In India, Anxiety Over the Slow Pace of Innovation

Koji

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BANGALORE, India — In the United States and Europe, people worry that their well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to India.



People here are also worried about the future. They fret that Bangalore, and India more broadly, will remain a low-cost satellite office of the West for the foreseeable future — more Scranton, Pa., in the American television series “The Office,” than Silicon Valley.

Even as the rest of the world has come to admire, envy and fear India’s outsourcing business and its technological prowess, many Indians are disappointed that the country has not quickly moved up to more ambitious and lucrative work from answering phones or writing software. Why, they worry, hasn’t India produced a Google or an Apple?

Innovation is hard to measure, but academics who study it say India has the potential to create trend-setting products but is not yet doing so. Indians are granted about half as many American patents for inventions as people and firms in Israel and China. The country’s corporate and government spending on research and development significantly lags behind that of other nations. And venture capitalists finance far fewer companies here than they do elsewhere.

“The same idea, if it’s born in Silicon Valley it goes the distance,” said Nadathur S. Raghavan, a investor in start-ups and a founder of Infosys, one of India’s most successful technology companies. “If it’s born in India it does not go the distance.”

Mr. Raghavan and others say India is held back by a financial system that is reluctant to invest in unproven ideas, an education system that emphasizes rote learning over problem solving, and a culture that looks down on failure and unconventional career choices.

Sujai Karampuri is an Indian entrepreneur who has struggled against many of these constraints.

His Bangalore-based company, Sloka Telecom, has developed award-winning radio systems that are more flexible, smaller and less expensive than equipment used by phone companies today. Mobile phone companies and larger telecommunications equipment suppliers are buying and testing his products, but he has not been able to interest Indian venture capitalists. For the last five years he has run his firm on $1 million he raised from acquaintances.

“I can only afford to trial with one customer at a time and that takes three months to materialize,” said Mr. Karampuri, who has considered moving the company to the United States to be closer to venture capitalists who specialize in telecommunications. “You are always worried about paying next month’s salary to people. Should you keep the money for this trial or next month’s salary?”

Companies like Sloka Telecom are important, analysts say, because they are more likely to create the next wave of jobs than large, established Indian technology companies, many of which are experiencing slower growth. These companies could also help offset some of the outsourcing jobs the country will likely lose because of greater automation and competition from countries where costs are even lower.

There are historical reasons that starting a business in India is difficult. During British rule, imperial interests dictated economic activity; after independence in 1947, central planning stifled entrepreneurship through burdensome licensing and direct state ownership of companies and banks.

Businesses found that currying favor with policy makers was more important than innovating. And import restrictions made it hard to acquire machinery, parts or technology. Inventors came up with ingenious ways to overcome obstacles and scarcity — a talent Indians used the Hindi word “jugaad” (pronounced jewgard) to describe. But the products that resulted from such improvisation were often inferior to those available outside India.

“We were in an economy where, forget innovation, expansion was discouraged, creating wealth was frowned upon, there was no competition to speak of,” said Anand G. Mahindra, who heads the Mahindra & Mahindra business group and has spoken about the need for more innovation.

Indian leaders began embracing the free market in the 1980s and stepped up the pace of change in 1991 when the country faced a financial crisis. Those changes increased economic growth and made possible the rise of technology companies like Infosys and Wipro, which focused on providing services for American and European corporations.

Yet, the government still exerts significant control, especially in manufacturing, said Rishikesha T. Krishnan, a professor at the Indian Institute of Management in Bangalore.

“To start a services company it really takes you just two or three days to get going,” said Mr. Krishnan, whose book, “From Jugaad to Systematic Innovation: The Challenge for India,” is to be published next year. “The moment you are looking at manufacturing, there are hundreds of inspectors and regulations.”

Raising money is one of the biggest challenges entrepreneurs face. Venture capital funds have flocked to India in recent years, but they are more likely to invest in established businesses than young firms.
 

Koji

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In the United States, Israel and elsewhere, the initial, or seed, capital for many start-ups comes from rich individuals known as angel investors. But most rich Indians prefer to invest with family members or close friends because its considered safer and provides assurance that the lender will be able to borrow from relatives in the future.

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“If you want to raise $3 to $4 million, it’s doable,” said Sumir Chadha, who co-heads Sequoia Capital’s Indian operations. “But it’s difficult if you want to raise $300,000 or $400,000,” a typical investment at the early stages of a company’s life.

When Cellworks Group, which has most of its operations in Bangalore, was looking to raise money last year, executives talked to venture capitalists here and abroad. But the company raised all of the money it needed in the United States, because most local investors did not have the expertise to evaluate the biotech firm, said Taher Abbasi, the chief executive.

Cellworks has planted its corporate headquarters and a small staff near San Jose so it can be close to investors and American universities for research collaboration on cancer drugs.

“To really kick off entrepreneurship without local money is very difficult,” Mr. Abbasi said.

