Panel Discussion on Innovative Capacities of States


Panelists:

Rajiv Kumar, Vice Chairman, NITI Aayog
Amitabh Kant, CEO,NITI Aayog
Ashutosh Sharma, Secretary, Department of Science and Technology Vaidya Rajesh Kotecha, Secretary, AYUSH
Renu Swarup, Secretary, Department of Bio Technology
Neeraj Sinha, Adviser, NITI Aayog

Moderated by Dr. Amit Kapoor, Chairman, Institute for Competitiveness

Amit Kapoor: How do you look at the insights coming in and from a comparative India point of view?

Rajiv Kumar: In 2016, Professor Richard Baldwin published a volume called The Great Convergence, where he made a strong argument that now with informatics and even more so with AI and so on, the whole notion of comparative advantage of countries must be shelved aside. In fact, it should be replaced with competitive advantage because the role of technology over the decades has been to reduce comparative advantage down to nearly an irrelevant concept.

If you accept that it is now the competitiveness of each economy which matters in the global economy and global rankings today, then underlying that must be innovation. Since innovation is the key to take the technology out of the labs and onto the commercial side, the more we can emphasize innovation, the better off we will be in our country. Unfortunately, we have not paid enough attention to this. Even our private sector doesn’t pay innovation and R&D the attention they deserve. Our country has R&D expenditure at about 0.8-0.72% of GDP, out of which 80% comes out of the public sector agencies and public sector department. Hence, neither the private industry nor our state governments are doing this. This is where our prime minister’s exhortation to all for working more and more on innovation should come in.

The innovation index will hopefully set a new trend for the state governments to give enough attention to it and deliver on three tasks. States governments should firstly revamp their science and technology establishments, secondly, make sure that the distance between the lab and the land is shortened as far as possible, and thirdly, ensure that the mistrust between the private and the public sector is taken away. The third is the most important because the two sectors have worked in silos to a large extent, and we can’t achieve the sort of breakthroughs and innovative progress that we want unless that mistrust is eliminated. 

Amit Kapoor: How can we push the corporate to move towards investing in R&D and innovation?

Rajiv Kumar:The principal factor must be to introduce a much higher degree of competitiveness in the system because that is what pushes R&D and innovation. It also requires giving much lesser attention to what is sometimes taken as innovation but is not, that is, “jugaad”. Our private industry must remember that “jugaad” is about learning to live with the contingencies you are faced with rather than to overcome them, and competitiveness must be both domestic as well as global. Therefore, we have to have a more open economy. You also require a framework to have the markets run better, and that is where the government’s role important. 

There are lots of areas where the public sector infrastructure can be used very productively by the private sector and where the ingenuity of private sector can be used with the public sector to take their case forward, so if the mistrust between the two is eliminated and they work in synergy, we might bring about a much greater response from the private sector. We can already see that happening in some cases. 

Lastly, we must find ways to encourage the next 500. These are not the largest or the micro firms but those firms in the middle. We must encourage them to take up the growth and break the glass ceilings that they often face by domestic monopoly or other such constraints. These are some ways we can encourage R&D and innovation in the private sector.

There are lots of areas where the public sector infrastructure can be used very productively by the private sector and where the ingenuity of private sector can be used with the public sector to take their case forward, so if the mistrust between the two is eliminated and they work in synergy, we might bring about a much greater response from the private sector.

Amit Kapoor: How do you see the innovation index and the idea of comparative federalism moving forward?

Amitabh Kant: We used to fare very badly in World Bank’s Ease of Doing Business Index. We were 142nd, but now we have moved up by 65 positions. India is however, a very large country, so states have to become easy and simple. Unless the states become champions of ease and simplicity, it will be very difficult for India to grow at high rates over a long period of time. Hence, on defined outcomes of a hundred outcomes, we started ranking states. The first year we did this, Gujarat ranked number one, but the very next year, Andhra Pradesh beat Gujarat. The third year, a new state like Telangana beat both Andhra and Gujarat. The good thing was that the mineral-rich states of Jharkhand and Chhattisgarh, which are played with very complex rules and regulation, came fourth and fifth because they carried out vast range of reforms. If the eastern part of India starts doing well, then India will do well on a sustained basis over a long period of time. 

