India's National Innovation System: Key Elements and Corporate Perspectives


Cornelius Herstatt, Rajnish Tiwari, Dieter Ernst, and Stephan Buse

East-West Center Working Papers, Economics Series, No. 96


Honolulu: East-West Center

Publication Date: August 2008
Binding: paper
Pages: 72
Free Download: PDF


In January 2007, a joint research project on "India's Innovation System: Exploring the Strengths" was launched by the Institute of Technology and Management at Hamburg University of Technology in cooperation with the East-West Center. The elements and inherent strengths and weaknesses of India's innovation system were examined, particularly in knowledge-intensive sectors. Representatives of private firms as well as Governmental / institutional bodies (85 in total) were interviewed.

India is in the process of emerging as a major R&D hub for both large and medium-sized multinational companies in various industries. This development is mainly owing to the availability of skilled labor produced in world-class elite institutions. Cost advantages, e.g. in the form of low wages are still present but receding due to substantial wage hikes often ranging between 15 and 25% per annum. The striking finding is, however, about market-driven factors. Of late, India's market potential, in the meantime ranked as 3rd largest worldwide by the Global Competitiveness Report 2007-08, has emerged as a crucial driver. Rising income levels of India's billion-plus population are creating unique market opportunities for firms, both domestic and foreign.

In India, the Government has historically played a major and in most cases a singularly positive role in the formation of its innovation system. Despite explosive population growth, the literacy rate in India grew from 18.3% in 1950-51 to 64.8% in 2001 thanks to concerted Government efforts; female literacy rose from a mere 8.9% to 53.7% in the same period. Moreover, the quality of education in India is generally ranked as very good. According to the Global Competitiveness Report 2007-08, the quality of mathematics and science education in India is ranked as 11th best in the world, much ahead of 29th placed Japan, 36th placed Germany, 45th placed United States and 46th placed United Kingdom.

Nevertheless, India is faced with major challenges related to infrastructure and bureaucratic hurdles. The quality of education, notwithstanding such excellent rankings as stated above, in many institutions does not reach the standards required for (cutting-edge) R&D efforts. Moreover, a booming economy is leading to a shortage of qualified and experienced skilled labor--which result in inflationary wage growth and high attrition rates, which generally lay in a double-digit range.

With the Government maintaining a pro-active role many of these problems may, however, be expected to get resolved to a manageable extent. In its Eleventh Five Year Plan (2007-12) the Government has announced massive investments in infrastructure and education sectors to enhance both the quantity and the quality.

Industrial firms in India have recognized their chances and are investing heavily in R&D capacities. India is also a beneficiary of global mobility and exchange of talents, technology, and resources as much of the world, especially the developed Western countries, have profited from India's export of brain power.