blogbanner

Moderator:  Calla Wiemer (calla.wiemer@acaes.us)

What Is Stalling Private Sector Innovation in India?

Co-Author: Madan Dhanora

“Need to focus on 5 things to bring India back on growth path – Intent, Inclusion, Investment, Infrastructure and Innovation,” Prime Minister Narendra Modi said while delivering the inaugural address at the Confederation of Indian Industry Annual Session 2020 – “Getting Growth Back”. Among the 5 I’s, we focus on innovation in the private sector which is stalling in India. As per the Department of Science and Technology, only 42% of total R&D spending was by the private sector during 2016-17, while in developed economies like the United States and another emerging economy, China, a larger share of R&D spending comes from business enterprises – upwards of 60-70% of total R&D expenditure in each. The contribution of 42% in India, though not on par with international magnitudes, has increased considerably from 19% in 2001-02. This increase may be attributable to liberalization and other policy initiatives to stimulate innovation including reforms in intellectual property rights.

In developed economies, competitive pressures push companies to engage in R&D and patenting activities. Although liberalization in India has ostensibly paved the way for greater competition, the nature of that competition is such that innovation activity is still being held back. Our study published in Economics of Innovation and New Technology (2020, Issue 2) distinguishes between firms that compete neck-and-neck for technological leadership in an industry and those that lag substantially behind an industry leader. We find that laggards are generally not very technologically savvy and thus do not pose a credible threat to the leader. Leading firms that do innovate when faced with little competitive threat from laggards tend to be large and mature, and innovate for strategic reasons. By contrast, for industries with neck-and-neck competition, such as chemicals, pharmaceuticals, and electrical equipment, firms are forced to compete on the basis of innovation. India’s legacy of regulation continues to influence the type of competition in an industry allowing leaders and laggards to co-exist. Competition of this nature will not drive innovation. The competition needs to be intense in terms of low technological differences among firms.

Figures 1 and 2 show average productivity and patent applications for neck-and-neck versus laggard firms over the period 2000-2015. Both productivity and patent application are much higher for neck-and-neck competing firms than for laggard firms.

These research findings raise two questions. First, why does so little private sector innovation take place in India and second how can firms be incentivized to invest in R&D? Clearly, until and unless India develops a culture of innovation, the country will not be able to achieve a high contribution from private sector R&D. To understand underinvestment in innovation by average firms, the analysis by Haskel and Westlake (2019) of investment in intangibles is instructive. They argue that investment in intangibles is influenced by economic characteristics that include scalability and  spillover. For a firm to reap full benefits from an investment in R&D, it needs to be able to scale up production. For instance, new software developed by an aggregator firm will enjoy the greatest benefit from scaling. Spillover refers to non-appropriable knowledge that results from innovation activities like R&D and patenting such that other firms benefit without having to pay. Knowledge can spill over to other firms through worker mobility, demonstration effects, and forward and backward linkages. Spillover reduces the motivation to invest in R&D, especially for a laggard firm that may not be able to reap full benefits. For firms that find it difficult to scale up and are incapable of containing spillovers arising from their own R&D, innovation will be discouraged.

What, then, is the way ahead for public policy? The need of the hour is to build knowledge infrastructure. This can be encourged by publicizing and enforcing clear intellectual property rights. In terms of intellectual property law, India has the legal framework but must bring awareness to industry. For instance, only a few years ago the Indian Patent Office (IPO) issued guidelines for the patentability of software. Though IPO raised its examination rate by 108% in 2017-2018 (Annual Report, Indian Patent Office),  it still received a meagre 50,055 applications in 2018 (WIPO 2019). By contrast, in the same year, China’s intellectual property office received 1.54 million applications amounting to 46.4% of the global total. As the number of applications in India is expected to grow, IPO will need to be prepared to deal with the influx. This brings us to the dismal number of applications and how to boost it. Various central government and state level organizations along with Industry partners are involved in spreading awareness about patenting. However, the impact of such schemes remains unknown. Often, attendees appear at outreach workshops for name sake only. Hence, there is a need to evaluate patent related awareness among firms and accordingly devise schemes to incentivize them to innovate and seek patents. Public spending on science and technology to facilitate synergies among firms is another approach that needs to be boosted. Until and unless India manages to spread the culture of innovation to small and medium firms, it may miss the opportunity to lead in new technologies with resulting compromise to its growth prospects.

___________________________

Co-author Madan Dhanora is Assistant Professor of Economics at Government Mahaveer College, Petlawad, Madhya Pradesh, India.

