Tuesday, February 07, 2012

India 2020: Why India Does Not Innovate?

Nirmalya Kumar asks the question and comes up with an interesting answer - that innovation happens within the global value chain, and while Indians remain innovative, their innovation is often concealed within the end product. He cites iPad, among other things, where different components from different countries, with software written in India, come together: The end product is an example of innovation made in the USA, but within it, the innovation made in the UK, China, India, all combined together.

This is indeed true. However, we must also remember that in iPad value chain, little is left for component innovation. In fact, for all the talk of China's great strides in manufacturing, and this potentially altering the balance of power one day, one needs to note that global value chains leave very little for the sourcing countries. Yuqing Xing of National Graduate Institute for Policy Studies, Tokyo, has done some remarkable work analysing such global value chains: His illustration why iPhone inflates the US trade deficit with China is interesting, but note the huge difference between the share of component manufacturers/innovators, and margins of the brand owners. There is certainly some value in owning the brand, and getting the credit for innovation.

Therefore, Dr Kumar's opening question - where are the Indian iPads - remains valid. There may be innovation happening in India, but the killer products are yet to appear. One would possibly agree with him it is not about rote learning or the other cultural explanations usually handed out in justifying lack of innovation in India: These are only constructed as a post fact justification. A more interesting answer may be found in seriously exploring the phenomenon of 'jugaad', the 'everything goes' model of innovation that Indians follow while serving the domestic market. Starting as a rather lighthearted term, this model has now started attracting serious attention. Further, as the Indian domestic market becomes bigger, this model of innovation will become serious play. The story in today's India is not just the middle class affluence, which is very real, but also the rural employment and rise in grain prices: As Professor Meghnad Desai makes the point, even if the rural workers' incomes rise from $1 a day to $1.20 a day, that's a 20% increase in purchasing power of nearly 500 million people.

This, once it becomes tangible, will make a huge impact on India's innovation, bringing out its iPad equivalents (the few existing efforts are decidedly shambolic). The process seems to have began: The battery-powered fridges, the low cost automobiles (which seem to have a tendency of catching fire, but let's compare it with IE 6 and wait for the next version), low cost housing - serious investment in systematic innovation to augment the Indian market is definitely on the agenda. There are some recurring themes: Such innovation is about low-cost product (for market it is serving), low energy (because coming late in the game, the Indian innovator must operate within environmental constraints) and low maintenance (because skills shortage in maintenance will remain). One can be optimistic about these innovations making it to the global markets one day: Not just to the markets like Africa, which needs it today, but also to higher value Western markets, as these innovations become tried-and-tested products and the Western consumers adjust to the new austere times, which will possibly last a while.

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