Still, he said, India has its advantages. Engineers and biologists are plentiful, though they need to be trained more than their counterparts elsewhere. And operating costs are a lot lower than in the San Francisco Bay Area, which was critical more than two years ago when he and his partners started the company with their own money.

There may yet be hope for Indian innovation.

Some are looking to fill the venture fund vacuum. A group called Mumbai Angels holds Saturday meetings every two months at which entrepreneurs pitch ideas to affluent investors. Members of the group have invested in about 20 companies, said Prashant Choksey, a co-founder.

Separately, N. R. Narayana Murthy, the chairman of Infosys, recently sold $38 million worth of shares in his company to start a new venture capital fund. Mr. Raghavan, the former Infosys executive, has invested about $100 million in start-ups like Connexios Life Sciences, which is developing drugs to treat diabetes and other diseases. Many Indian universities have also started entrepreneurship programs and classes.

Vivek Wadhwa, a former technology entrepreneur who now researches innovation, said the climate for start-ups in India was a lot better than it was a few years ago. It should continue to improve, he said, in part because companies like General Electric have hired tens of thousands of engineers in India to work in research and development.

“Once they have been working on these projects for a few years they will outgrow the companies that they are working for,” he said. “They will hook up with these entrepreneurs that failed” on previous start-up attempts and create new companies.

Another change may augur well. Until early this decade, the Indian market was too small and isolated to make it very lucrative for businesses to develop products here, so most technology companies focused on selling services to the West, said Girish S. Paranjpe, joint chief executive of Wipro’s information technology business. “That will change dramatically because the Indian market has become bigger,” he said.

In the last eight years, the size of the Indian economy has roughly doubled along with the importance of foreign trade. There could still be something to envy and fear.

http://www.nytimes.com/2009/12/09/business/global/09innovate.html?pagewanted=2&_r=1&ref=asia
 

Yusuf

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Innovation? I guess the lowest cost manufacturing center in the world is yet to innovate a cheap way to make a less than 2000 dollars car. Or is it waiting for the original to be gotten hold of to copy? Their are many things happening in India that is away from the public eye. We have the western companies themselves opening R&D centers here to tap the brains of Indians.
Ability should not an cannot be linked to lack of funding as a percentage of the GDP.
 

thakur_ritesh

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you don’t expect miracles out of the blue for an economy which has in real terms hit the real economic seen in a more recent past.

why i say a more recent past is because it has only been in this decade and more so since the mid of this decade that india took off. up till then things were slow, the indian corporate (the pvt sector) was trying to match up to the competition and trying to make them selves more competitive and only when one can assure the survival amongst the sharks can one start thinking and start investing in r&d.

in the pic in the first post the trend has clearly picked up as far as % to gdp ratio goes for expenditure on r&d, compare it to that of china, a country that opened its flood gates to foreign investment in late 70s crossed the 1% mark only by 2001, in contrast india is pretty close that mark already and well the way the indian pvt sector works it wont take them long to up the stakes in another few years and not to forget in another few year indian inc would be in quite a dynamic mode to make some big ticket purchases all across the globe.

wait for some time and innovation on a much larger scale would be happening from india based companies and indian owned companies.

never underestimate entrepreneurial skills of an indian!
 

ppgj

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here is what kapil sibal answered in the parliament to india's r&d expenditure. old but notable.

GOVERNMENT OF INDIA
MINISTRY OF SCIENCE AND TECHNOLOGY
DEPARTMENT OF SCIENCE AND TECHNOLOGY

LOK SABHA
STARRED QUESTION NO. 441
TO BE ANSWERED ON 25-08-2006

GDP SPENT FOR R&D

*441. DR. CHINTA MOHAN:
SHRI RAJIV RANJAN SINGH "LALAN":

Will the Minister of SCIENCE AND TECHNOLOGY
be pleased to state:


(a) the actual amount and percentage of GDP spent on research and development in the field of science and technology;

(b) the comparative data for GDP expenditure for S&T with neighbouring countries especially China;

(c) whether the Government proposes to take specific measures to effect increase in higher allocation of funds and human resources to compete with other countries; and

(d) if so, the details thereof?

A N S W E R

MINISTER OF SCIENCE AND TECHNOLOGY AND MINISTER OF EARTH SCIENCES
(KAPIL SIBAL)




(a) to (d): A Statement is laid on the Table of the House.

STATEMENT AS REFERRED IN REPLY TO PARTS (a) TO (d) OF LOK SABHA STARRED QUESTION NO. 441 FOR 25.08.2006 REGARDING "GDP SPENT FOR R&D".

(a) & (b): According to the available official Research and Development Statistics, the expenditure incurred on research and development in the field of science and technology during 2002-03 was Rs.18000.16 crores which forms 0.8 % of India's GDP. Based on UNESCO Statistics (2005), a table comprising of the data on R&D expenditure as percentage of GDP for select neighbouring countries including China is annexed.

