Changing profile of manufacturing sector and need for innovation boost in India

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The United Nations Sustainable Development Goals (SDGs) emphasize the importance of technology-led innovation in economic development and call for the development of robust infrastructure, sustainable industrialization and innovation. The global R&D budget is estimated at $1.7 trillion annually. Every million people have 1,437 researchers, there are 2.2 million academic papers, 3 million patent applications, and about $2 trillion in high-tech exports are tracked globally each year (WEF, 2019-20). Emerging economies such as India, the Philippines, Turkey and Vietnam have enormous innovative potential and their contribution to the global innovation story makes a major statement about future economic progress in the Global South. The top 50 of the Global Innovation Index (GII) includes Turkey (upper middle income), as well as Vietnam, the Philippines and India (major lower middle income economies), because all five significantly improved their innovation skills.

Innovation and Manufacturing Sector

Over the past two decades, India’s patent activity has increased, with many foreign applicants. The Indian Patent Office has received many foreign patent applications due to economic liberalization (increased trade) and intellectual property policy reforms in line with the TRIPS Agreement. Economic growth has also favored the filing of national patents. In 1995, the Department of Science and Technology (DST) established the Technology Information Forecasting and Assessment Council (TIFAC) and 24 Patent Information Centers (PIC) in various states under the Patent Facilitation Program (PFP) to promote awareness and assistance on intellectual property rights (IPR). The Ministry of Commerce and Industry has recently established an Intellectual Property Rights Promotion and Management Cell (CIPAM) to simplify and streamline the intellectual property processes, raise awareness of intellectual property rights in schools, colleges , in universities and industry, commercialize and enforce intellectual property, etc. India ranked 40th in 2022, up from 81 in 2015. In 2018-19, the Indian Patent Office earned Rs 862.93 crore, up 12.1% from the previous year , spending only 188.31 crore rupees (Annual Report, 2020). Apart from intellectual property policies, the government has recently launched the Make in India, Start-up India and PLI programs to promote the manufacturing industry.

India contributed just 3% of global output in 2018, despite its improved innovation capabilities and favorable innovation policies (China was in a similar situation in 1990). Why hasn’t the manufacturing sector thrived despite a demographic dividend, better innovation capabilities, cheaper labor, stable monetary policy, and lower loan interest rates? Key Issues: First, most of our entrepreneurs and inventors replicate the retail-centric business model of Silicon Valley, making it difficult to turn innovation into high-quality products. Secondly, Indian manufacturing is labor intensive. Manufacturers offset high capital costs with cheap labor, semi-automation, or low-tech automation. Quality and productivity suffer. India’s major manufacturing sector struggles to compete globally due to low productivity, shortage of highly skilled and skilled workers at all levels, inefficient supply chains due to infrastructure bottlenecks, etc. Thirdly, the Indian manufacturing sector is dominated by SMEs with limited participation in global value chains (GVCs) of large multinational corporations (MNCs). Due to the weak innovation base and inter-firm linkages, the GVC share of Indian SMEs is negligible as multinational GVCs dominate two-thirds of international trade.

How can innovation give a big boost to the manufacturing sector?

If we want to increase India’s contribution to the global value chain, we need to be competitive and focus on manufacturing according to international standards. To achieve this, the MSME sector in India needs to function effectively and financial bottlenecks need to be removed. A thriving MSME or manufacturing industry requires more innovation or the acquisition of cutting-edge technologies. The growing number of patents issued worldwide demonstrates the importance of intellectual property. Many industries rely on intellectual property to stay competitive and profitable in the future. The growing importance of the intellectual property market has affected the market value of firms that own valuable innovations. Capital resources and large manufacturing facilities dominated the old economic structure, which was gradually replaced by IP-based networks. Technological advances in the Industrial Revolution 4.0 era have established a well-developed transportation, network and communication system, which has improved life expectancy, urbanization and changes in the quality of goods and services.

A number of government initiatives, such as the flagship Atal Innovation Mission (AIM) program and R&D tax credit policy, have the potential to have a positive impact on India’s manufacturing industry. moreover, Deep-tech innovation, as well as a focus on creating products in underserved markets, can be a game changer in India.

According to Nasscom, by 2025 the startup ecosystem will add 250 scale-ups in industries such as EdTech, Logistics, Automotive, FinTech and HealthTech. The requirement is to create a long-term business model focused on business-to-business (B2B) or business-centric services.

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The views expressed above are those of the author.

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