Panel Discussion on Innovation and Competitiveness: Redefining National Development Strategies

Panelists: Patrick Kilbride, Senior Vice President, GIPCMark Shultz, Goodyear Tire & Rubber Company Chairin Intellectual Property Law, University of Akron School of Law Kate Beale, Associate Vice President, PhRMASumant Sinha, Chairman & MD, Renew PowerDr. Satyanarayana Chava, Founder & CEO, Laurus Labs Moderated by Rameesh Kailasam, CEO, Indiatech Rameesh Kailasam: A huge amount of innovation is happening in the consumer internet-based startups sector. Some of them are as simple as connecting the buyer and the seller on the ground, but most of it is enabling a new kind of innovation which is making life easier. Huge amounts of livelihoods are getting created because of this enablement. There is increased connectivity; people are leveraging the power of the internet and innovating. More importantly, they are also leveraging products in the hardware, software and services base. Today, we see a glimpse of innovation and entrepreneurship building in the country with more and more founders. However, there are times when the technology and the country have to coexist, and that is where the disruption gets challenged in terms of policy. What do you see as the role of policy in enabling innovation in the economy? Mark: Every country has some differences in its resources, but what makes the greatest difference is how you employ your people, how you encourage their innovation, their creativity because the one unlimited resource is the human mind, and people everywhere have innovative and creative capacity. There are no differences among people in that. There are only differences in the enabling environment, so it is the job of the government to provide an appropriate enabling environment. This means good education, tax and regulatory policies that stay out of the way of innovators and not hamper them unnecessarily but encourages them. Finally, an enabling environment means property rights, especially intellectual property rights as they are a great incentive but also a great way to protect people's investment. People don't invest in their creativity and innovation if they don't get a return on that. They will turn to other activities, but innovation is the one great activity that ensures the economy is most competitive. Intellectual property policies that are effective, clear, reliable and consistent are the key to encouraging this kind of investment in innovation. Rameesh Kailasam: Since you represent a sector which is in the renewable energy space, how critical is innovation in your sector and how can policy enablement aid the sector in particular? Sumant: Like every other sector, innovation is very critical in our sector as well. Innovation can be of two types in our sector. There is a manufacturing side, and second is the execution side which involves how the projects are built on the ground and what can be done to make that execution more effective. In some ways, there is a third part that involves how to manage the entire grid in a way that you can absorb more and more intermittent renewable energy into the grid and thereby increase the amount of percentage of renewables in the grid without necessarily causing huge investments to happen. As a company, we tend to operate in the middle pocket, which is the execution side. Innovation is critical is question is how well can you execute, how much can you get your cost of execution to come down, and how can you decrease the timeline of execution. There are many things that can be done in terms of project management, in terms of how to get the different pieces and components to work together so that you become more efficient, execute projects at a lower cost, or give a higher performance of the overall plant that is put up. One example is the area of digital, which is gaining momentum now. In our sector, our view is that digital can enable us to improve performance by decreasing the percentage of downtime of our plants and improve the total generation. If you can implement it and thereby show that the capital you put to work is able to give better returns than someone else's capital, then capital is will start coming to you more than it is going to go to somebody else. This allows us to keep growing our business and get the benefits of economies of scale and so on and so forth. Hence, executing projects in a better manner, running assets more efficiently and more effectively, and doing all of it with acumen is very critical. In the Indian context, the biggest innovation has surprisingly been in the area of corporate governance. There has been a certain historical way of doing things in the Indian infrastructure sector. When we had started, we decided to have absolutely clean corporate governance with the highest standards of ethics in the way we do our business. Over time, it became the biggest differentiator between our competitors and us. It has allowed investors to invest in us much more comfortably than in other companies, and you may call it innovation or a way of doing things, but it has created a difference for us. Hence, innovation, competitive advantage, and differentiation can happen in a number of different areas, and you have to be alive to all those opportunities. Unless we start accepting failures in the society and the institutions, we cannot mature innovation. Rameesh Kailasam: When looking at India as a market for renewable energy, which aspect do you see as having scope for innovation? Sumant: In our sector, all the manufacturing of solar panels happens in China. We don't manufacture anything here, so there is