutions and
business sophistication to improve its performance on innovation outputs.

As Economic Survey 2019-20 discussed in the chapter “Entrepreneurship and Wealth
Creation at the Grassroots”, the Startup India campaign of the Government of India
recognises entrepreneurship as an increasingly important strategy to fuel productivity
growth and wealth creation in India. This assumes greater importance in the context of
enhancing private participation in innovation in India - in terms of contribution to gross
expenditure on R&D, R&D personnel and researchers, and share in patents filed in the
country. The lessons drawn therein on the crucial role of literacy, education, physical
infrastructure and policies enabling ease of doing business, as drivers of new firm creation
and entrepreneurship, remain relevant in this analysis.

WHY INNOVATION MATTERS

8.1 A vast body of literature in economics extols the role of innovation and technological
progress in growth and development. Box 1 presents a selective review of literature highlighting
the importance of innovation.