Starting with ease of doing business, we have done the ranking of states on the basis of education, health, water, and SDG goals, and this has spurred huge competition among states. The states have actually started responding to us and have started working at grassroot level to reform education, health, nutrition, and particularly water. This philosophy of ranking states, naming and shaming them is actually about bringing good governance, so that is what we are pushing for. The innovation ranking will also spurt greater innovation in many states, who will then start championing innovation.

India has adopted the Anglo-Saxon system of education where we mug up our books to advance to the next class. We at NITI Aayog have tried to disrupt this through the Atal Innovation Mission. We have opened up close to 3,500 tinkering labs where we provide Internet of Things, robots, and 3D printers at school level from class 6 onwards, so innovation has gotten to the minds of young children at a very young age. In a competition that we held between a school run in IIT, a public school and a school from slum area, the children from the slum school did better than the rest. They were more innovative than the children from the public school or from the IIT school. This shows that students who are confronted with challenges and problems find solutions to those problems. 

Silicon Valley may be the most innovative place in the world, but it has no challenges, whereas India is full of challenges. If Indians can find solutions to the various problems, they will be finding solutions not only for the 1.3 billion people of India, but for the 7.5 billion people of the world who are moving from poverty to middle class. That is where the real challenge is. India has got this opportunity to find solutions through innovation, and so we must take the lead in that.

Amit Kapoor: As we go on to pushing this agenda of naming and shaming the states, how should the states come up with making those changes in the innovation landscape they have?

Amitabh Kant: We do a program called the Aspirational District Program, which is about 112 of the most backward districts of India. Under this program, we rank states on 49 indicators, on a real-time database. We put it out in the public domain and award the best performing districts every month. These are the most backward districts, and we’ve seen some remarkable progress, but the good thing that has happened is that some of those states have taken forward the same methodology and dashboard to rank blocks. This is what the states need to do. They need to challenge every district of India on all these parameters like education and health and nutrition, and rank them like we rank the states of India. The districts must be challenged in the innovation front by the states, and we must start ranking all the CSIR labs. In fact, we must put in public domain the details of what they have done for private sector in India and how they fuel change in India on defined parameters. We should shame those who have not delivered and award those who have delivered. Competitive strength will come out of putting all this in the public domain, and this is the only way India will grow.

Amit Kapoor: Where do you think this index can give a huge impetus and move the needle forward?

Ashutosh Sharma: The index is a very good beginning and it has worked out very well. It takes into account inputs. The critical inputs going into it is a proximity and connect with R&D and innovation ecosystem, which includes incubators, infrastructure of all kinds, but very importantly, it includes the people that you can interact with and learn a lot about different aspects of innovation, start-ups and putting out things in the market. Now, the successful states have had these ingredients; they have a local ecosystem as well as the early capital. For example, there are people with deep pockets who have interest in supporting these start-ups. It has a market but it also has a very good educational ecosystem. 

A lot of our innovations are actually driven by the young people now, and we need to bring in more of them. One of the ways we do business is through “jugaad”. On the cultural aspect, the input-output is all very good, so what actually makes all of this possible? Now we have a model which is basically centred on incubators, and they provide networking, some amount of infrastructure, they attract people and train them. Today, we have close to 20,000 start-ups, but we need to put a zero in front very quickly. Given the size of the country, being happy with 20,000 start-ups is not going to take us very far

We need a new model of incubation. While strengthening what we have, we need to think in a different way. For example, we need to think about distributed incubation. Now, everybody needs a physical space to do incubation, but they need informational resources, infrastructural resources, connectivity, and people to talk about a whole lot of those things. So, is it possible for us to have another model which is highly distributed, but it provides the services that are needed in order for people to have successful incubation? This is one aspect. 

The other aspect is the deep culture. For example, how do we move away from “jugaad” as the central way of doing business? One can’t discard it completely because something can always go wrong in every planning and you need “jugaad” to fix things. Nevertheless, it is not a long-term solution that can be scaled in the future, and younger people should keep this in mind. 

younger people look at three different ways of doing business, and one of them is “jugaad”. The second is “dhandha”, which means business as usual or stability, and not high risk-taking. The third aspect that our education does not emphasize, is “panga” which is disruptive. It takes high risk. “Jugaad”, “dhandha” and “panga” are the three mantras. 

