Page 298 - ES 2020-21_Volume-1-2 [28-01-21]

Innovation: Trending Up but needs thrust, especially from the Private Sector 281

Log Population^ 0.871*** 0.604**

(0.304) (0.255)
Log GDP per capita (PPP)^ -0.189** -0.267***
(0.0917) (0.0985)
Observations 936 936 936 936 936
Adjusted R-squared 0.918 0.918 0.919 0.918 0.919
Country FE Yes Yes Yes Yes Yes
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
^2019 figures

POLICY IMPLICATIONS

8.54 India needs greater thrust on innovation to catapult itself to a higher growth trajectory and
become the third largest economy in GDP current US$ in the near future. This requires boosting
gross expenditure on R&D from 0.7 per cent of GDP currently, to at least the average level of
GERD in other top ten economies (GDP current US$) of over two per cent. It also involves
significantly scaling up R&D personnel and researchers in the country, especially in the private
sector.

8.55 Despite heavy lifting by the government sector in GERD of almost three times the average
of other top ten economies, India’s GERD remains low. Moreover, India’s performance on
innovation has been lower than expected for its level of access to equity finance. India’s business
sector needs to rise to the occasion and significantly ramp up its gross expenditure on R&D to
a level commensurate to India’s status as the fifth largest economy in GDP current US$. This
requires boosting business sector contribution to total GERD from 37 per cent currently, to close
to 68 per cent – the average business contribution in GERD of other top ten economies. Indian
business sector’s contribution to total R&D personnel and researchers also needs to be scaled
up from 30 per cent and 34 per cent per cent respectively to the average level in other top ten
economies (58 per cent and 53 per cent respectively).

8.56 India has had a generous tax incentive structure to boost R&D in the country as compared
to several other top ten economies. However, this did not generate a corresponding level of
private participation in GERD in India. Given the low level of contribution to GERD by the
business sector despite the generous incentive regime prevailing earlier, businesses in India
must focus on innovation to remain competitive in the new economy.

8.57 For India to become an innovation leader, its residents’ share in total patent applications
filed in the country must rise from the current level of 36 per cent. As a thought experiment,
assume that the number of non-resident patent applications in India remain the same from 2019
to 2030. Then, if India’s share of resident patents were to rise from 36 per cent in 2019 to the
average share of resident patents in total patent applications amongst the other top 10 economies
(62 per cent) by 2030, resident patents would have to increase at a CAGR of 9.8 per cent. While
ambitious, this has been achieved by another country - China’s resident patents have increased
at a CAGR of 21 per cent from 2000 to 2019 and at a CAGR of 16 per cent from 2010 to 2019.