Nowhere is it more apparent but in the country’s current healthcare policies, especially when one examines price-cap regulation for medical devices and pharmaceutical products for example, already adversely impacting diffusion of innovation, not helping India’s healthcare outcomes. Photo: HT
Nowhere is it more apparent but in the country’s current healthcare policies, especially when one examines price-cap regulation for medical devices and pharmaceutical products for example, already adversely impacting diffusion of innovation, not helping India’s healthcare outcomes. Photo: HT

Setting the table by reharmonizing innovation, industrial and competition policy in India

One hopes Indian policymakers will pay attention to intergenerational responsibilities and soon with alacrity recalibrate India's position

It has been hectic over the last couple of weeks in New Delhi after the 2018 budget was presented following up on the Economic Survey.

While the former didn’t seem to pay too much attention to it, it was heartening to see a novel dimension in economic surveys with a discussion on the abysmal rates of R&D (research and development) spending as a percentage of gross domestic product that the economy has seen over the past decade or more.

The survey additionally pointed to how a single organization like Samsung spends on R&D close to what India is spending on it as an economy.

During the televised budget discussions, some policy analysts pointed out that India seems to be targeting inflation to appease its middle classes at the cost of neglecting the dire issues facing agricultural productivity and farmers.

This is not new, but what is mystifying is that despite a realization of the distortionary effects of this cross-subsidization in Delhi policy circles for some time now, efforts to use innovation and R&D to spur agricultural productivity have been few and far between.

Why might that be so? The broad answer potentially lies in what Harvard economist Josh Lerner calls as policymakers’ inattention to the neglected art of setting the table in his now famous book, Boulevard of Broken Dreams. Lerner essentially points out that to credibly spur entrepreneurship, governments need to first carefully set up the table before the full course menu is served for entrepreneurs to take advantage of innovation, creating new jobs and to spur the economy. Might it then be time for India to pay attention to this neglected art carefully one more time?

Even if the loud and clear response is yes, how to accomplish this remains still anybody’s guess. More so now, since globally innovation, having long been a growth catalyser across nations, now faces a pushback from inequality proponents. For an economy like India, living in an open world far more than where it was a decade or two back, timing will play a key role going forward in this matter.

In the last three years of the current government, several structural reforms have been ushered in, whether through effective or less-than- effective policies.

The goods and services tax, demonetization or financial technology disruptions may have created some short-run distortions but it is undeniable that the structural underpinning of the economy is well on the way towards change.

But as general purpose technologies (to build on Stanford economist Tim Bresnahan’s terminology for it, à la the wheel, fire, railroads, internet, or today, industrial automation and artificial intelligence) takes shape in the Indian economy, it may also be time for the government to reset some of the lower-hanging complementary issues in order to correct the innovation menu on the economy’s table. That is probably the only way forward for Indian entrepreneurship and innovation to generate non-spurious valuations by solving not just India’s unmet needs but also global requirements.

It is precisely here that more is now expected from Indian intellectual property laws and in how it harmonizes itself with its industrial and competition policies.

Having shown some promise through initiatives like Make in India, Startup India, Digital India and Skill India, Indian policymakers still continue to betray and echo what Cambridge economist Joan Robinson once opined about the country: “The frustrating thing about India, is that whatever you can rightly say about India, the opposite is also true." Nowhere is it more apparent but in the country’s current healthcare policies, especially when one examines price-cap regulation for medical devices and pharmaceutical products for example, already adversely impacting diffusion of innovation, not helping India’s healthcare outcomes.

Sure, in the short run, such actions may incentivize affordability of products and services on the demand side, but in the long run these policies may undo all the good work being done by structural reforms undertaken by the current government to incentivize Make in India with globally innovative products and services.

Healthcare or the agricultural sector then may not be the only ones to suffer. Be that in indigenously generating clean energy, or producing climate-friendly electric vehicles or even creating domestic upstream capabilities in smartphone manufacturing, harmonized government action is now more important than ever before to incentivize long-term innovation to create multiplier effects over and above the good and painful work done in the past few years.

Admittedly, this will create a few more short-run welfare consequences for the domestic economy, some entrepreneurs will perish and only a few will survive, some consumers will be provided access to a better life and some others will be left out, some political parties will win electoral mandates and others will fall by the wayside, but the cost of disharmony in its innovation, competition and industrial policy may mean that India will continue to remain an also-ran in the global innovation pecking order even 100 years after its independence.

For a country that boasts an Indian Space Research Organisation, several scientific Nobel Laureates or even traditional knowledge that can be harnessed to create new global normals for various sectors, that will be a shame which future generations may not be able to forgive us (the current generation) for.

One hopes Indian policymakers will pay attention to these intergenerational responsibilities and soon with alacrity recalibrate India’s position. At least, the 2018 Economic Survey, and chief economic adviser Arvind Subramanian and his team were paying attention with a recommendation for a targeted mission-driven sectoral approach, so one’s hope springs eternal.

Rajendra Srivastava is dean and Novartis Professor of Marketing Strategy and Innovation at the Indian School of Business and Chirantan Chatterjee is assistant professor (economics and public policy) at ISB.

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