The education system does not prepare us for “panga”. It tells us to mug up everything, go to exam, crack it, then go to IIT and get a job but to not take “panga”. This is deeply cultural and there is a need to address that for the future. 10 years from now, most of our transformative businesses would come from broad basing the base of the pyramid. Right now, we are only focusing on the height of the pyramid, but we also need to focus on the base of the pyramid, which is cultural. 

There is a great similarity between what you do in academia and innovation. There is a thing called h-index that measures the height of innovation pyramid, which means the excellence in the system. Another index called i10-index which measures how much of it is beyond a certain threshold of quality. So, we need to increase the height as well as have more people beyond the threshold of quality. Hence, the volume of innovation needs to increase. The cultural aspect is the most important in the long and medium run in addition to all the interventions which are going on now.

One of the programs we started a couple of years ago is reaching out to half a million schools in the country. Half a million schools are covered under this program called MANAK, wherein each school produces top two innovative ideas by children from class 6 to 12. They upload it in any of the 22 languages of the country, so an army of people are required to go through these ideas and look at the innovative content. Hundred-thousand top ideas are given Rs.10,000 each and mentorship to convert the ideas into a prototype. The students then compete on the district level, and move on to the state level and national level with further mentorship. Now they’re also connecting with the Atal Tinkering Labs. More and more connectedness in the ecosystem we are generating across different ministries is certainly needed to take this movement forward in a strong way. 

This philosophy of ranking states, naming and shaming them is actually about bringing good governance

Amit Kapoor: Being part of a ministry, how do you look at the importance of this index and the ecosystem, and what do you think should we do as the next step?

Renu Swarup: Keeping in mind the entire ecosystem which has been put in place over the last couple of years, we are at a point where we have been able to create a very vibrant base. It is because of the enabling policies and other such changes in terms of the ecosystem.

Now, we have to look at the scalability and sustainability of this ecosystem. The scalability of this ecosystem is not possible until all the stakeholders are brought on board, and states are very important stakeholders. For us to move beyond where we are currently, the involvement of the states is crucial.

With all the support that we are giving towards creating a strong innovation base through various initiatives at the student level, we are being able to bring in a lot of connectivity amongst the schools. We are then moving on to the universities. We have a lot of start-ups and young entrepreneurs who are now getting excited. We also have the incubator ecosystem, but the only challenge now is that while this is driven by the centre, the states have to take ownership of these activities. It is also more important that we move into the tier 2 and the tier 3 cities because this is where there would be deep penetration of this. The state involvement is not just in terms of being a partner to it but in terms of being a key owner into all these various components that we do, which gets driven with this index that you put out. This index is going to nudge them into getting deeper into it because we are now at a point where India has made its presence felt to the world. People have started recognizing that India is today a key player in the innovation start-up ecosystem. Our innovations, our technology start-ups and its various aspects cannot be limited just to India. Our innovations are on affordability, on accessibility but we are not looking at innovations only to address the challenges of the country, because what is addressed in India are also innovations for the world. 

At that point, it is important that the states become partners. We are doing it now in two or three ways. One is, we have to move beyond the incubation ecosystem and towards connecting the knowledge translational clusters and bringing in technology clusters. We have all the key players in the knowledge translational clusters, but states have to come forward to take ownership of the technology clusters. They are the next phase after the incubator, where you have the grow out the space that is the connecting link between the incubator and the industrial park. We have done it in a couple of states which have their own policies and have come forward. They have set up their biotech parks, and we can see the difference there. We can see that the industrial policies they brought in place have helped the innovation ecosystem, and combined with the start-up and the Make in India policies, has given it a huge jump. This needs to be adopted by many more states. If we now showcase those states that have done well, then there would surely be many other states who will quickly follow their example. 

Amit Kapoor: How do you see the state-level competitiveness or state level ranking in terms of driving investments for the growth of the country?

Rajiv Kumar: Firstly, moving from competitive populism to competitive good governance is the key, and that is what we at NITI are constantly trying to do through these indices. Once states start to compete on good governance, they will automatically begin to attract investors. When an investor sees that a state is shifting to become a development state, then they get interested in that particular state.  Competitive good governance is much more important than to have so-called investor conventions and conferences.