little scope for anything in manufacturing. Even though all the wind turbines are manufactured in India, most of the basic R&D happens in Europe. Therefore, none of that real innovation comes into the Indian context either. What we are left with is to figure out how to do these projects at the lowest cost possible. Despite not having control of the manufacturing side in that sense, we are still able to achieve further projects in India at some of the lowest costs than anywhere in the world because we Indians have mastered the art of very low-cost execution. Our labour costs are low, and the way we design allows us to just do enough for Indian conditions, not over design. If we were simply to import designs from other parts of the world, we would probably end up with over designed equipment, but we have been able to localize the design quite considerably, which has also allowed us to substantially bring down the cost. Rameesh Kailasam: In which direction do you see innovation in India’s pharmaceutical sector heading towards, and where do you see a role for India and enabling policies in this space? Kate Beale: The pharmaceutical sector’s real bedrock is innovation, because of human activity, environmental activities and the broad disease burden around the world. Only a few years back there was an evolution of Ebola and there was no cure when it started to spread in West Africa. However, one of PhRMA member companies, Merck had made billions of dollars of R&D and investment in that disease sector and through a partnership with the U.S. Government, they were able to take that final work and take it over the finish line to find a cure and a vaccine. Thus, the evolution broadly for the industry is ever-evolving. India is well-positioned in the generic industry as the pharmacy of the world on the broader landscape. However, we do need to be thinking about the future. At PhRMA, we represent the 35 innovative world leaders which include American, European, and Japanese companies, and we see India has real potential for that innovative space. However, the key underpinnings to move that forward is the policy environment, and the opportunities on the policy space are twofold. First is in the intellectual property space to allow for innovators to innovate here in India and to protect their inventions to ultimately commercialize those and address patient needs. Secondly, on the regulatory space, there is a lot of activity taking place on the global stage, and one example is the International Council on Harmonization. This is a global body where India showed up in June 2019. India has been an observer, but it is now on the path to becoming a full member. It will take two years, but India needs to sit at the table to play a global role and showcase the great work that is taking place and ultimately to move forward into the innovative space. Satya: Innovation is very resource-consuming, time-consuming and non-sustainable in India. Unless we start accepting failures in the society and the institutions, we cannot mature innovation. For instance, if a young entrepreneur comes with an idea and he fails to commercialize it, not many institutions ¾both financial and government ¾ will support his fourth idea even if it is fantastic. We don’t have risk capital in India, so government and institutions should support creating a fund to finance risky innovations. All disruptive innovations will not fructify and give success, so we should create a lot of enrollment and ecosystem to accept failures. Failures are stepping stones to success, but we don't have the kind of culture that accepts failures in the society, and we need to create one. In India, none of the brands will fund a failed entrepreneur who has come up with a great idea, whereas in Western societies, one can bankrupt 10 companies but they will get funding if their 11th idea is brilliant. Thus, a big policy change that our government should think about is creating risk capital to support innovation. Rameesh Kailasam: Globally, do you see governments looking at innovation as a policy and promoting innovation? Patrick: We see governments still crafting policy towards yesterday's economy. To elaborate, the trade agreements put in place over the last 70 years at the national level and multilateral level are all about the movement of goods. In our countries, we started to shift from building infrastructure towards the services economy and rules that facilitated services. But today, the real greenfield is the knowledge economy, but we haven't yet put in effect the rules on a broad basis that will facilitate trading ideas. These are the rules that allow the fungibility of money, the allocation of risk capital to risk-taking activity. We are in an economy where money is fungible; investments are going to flow where investors get a return on investment commensurate with risks. In the innovative and creative sectors, the bar is higher. On top of the usual business risk, if you are also imposing the technical risks of doing something innovative, there is additional political risk that the government may not respect your property rights, especially retrospectively. That investment capital is then going to flow elsewhere. So, if we want the knowledge economy to succeed, we have to put in place the infrastructure for a knowledge economy. Rameesh Kailasam: What is that one enabling policy that makes a huge difference for your sector? Can you name one country which is a dream country for you to be in? Sumant: In the energy sector, there are such basic things that need to be done that we don't even need any great cutting-edge innovation. We really