Rethinking innovation policy in India: Amplifying spillovers through contracting-out

R. A. Mashelkar, Ajay Shah and Susan Thomas review India’s innovation policy since independence:

At independence, India committed itself fully to foster, promote and sustain the creation of science and scientific research in all aspects. In this paper, we present first principles reasoning on the case for state action, and the optimal mechanisms for using taxpayer resources, to fulfill this commitment. We argue in favour of a reorientation of public spending on innovation: away from building vertical government organisations, and in favour of a contracting-out strategy. Such a strategy would induce knowledge and capabilities in the society, and through this, induce greater gains for the people of India. We present a preliminary sketch of the path to implementation.

Broad lessons:

What has changed today, compared with 1958, is the level of capability in the society – outside the state – that can now be harnessed. The market failure is most directly addressed when public expenditures are delivered into the society: into the high-spillover sites of universities (public and private) and private firms.

While there has been a recognition of these issues in India for some time, there has been a gap in knowledge about the mechanisms of policy reform. Many thinkers and policy makers have been daunted by the problems of mindset, fear of allegations and controversies, and the deficiencies of the invisible infrastructure in the Indian institutional environment. All too often, policy thinking in India engages in a ‘great man theory’ where the solution to a stated problem lies in recruitment of the right people. In this paper, we have undertaken a root cause analysis and have identified the legal texts that require changes. In this paper, we have proposed the ‘drafting instructions’ which can then be turned into precise drafts of legal texts through specialised legal drafting projects.18

A change in course is feasible, and over a decade it can induce considerable gains for innovation policy in India. Our calculations involving expenditure have been conservative in assuming that the values from the past (3% real growth in government r&d expenses) will play out into the future: no acceleration in the growth rate of government expenses on innovation are called for.