The second point is to bring about synergies between different stakeholders, agencies and entities which exist for innovation. For examples, there are many public sector funded research and science and technology establishments in Bengaluru and Delhi, which work in silos. If the state government takes it upon itself to appoint a department or a CEO that can bring about a cluster of work, a synergy between each one of them, then they can start producing innovations that attract the investor to commercialize them. So, if states are seen by investors as generators of innovation, then investors will get attracted to them because that’s what investment is looking for. 

Audience: When it comes to public-funded projects, innovation is definitely not preferred because of the inherent way our structure is. The procurement side, the 3-bit system or the L1 system don’t foster innovation. They are a hindrance to innovation because when you work with the bottom of the pyramid, you have to essentially work with the government, and when it comes to government, it’s public-funded money and you cannot really do anything about that.

We have all the key players in the knowledge translational clusters, but states have to come forward to take ownership of the technology clusters.

Rajiv Kumar: We are actively trying to change the procurement processes of the government, and we have had to do it for our own sake. As Atal Innovation Mission funded about 30 odd incubation centres and we got the largest number of start-ups, we noticed that the government procurement process has certain conditions in terms of the number of years of experience, the scale and so on. In some cases, this condition is already being changed. Therefore, start-ups will not be discriminated against. In fact, they will have a level playing field. 

In the case of L1, I am not so sure yet about what’s happening, and this is where we should think innovatively on how to do viability gap funding or how to do some sort of assistance for the start-ups and the innovators, so that they are able to compete with the established players in the market. Lastly, we could begin from within the government to think about putting out our RFPs in a manner that encourages new ideas or new products. We are working on it, and you will see changes coming along in this regard.

Ashutosh Sharma: It certainly has been an issue that is being addressed. Another way to look at it is, if the user ministries that are going to procure something could define the parameters of the product or technology that they are seeking beforehand, specify a certain price level and put in some money in developing the ideas, then they could be the first buyer. This would also not go against the WTO principles. So, if you fund something for a special purpose and specify the parameters of the deliverables, then you have some preference for buying if all those parameters are checked off. There are many things being looked into, and we certainly need solutions for this which are workable and which would deliver.

Renu Swarup: It has already been done for the medtech sector. Preferential market access policies have been brought out under the Make in India where the requirements of these start-ups are accommodated. Further, if it’s a highly innovative product, it can actually be put onto the GeM Portal. So, steps have already been taken in that direction.

David: Starting from the bottom doesn’t make any sense in a country the size of India where there is so much innovation already being done but they are not getting to scale because there aren’t mechanisms to concentrate resources around the innovative solutions. The scale leaders who are already solving problems significantly across a wide range of areas should immediately be targeted for concentrating resources. So, how do we get around that debt for scaling enterprises at low-cost?

Rajiv Kumar: The point is well-taken, but if the scale would come out of the market itself rather than the government getting into the act and if we start selecting winners based on some preliminary or pre-project activity in a country so complex and diverse as ours, it could be full of risks. If we facilitate the growth of innovation and help take it from TRL 5-6 to TRL 8, then the market can take over. 

I’m not sure whether we are in the business of scaling up. The only thing that is coming about now and which is happening because of the effort made by Atal Innovation Mission and other such initiatives is that we are encouraging six of our ministries to start supporting innovation in the SBIR fashion. Once they start doing it and the innovation comes along, those ministries could well be supporting them to get to achieve scale. Therefore, the role I envision for the government is to matchmake and find the person on one side who could provide the scale to those who are coming up with the innovation. As for doing it directly, it is probably at the moment beyond our capability.

Ashutosh Sharma: For a good start-up to be successful, it needs a back-end connection with R&D, which is getting stronger, and front-end connection with the market and the industry, which remains a little bit weaker. There are two or three reasons why scale-up is not happening at the scale that we need. The first one is that start-ups are driven by brilliant ideas, but not driven by the marketplace. There is little understanding of where the product will go, what is the market size, what is the business model and so on. We have put in a scheme in place that says, before you do anything, the pre-incubation activity involves a certain number of things to be done. It is basically about knowing whether there is a future for the idea or not. 