need some basic things to get fixed. In India, power sector is, unfortunately, one sector that is left behind in the whole reform process. Our distribution companies are in poor shape, simply because our politicians price power. So, if there is one policy I would have to come up with, I would take away the ability of our politicians to price power that they use as a political gimmick for getting votes. The whole sector would then take off in a completely different direction. Patrick: There is an anecdote about American literature in the 1800s when the U.S. first implemented copyright law. They provided it to American writers but not to foreign writers. As a result, American books were very expensive whereas some of the finest literature in Europe became very cheap because they were stealing it. As a result, American literature languished and everybody bought European novels. As soon as the United States extended the copyright law to European authors, American literature started to take off. Kate Beale: The Bayh-Dole Act, also known as the Patent and Trademark Act in the United States is an example of a policy that could unleash a lot of innovation in India. This law incentivized innovation at the academic level in the U.S., and so, unlocking innovation through the academic setting can also help India. In terms of integral policy change in the pharmaceutical sector, I look to the Patents Act and specifically section 3D. In section 3D, there needs to be a recognition and a value for incremental innovation. In India, there is a strain of TB that is drug-resistant, which is a big evolving problem. There are innovative drugs, but we need to be able to value them and also help enable more inventions and cures to take place here in India. Satya: Interestingly, the U.S. is a great example of industry-academia collaboration where universities are becoming budding centres of startups and innovation. Since one size doesn't fit all, section 3D of India’s Patents Act is a great example for all emerging economies not to promote evergreening of patents. Many emerging economies look towards India to protect the country’s broader interest. Hence, 3D is deemed as a great protection to patents. Mark: With respect to intellectual property protection, the type of intellectual property protection that is most relied upon by businesses, even more than patents, copyrights or trademarks is trade secrets, the protection of confidential business information. This is also particularly important to small and medium enterprises because this is the most affordable form of protection. It is important to large enterprises because you use this protection to protect the R&D that eventually results in patents and commercialized inventions. This is the kind of protection that has been important in the U.S., and the protection has been made more effective over the years in Japan, Korea, Taiwan. As the countries emerged and became more competitive and innovative, they protected it. So, a policy recommended for India is the codification of its trade secret law to make it more effective and reliable for small businesses. In cases where the regulation may have already been written and you may have been forced to innovate within that, that is when you need to do advocacy and lobby with the government to make them see the larger scheme of things. Unknown Audience: What should we do when the policymakers or policy itself become the gateway for the entry of innovation so that innovation can be done in a certain direction only? Mark: One of the great things about property rights, including intellectual property rights is that they push those decisions down to the market participants, the people with the best information and the most incentive to make those decisions. So, you push the risk as well as the benefit down to individuals through property rights, including intellectual property rights. Patrick: Government does have a role in guiding innovation towards strategic priorities like military, social progress and health, and it can be done through funding of basic science and R&D. However, when a government tries to dictate outcomes, you lose the basic benefit of private sector activity, which is the dynamism and innovativeness with which they find solutions that no one thinks of. Rameesh Kailasam: In cases where the regulation may have already been written and you may have been forced to innovate within that, that is when you need to do advocacy and lobby with the government to make them see the larger scheme of things. The government needs to be conveyed why they need to take a liberalized view of the whole policy and make it more open. In some other cases, there may not be a policy in place, but the government may object to an innovation on the grounds that it infringes on something which may be of national security concern or a sensitivity around the way culturally the country runs or is governed. That is where conflict happens between the disruption and the regulation, and the mid-ground is found in the course of time. Satya: In the health sector, the innovations are so rapid that governments will also start to look into ethical innovation. If you look at genetic engineering coupled with artificial intelligence and so on, the progress could be enormous. For example, people could have the option of getting designer babies by 2045, so people will have more moral and ethical obligations when it comes to healthcare innovations in the future. Likewise, the government will also come up with regulations to promote or restrict the usage of genetic engineering coupled with data mining and other such innovations