On 18 September, 2021, Observer Research Foundation (ORF) organised a book discussion where Mr Mihir Sharma, the Director of Centre for Economy and Growth Programme, ORF, had a conversation with Prof Rakesh Basant, Professor of Economics; Dean, Alumni and External Relations, IIM Ahmedabad, about his new book “The Black Box”.
Prof Basant explained that the idea behind this book was to raise issues around innovation and public policy, covering three key issues: First, policymakers must understand the nature of technological innovation and the nature of innovation-related activities performed by firms. Second, the conceptualisation of innovation policy needs to be broad and that one must look at innovation policy as one which affects all decisions regarding technology and innovation of a firm. Thus, policymakers must maintain consistency across various innovation policy instruments. Third, the book identifies a few focus areas where the policymakers need to concentrate to build innovation-related capabilities in India.
On a question regarding the difference between innovation in Indian companies and Chinese companies where unlike India, the major source of innovation for Chinese companies are its own employees, Prof. Basant explained that this contrast can be linked to difference in the nature of higher education in China and India and that the Chinese employees are better equipped to provide ideas. He further explained that unlike India, China has focused a great deal on shop floor and manufacturing sector and that the Chinese companies have put in systems where they are able to harness these ideas much better than Indian companies.
On Intellectual Property regime (IP Regime) and Innovation, Prof. Basant explained that most studies show that the relationship between the two is not linear and if the IP Regime becomes very stringent, the innovation starts falling off as there is no spill over or imitation. He argues that if there is a reasonably good IP regime, multinational corporations (MNC), will tentatively bring in more technology which can further foster innovation. However, three conditions are required for the same: First, MNCs need to be involved in technology intensive areas; second, there should be capability to understand technology and build on it; and third, IP regime should not be so stringent that no imitation is possible.
On openness to foreign investment and AtmaNirbhar Bharat, Prof Basant stated that empirically innovation activities grow in an open economy where competition is reasonably high and there exist capabilities for technological innovation. He argues that bulk of the knowledge about innovation comes from outside the country and that domestic firms’ ability to innovate would depend on what they are able to get from outside and how easily and affordably they are able to acquire it. He added that even if AtmaNirbhar Bharat is focusing on areas which are technology intensive, making those technology intensive products requires a wide range of inputs to be procured affordably from outside the country.
On the composition of unicorns and Indian startups, Prof Basant agreed that most of the startups which have seen very high growth are all consumer facing kind where the innovation content is not very high. He added that for technology intensive startups, more patient capital is required, and that there is dearth of investments for very innovative startups where gestation periods are long and risks are high.
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