The second aspect is that the start-ups may be driven by disruptive ideas and individual brilliance, but when it comes to scale-up, one has to give up “panga” and go for the “dhandha”. It means one must forget about disruptive ideas, and seek a stable way of managing their business and scaling it up. This transition is found to be very hard for many entrepreneurs. One reason could be that individuals from different vocational backgrounds bring different cultures. For example, a science major and an MBA graduate have very different cultures, they will have different ideas in mind.

The third aspect is that we need to connect start-ups with established industry. Unless early direction and vision is injected in a start-up, it is not very likely to succeed, and success means scaling up.

Renu Swarup: From the government viewpoint, we have a large number of support systems that we put in place. We don’t always start from scratch. The government lends support in the pre-competitive space by helping build a large group and a base, and what needs to be scaled up is generally put out in terms of what is available. We also have been looking at options in which technologies come in from outside and work with our groups here, but we support up to a level where we can bring in credibility to the technology, and it is demonstrated. After that, the markets take it over. 

Yatish Rajawat: What is it that the government can do to nudge the business, and what is it that business can do to nudge itself to be more innovative?

Rajiv Kumar:Decades of government have tried to incentivize businesses to do R&D, but private businesses still don’t spend money on R&D at all, or if they do, it is a very small amount. The government’s role is to increase the ferocity of competition in this market, both domestic and open. Unless it happens and unless businesses begin to realize that their existence depends upon continuously innovating both product and process, we will not get there. 

What the businesses can do is think in terms of global markets rather than domestic markets and get over the myth that India has a large market. At $2,000 per capita, we’re still a small market compared to any global level. Hence, if they plan for global market, they’ll try and get the scale which will then require them to compete. Indian businesses should also look towards sunrise industries, because if they do that, they would be bound to innovate.

Finally, we have to stop thinking and working in silos and stop thinking and working with the mistrust of each other. We need to try and create platforms where all stakeholders, both private and public, come together and begin to feel and act for the national cause, which is to improve India’s position in the global stakes as we go forward. 

Renu Swarup: If you look at any of the global-based examples, it’s all about the clusters and creating knowledge-driven enterprises. These knowledge-driven enterprises can only come when the large industries start working with the start-up ecosystem that we are developing. Today, our biggest problem is that the start-up ecosystem is not very connected to the large industry and the businesses. In the start-up ecosystem, the government is throwing up challenges and becoming the first buyer of their innovations, but businesses and the industry also have to be partners in it. 

The industry associations should become a partner with the government and together oversee the fundamental research in the early stages. Thereafter, the industry has to come forward to take whole ecosystem ahead. The industry has to be key player not only in the business aspect but also as mentors in the large innovation ecosystem. The government can give the initial push to innovators, but the industry has to help them move forward. This is the type of partnership between the government, the industry and the businesses that will help us move ahead.

Once states start to compete on good governance, they will automatically begin to attract investors.

Ashutosh Sharma: We need to work with the industry to make sure that they appreciate the role of knowledge more in remaining competitive. We need that kind of culture, insight, vision and people in the industry so that it is not only a push model but there is also a great pull for knowledge from the industry. 

There is a new rule that the CSR money can be used for R&D as well. It was already allowed to be used for incubators. We need to leverage that because now, one can put in money for R&D even in the area that is of interest to the industry. This would produce some amount of pull. 

Lastly, we need to stop working in silos. The model now ought to be where all the separate compartments of basic R&D, technology, innovation, and the like are integrated in the same mission. Our new mission called cyber-physical systems is one example. It includes industry 4.0, and the basic idea is that these hubs would integrate the entire value chain or the knowledge ecosystem starting from basic research to technology development, producing human resources, having innovation and incubator working together with it as well as the technology aspect, which is the end endpoint of this knowledge ecosystem. 

We need to produce systems like this where the industry can participate as equal partners, bring in money and leverage the resources. Because of the flexibility which is given to these hubs by the cabinet, it becomes possible for the industry to be an equal partner and be able to do things that they always wanted to do that would not be possible in their own space. 

Amit Kapoor: Would you like to say any final word on driving innovation in the country?

Rajiv Kumar: Final word must be competition. Without competition, innovation has no place. Competition is the necessary condition for innovation to prosper, followed by sufficient conditions of government support, stakeholders, building trust, etc. 

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