The Indian ICT industry is surprisingly inadequate from the overall innovation systems perspective. 

 

 

source - Financial Express 

 

 

 

IT has been repeatedly proved that better innovation in information and communication technology leads to higher economic growth. But the Indian ICT industry is surprisingly inadequate from the overall innovation systems perspective. We examine four major components of such systems: industry, university-industry alliances, labour, and government.

The Indian ICT industry walks on one leg: export of software services. Software services dominate sector revenues, constituting 81% in 2008. Out of software and service revenues, exports constitute 78%. This industry is dominated by the top 20 firms, with contribution at 63% in 2008.

In the rest of the world, small high-tech firms are adaptive to market conditions and have spurred overall sectoral innovation. In India, small firms serve as training ground for entry level programmers before they migrate to larger firms. Unlike in the Silicon Valley, the linkage between small firms and large firms is weak. Presence of small firms in technological collaboration via cross-licensing or trading of IP blocks is minimal. Low technological capabilities of small firms are unattractive to larger firms that prefer to execute all projects themselves. So India’s software service firms work in isolation or serve as extended arms of foreign firms.

However, some positive inferences can be drawn through FDI flows in R &D. A recent Zinnov study reports that 594 R&D centres have entered India in the last six years. Some claim to perform real ‘research’ rather than ‘development’ work. All MNCs follow the conventional outsourcing model, enter India as a cost centre and evolve into a technology centre. This transition is not reflected in hard statistics, like patents filed, as MNCs’ IP policy is driven by their global headquarters.

Revenue from engineering design, R&D and software products is at 7.5% of total industry revenues, indicating that Indian ICT firms can deliver high-skilled innovations. Yet they just work on end products over which they have no ownership. To create global products, they must market their high-skilled capabilities globally. But given their happy-with-service-revenues attitude, this appears hard to realise.

In the hardware domain, the challenge comes from poor manufacturing capabilities, inadequate support infrastructure and competitive producers like China, Taiwan and Korea.

University-industry alliances also leave much to be desired. The revenue composition of premier engineering institutes shows that traditional departments like civil engineering still dominate in sponsored research and consulting. So we find the ICT industry complaining that academia does not match its interests. Universities and public research laboratories may claim that they are focusing on basic research and do not want to be swayed by industry demand, but it is troubling that scientometric studies show that ICT disciplines do not figure in the top five Indian academic research disciplines with a global impact. Further, universities are struggling to attract students for ICT PhD programmes and also facing faculty shortages in these areas.

Actually, in terms of numbers, the labour pool available in engineering or ICT related education is impressive. But a closer look reveals that this pool has a poor research component. The Rama Rao Committee’s report, submitted to the All India Council for Technical

Education in 2006, found that there are significantly few faculty members with PhDs in various educational institutions and nearly 90% of these institutions do not have worthwhile research programmes. The number of PhDs working in industry-related areas is linked to an active research environment. A higher number of civil engineering undergraduates implies that the labour production is geared towards meeting low-end services demand.

Long-term growth of an industry also requires that the domestic market attains a critical mass. When the domestic market is small and its income potential low, firms have to depend on the exports market, making them more vulnerable to foreign markets and policy fluctuations. The government is making significant efforts to encourage IT penetration across India—by encouraging computing in local languages, introducing computers at schools and initiating nationwide e-governance projects. But preliminary findings by various independent studies show that there are implementation problems and predict that the period of adjustment will be long.

Of course there are positive developments. IIT-Kanpur is undertaking high-concept research on prime numbers. Kritikal Solutions, a firm incubated at IIT-Delhi, was recognised as one of Nasscom’s top ten innovative firms in 2008. In the last two years, Wipro generated $10 million from the sale and licensing of IPs. But all these instances are outliers at best, and we cannot use them to generalise about the entire industry in India. Also, innovations at the firm level by service firms or by telecom firms need to be complemented by capabilities to replicate innovativeness at a global level, notwithstanding contextual differences. In short, a lot remains to be done to make the Indian ICT industry innovation-driven. And efforts need to be made in all aspects of innovation systems.

—The author is assistant professor, IIT Delhi and consultant, Indicus Analytics. This article is coauthored with Payal Malik, advisor, Indicus Analytics 

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