 

Continue reading
  267 Hits
  0 Comments
267 Hits
0 Comments

The State of Journal Publishing: Barriers to Entry

Starting a new journal has never been easy, but in recent years it has gotten very much harder. This is the sad reality the American Committee on Asian Economic Studies (ACAES) came up against in its own quest following loss of the Journal of Asian Economics to a takeover by Elsevier (see previous post). Start-up is inherently difficult simply because reputation is so crucial to attracting submissions, and reputation takes a long time to establish. But start-up has of late become even more difficult because the journal publishing industry is caught in a state of limbo between an old model that relies on selling subscriptions to libraries and a new model that features open access with the business angle of that yet to be worked out. The dominant player in journal publishing and its major customers have squared off and failed to come to terms.

The dominant player by far in journal publishing is Elsevier. As the first post in this series documents, Elsevier's share of articles published in the top 200 economics journals was an overbearing 58.6% for the last decade. Elsevier has exploited its market power to the point that such major customers as the University of California and the Massachusetts Institute of Technology have finally halted negotiations and canceled their subscriptions. UC broke off negotiations in January 2019 (its struggles chronicled here). More recently, on June 11, MIT announced it was following suit. Many European universities have also taken a stand, organizing their resistance by country. In particular, a consortium of German universities canceled subscriptions in January 2017. At times, boycotts have also been staged in Taiwan and Korea.

Tensions between Elsevier and its institutional customers have long seethed over pricing. With deals negotiated on an institution by institution basis, Elsevier has had ample space to exercise its market power. The status quo has finally been disrupted, however, by a push for open access that is the natural consequence of internet distribution displacing bound volumes on library shelves. The University of California sought a package deal under which its faculty and students would obtain both reading and open access publication rights. Elsevier would not have it, however. While the company provides an open access option for all of its journals, the arrangement involves payment of an article publishing charge (APC), which it was unwilling to fold into an institution based package. APCs for Elsevier journals vary up to a maximum of $5900 (for the journal Cell), with most economics journals positioned in the $1000 to $3000 range.

Continue reading
  130 Hits
  0 Comments
130 Hits
0 Comments

How to Kill Entrepreneurship—Limit LGBT Freedom: The Impact of Discrimination in Brunei

The news from Brunei Darussalam is grim. The small Southeast Asian, oil and gas-rich country, has announced plans to implement a new legal code that, among other things, calls for amputation for those convicted of theft and for death by stoning for homosexual acts. After an international outcry, the Government has delayed the imposition of the death penalty, but it maintains the laws as the presumptive legal framework.

These laws violate basic human rights, but from experience, I realize that this argument doesn’t seem to be convincing to everyone. As a development economist, I then thought, what are the economic costs of this? Particularly, I wondered if there was likely to be an impact on the broader economy of restrictions on the lesbian, gay, bisexual, and transgender (LGBT) community. As I discuss below, the answer is, ‘yes, over the long-run, a lack of freedom for the LGBT community is associated with a less entrepreneurial economy—a less dynamic economy.’

This is important to Brunei. Strictly in economic terms, the country has done very well for its people. Oil and gas exports have provided a high standard of living. In 2017, GDP per capita for Brunei was estimated to be $28,787, much higher than regional neighbors. The government subsidizes many aspects of everyday life, including housing, education, health services, and household utilities.

Continue reading
  119 Hits
  0 Comments
119 Hits
0 Comments

The State of Journal Publishing: Elsevier vs Academics

Loss of the Journal of Asian Economics to a takeover by Elsevier and less than encouraging responses from other publishers to inquiries about starting a new journal prompt these remarks. Why did the model of an academic society choosing editors, setting a vision, and developing content stop working for Elsevier? And is there a future for such a model?

The Journal of Asian Economics was founded in 1990 by the American Committee on Asian Economic Studies. During its 30 year run under ACAES auspices, the Journal was helmed by three Editors-in-Chief: founder Manoranjan Dutta (1990-2007); Michael Plummer (2007-2015); and myself (2015 to the June 2020 issue). The Editor-in-Chief served concurrently as President of ACAES with endorsement by the organization's voting members.

Initially, the publisher and owner of the Journal was JAI Press. Elsevier acquired JAI Press in 1997, and began publishing the Journal under its own imprint in 2000. Throughout, the Journal carried the branding "Published for the American Committee on Asian Economic Studies". And throughout, ACAES appointed the Journal's Editor-in-Chief, who in turn enlisted other members of the editorial board, with the publisher's concurrence.

Continue reading
  396 Hits
  0 Comments
396 Hits
0 Comments

By accepting you will be accessing a service provided by a third-party external to http://acaes.us/