Nobel Prize-winning economist Robert Solow identified technological progress as the key factor in the growth of a country’s per capita income. The recent flurry of activity from organizations as diverse as the Planning Commission, the Telecom Regulatory Authority of India, the department of telecom, the department of information technology and the Confederation of Indian Industry on setting the agenda for the growth of telecom equipment manufacturing indicates that our telecom industry is fully seized of Solow’s clarion call for innovation.
A linear innovation strategy proceeds in an incremental manner through the stages of assembly, component manufacturing, product redesign and new product development. However, in order to leapfrog into the realm of advanced manufacturing nations and achieve our ambitious goals, we must follow a non-linear strategy. As Austrian economist Joseph Schumpeter pointed out, the fact that every country is a beginner for a newly emerging techno-economic paradigm implies that latecomers can catch up by leapfrogging or direct innovation at the technology frontier. This has been witnessed in several countries, including in the growth of South Korea’s CDMA industry.
A non-linear growth path requires the government to identify techno-economic frontiers where indigenous capacity is beginning to gain traction and put its weight behind one or two companies in each area. Here, as Joseph Stiglitz says, we must learn from what the advanced countries have done, not what they preach. The need for concerted national support for hand-picked companies arises from the nature of high technology markets: the high research and development costs can only be justified with large markets.
All the major telecom equipment manufacturers—Ericsson in Sweden, Nokia in Finland, Qualcomm in the US, Alcatel in France, Huawei and ZTE in China—are products of carefully designed national, regional and sectoral innovation systems that provided support in the form of finance, technical education, and yes, market access. As Ren Zhenfei, chief executive officer of Huawei, said: “Huawei was naïve to enter telecom equipment space. The rivals were internationally renowned companies. If there had been no government policy to promote national companies, we would no longer exist…” The process to select our national champions must be transparent and open. But the competition we need is competition for the market rather than competition in the market. If we succeed in our non-linear growth strategy, the incremental stages will follow. But an incremental approach alone is bound to fall far short of our goals.
Classic import substitution—with haphazard and open-ended protection for all activities with no regard to efficiency—breeds inefficiency and technological sloth. Hence, preferential access for Indian products must be reasonably time-bound. Further, we must also build in an export orientation through export subsidies. Facing world competition builds capability and export markets are a source of technological information.
One area of innovation at the techno-economic frontier is rural telecom, where the task of connecting at least 200,000 remote villages has barely begun. The low addressable market per tower, highly variable incomes, unavailability of grid power and lack of relevant content make the task much more complicated than one of merely providing access. Some Indian companies have developed innovative solutions and the Universal Service Obligation Fund (USOF) must boldly choose its products for its remote rural wireless rollout. No World Trade Organization sanctions will arise in this case since it is unarguably a government contract. A significant export market also exists in the form of the two billion people all over the globe who live with highly variable or absent power supply.
A non-linear growth path requires integrated planning and action across all sectors of the economy, and at the very least within the ministry of communication and information technology. The USOF administrator cannot refuse to accept the share of responsibility accruing to a fund of such a magnitude. Indeed, the USOF policy is a metier of sorts as it will indicate if our policymakers have the stomach for the battles that must be fought in order to make the transformative leap to manufacturing leadership. Other such possibilities of techno-economic innovation where Indian firms can grow must also be pursued.
The time to use our domestic market to build our technological capability has come. If we do this right, the sacrifices of the present will be richly compensated beyond our ability to imagine in the years ahead.
Rohit Prasad is an associate professor of economics at MDI Gurgaon.
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