Companies shopping for the perfect location for their factories, back-offices and development centres in India will soon have an additional decision-making tool at their disposal: an innovation index for Indian states being developed by the Confederation of Indian Industry (CII), an industry lobby.
For India’s 29 states, which compete to attract investments, the index will likely become a selling aid because it is a measure of a state’s readiness to innovate and its ability to benefit from new technologies and create knowledge and wealth—the kind of information that is of interest to potential investors.
Helping CII develop the index is Soumitra Dutta, the Roland Berger professor of business and technology at INSEAD, the France-based business school that is one of Europe’s best-known. Dutta recently developed a similar index for countries for the World Economic Forum. India ranked 23 on that index, ahead of China at 29. The US was No. 1. That index had used 84 parameters.
Dutta defined innovation, for the purposes of the study, as “not a question only of patents, and research and development”, but “a whole process from idea creation to successful exploitation (of the idea) in the market”.
The version CII and Dutta are adapting could use as many, or fewer or more, depending on the parameters’ relevance to India, and the availability of data.
The original 84 parameters were structured under two broad categories: those related to infrastructure, policies, markets and technology, which were considered as ‘input’ parameters, and those related to knowledge, competitiveness and wealth, which were considered as output parameters.
Specific parameters include quantitative ones, such as the number of schools with Internet connectivity and the number of engineering graduates; qualitative ones, such as the sophistication of financial markets and the quality of math and science education; and difficult-to-measure ones, such as the size of the informal economy.
Dutta and CII may find it difficult to find all the data. And that which is available will need to be authenticated or updated for recency.
Data in India is collected by multiple entities that are owned either by the government or by the private sector and there is little sharing between the two. For example, government data on hotel-room shortages may underestimate the number of private guesthouses that have not registered themselves.
“It’s a potential problem and we are working on it,” said Dutta. Since it is not a one-time exercise, “we hope we may be able to influence the data-collection effort of the government” to become more relevant and timely, he added.
Dutta and CII plan to cover 10 states in the first year of the index and survey more than 2,000 people across the government and businesses. The index is likely to be published in the last quarter of this year.
CII has a business confidence index and the National Council of Applied Economic Research has a consumer confidence index, but an innovation index is a novelty.
Recently, banking firm Goldman Sachs Group floated a financial services index to forecast economic and business conditions in India.
A 9.2% economic growth last year following 15 years of state reforms means that there is increasing interest in doing business in India. States, such as Andhra Pradesh, have transformed themselves in the last decade into hubs for information technology by offering better infrastructure and incentives for businesses wanting to invest there. Both investors and the states, then, are likely to be interested in the innovation index.
But not everyone agrees with the findings and significance of such an index.
“There is no good universally accepted formula of what constitutes innovation in a big society,” said Arun Maira, chairman of Boston Consulting Group India. “We all get enchanted by a set of numbers. But what the numbers are about is more important. These should be used to start dialogues and debates and not for giving awards,” he added.