India’s manufacturing needs higher investment in education and R&D to become self-reliant and technologically competent
The share of manufacturing in India’s GDP has stagnated at 16 per cent since 1991, despite economic reforms. No country ever became a manufacturing force without (a) a design capability; and (b) an institutional system that incentivises and sustains innovations. India needs a system to develop human and technical capabilities at both the enterprise as well as at the national level.
Within a broader industrial policy, a critical dimension will remain building a design capacity in enterprises. To quote Joseph Stiglitz, you can only ‘learn by doing’ — the ‘technology’ “in most products is under the skin, in the parts inside the assembled products. And, even deeper, in the machines and tools that make the part.”
The argument, often made by Indian economists and importers, that to grow a sector one must enable it to get the best and least expensive inputs it needs, is short-sighted. So, to build technological depth in our industries, we must foster the production of electronic hardware, and machine tools, and capital equipment — all of which India is now importing from China. But design capability is only one element of a National Innovation System (NIS).
Building a NIS
India has many strengths in R&D, but it still lacks the key ingredients of a NIS. Let us discuss India’s strengths first. Herstatt et al (2008) in a survey in India found several reasons for India’s prominence on the world R&D landscape: (a) the market potential; (b) the relative safety of intellectual property rights; (c) the availability of skilled labour and (d) its low cost.
Plus the similarity to Western/British judicial system is considered by multinational firms as a major advantage since it gives them a better idea of the system and a sense of security. In fact, in 2018, there were over 1,500 international firms that had set up their R&D centres in India, drawing upon these comparative advantages. However, there are few spillover effects of such firms’ R&D operations into India.
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