(c) & (d): Yes, Sir. The S&T Plan outlay of Scientific Departments/Agencies has been enhanced from Rs. 12,022 crores in 9th Plan to Rs. 25,243 crores in 10th Plan. Also, various initiatives have been taken by the Government to encourage investment on R&D both in industry and institutions through several fiscal incentives, income tax relief on R&D expenditure, weighted tax deduction for sponsored research, custom duty exemption on goods imported for use in Government funded R&D projects, tax holiday and other support measures such as support in the form of grants for industrial R&D projects, support to R&D projects through sector specific programmes of various scientific and economic Ministries and national awards for outstanding R&D.

Further to enhance human resource capabilities in the country various programmes/schemes have been initiated by the Government from time to time. Some of these programmes include:
Setting up of centres of excellence/advanced studies in the universities and academic institutions.
Creation of core groups of professionals with necessary modern facilities required for pursuing research in new and frontier areas of science.
Creation of new scientific Departments/Organisations.
Fund for Improvement of S&T Infrastructure in Higher Educational Institutions (FIST).
Manpower development training/re-training programmes through associateships/ fellowships including Science and Technology based training for entrepreneurial development
Provisions for temporary placement of scientists and technocrats under the scheme of scientist's pool.
Creation of supernumerary posts.
Fast Track Scheme for Young Scientists.
Better Opportunities for Young Scientists in Chosen Areas of Science and Technology (BOYSCAST) fellowship to visit international laboratories and institutions.
Fellowships targeted towards performing scientists such as Swarnajayanti, Shyama Prasad Mukherjee Fellowships, The Ramanujan Fellowships, The Ramanna Fellowships etc.
Contact programmes to attract and motivate brilliant young scientists to take up R&D as a career.
Providing financial assistance to scientists to participate in international conferences and training programmes abroad.
Early Faculty Induction Programme, which aims at attracting bright and young under-graduate students in Engineering and Technology/Pharmacy/Architecture, etc. to take up science as their career.
Invitation to distinguished men and women of Indian origin settled abroad for short term technical assignments to assist in frontier and emerging areas of S&T.
Appointment of Non-Resident Indians (NRIs) and persons of Indian Origin in the permanent faculty positions in the Indian Institutes of Technology (IITs).

ANNEX

ANNEXURE AS REFERRED TO IN THE STATEMENT OF REPLY TO PARTS (a) AND (b) OF LOK SABHA STARRED QUESTION NO. 441 FOR 25.08.2006 REGARDING "GDP SPENT FOR R&D".

R&D EXPENDITURE AS PERCENTAGE OF GDP FOR SELECT NEIGHBOURING COUNTRIES INCLUDING CHINA, 2000-02Sl.No. Name of country R&D as % of GDP
1 Singapore 2.20
2 China 1.23
3 India 0.80
4 Nepal 0.67
5 Pakistan 0.27
6 Thailand 0.24
7 Sri Lanka 0.20*
8 Egypt 0.19

*1996
Welcome to Department of Science and Technology, Govt. of India ::

India lags China in R&D spending: Sibal

Posted: Thursday, Mar 13, 2008 at 2126 hrs IST
Updated: Wednesday, Mar 12, 2008 at 2148 hrs IST

New Delhi, Mar 12 : India lags behind China in spending on research and development work as well as number of scientific researchers, science and technology minister Kapil Sibal informed the Rajya Sabha on Wednesday. Replying during Question Hour, he said the number of core researchers in India was about 1.5 lakh as compared to China's 8-10 lakh.

Number of persons doing research and development in Scandivan countries is 7,000 per million of population and 4,700 per million of population in the US. In India, there are 156 researchers per million of population. “This is a very big issue,” he said. R&D spending as percentage of GDP in India is only 0.8% as compared to China's 1.23%. Developed countries have R&D expenditure of up to 3% of GDP.

Of the 0.8% expenditure in India, 80% is by public sector while the private sector share is only 20%. In China and the US, the public sector share is only 30% each while in Japan it is only 18%.

Private sector component in R&D will have to increase, he said adding the government had given a slew of tax incentives on R&D spend in sectors like pharma and electronics.

Sibal said to increase number of researchers in the country, university system will have to be strengthened by expanding and upgrading infrastructure as presently R&D quality in university is negligible.

The 11th Plan allocations for scientific departments including departments of science and technology and atomic energy, has been increased three folds to Rs 75,304 crore during the 11th Plan (2007-2012) as compared to Rs 25,301.35 crore of 10th Plan Period, he said.

“The expenditure on research and development (R&D) as percentage of GDP in India is lower compared to that of a few developing countries like Brazil and China, but is higher compared to countries like Argentina, Cuba, Sri Lanka and Pakistan,” Sibal said.

—PTI
India lags China in R&D spending: Sibal
 

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