India Transformed

by Rakesh Mohan

  One of the strongest arguments against locating research in the Indian university system is that it might die there in the absence of a research culture. Building this research culture will be key, and will not be easy. Kenneth Arrow points to the example of Stanford University, which went through this same process in the 1950s, with huge success but with a great deal of pain. India would need to start with a few of the better educational institutes. The IITs, with their high teaching quality, outstanding student pool, abundance of alumni-funding opportunities, and lesser intrusion from the political system, are obvious starting places. But we would need to extend out to the university system in general, to build a few first-class institutes. Every college and university I have spoken to has said how much they want to do more research as a top, and in the IITs, the top, priority. But are they really willing to change their own recognition and promotion systems to reflect that every faculty member must do research? Conversations with a few academics at our best colleges and universities suggest that they increasingly are, but the process will need to be a highly focused effort spread over decades.

  A National Research Council could be set up to disburse the state funding now going to CSIR and all other state laboratories (including the defence laboratories), with all disbursements based on competitive grants, not budgetary support. The autonomous research labs must then become totally self-funding, which would drive their work in the technology-assistance direction. Some institutional reform could make it easier for industry to draw on CSIR facilities. Scientists could also compete for the national research funds with researchers from other institutes and from universities, and student participation could be an advantage in getting funded.

  Some research laboratories could themselves become colleges. Several of them already run PhD programmes and all should be required to do the same. But what is vital is that they extend their teaching role to postgraduate programmes, and form permanent linkages with undergraduate institutes. That would ensure the research–teaching combination advocated throughout this paper. The easiest reform would also be the most misleading: one could simply require every scientist to teach, no questions asked. That would probably involve the scientist teaching in the university system, while continuing to do his or her research in an autonomous laboratory. As Roger Noll points out, while basic research in many countries outside the US has grown, the fact that this research is often conducted in autonomous laboratories means that ‘it has not had a spillover benefit for higher education, even though many of the researchers in national labs are also university professors’.28 This reform could mislead us into thinking we have achieved the combining of research and teaching, and would miss most of the benefit of doing research in the higher-education system of training future researchers.

  All of these reforms add up to substantive changes. We need a serious debate on what should be done to dramatically increase the share of university research to international levels, which would be over five times what it is now (4 per cent to 20 per cent). Surely, a rejuvenated scientific-research system (a well-recognized problem in our autonomous laboratories is an ageing scientist core) is the other side of the same coin of a university system that does dramatically more research.

  The pain that will accompany these changes will be considerable, and not just for CSIR. Changing the basis of recognition and promotion within the university system will not come easily. The opportunity, though, is immense. The last few years have seen a huge interest in India’s human-resource capability. The IT services business, the R & D facilities that hundreds of MNCs run in India, and the interest that many leading firms show in sponsoring research at the national labs are all built around our abundant number of qualified people. Gaining from our low-cost R & D potential has spread from GE to DRL and Tata Motors; it needs to spread to Indian industry writ large. Building a few select research universities out of our better educational institutes would be a logical extension of an education system that already produces a huge number of engineers at the low end.

  4.4. The Role of Policy

  We have already covered the key policy role played by the state worldwide: to fund public research generously and broadly, and to do so in the higher-education system. We also discussed the value of focused effort to attract investment in those hardware-manufacturing areas that are largely missing in India. There are two more roles that the state can valuably play to build technical capability:29

  To set the tone for discourse on technology: The great Indian cartoonist R.K. Laxman drew one of my favourite cartoons over thirty years ago. It shows a doctor examining a patient’s eye: ‘You have some foreign matter in your eye. Would you like to keep it since it is foreign?’ Seventy years after Independence, we still have a nodding acquaintance with our colonial past. Some public-sector firms specify in tenders that some products must be made in Europe or the US, regardless of local availability of better products. Several new shopping malls reserve prime ground floor space for foreign brands, pushing Indian brands to upper floors. The state can help Indian brands and Indian technology, not by the socialist rhetoric of the past or by subsidies or by reserving procurement to local suppliers, but by setting a tone of wanting the best and encouraging local brands and technology to be that best. (It can also shame those errant public-sector firms and private malls into change.) For many products, India is not a lead market; the product is developed for a different market and made available in India through import or local manufacture.30 Can the government launch a series of projects on particularly Indian problems: building flyovers in four weeks or addressing waste and sewage across a hundred cities at a time or providing clean drinking water to 6,00,000 villages? The government could fund R & D in both universities and private firms to develop solutions to these problems, in the process creating capabilities that could be used more broadly.

  Just in case the reader thinks I’m heading in a Swadeshi direction, let me set the balance right with my next point.

  Trade Policy that embraces the world: For too many years, India’s trade-policy stance has been largely defensive—focused on limiting access of foreign firms to Indian markets. We need to adopt a more positive and outward-looking trade policy. How can we improve access for Indian firms to emerging markets in South East Asia, in Africa, in Latin America and the Middle East? Can we propose FTAs with the emerging markets where market needs are similar to India’s? And can we open our own market to foreign competition as the best way of forcing Indian firms to invest in technology? Twenty years after serious reforms began, we still impose high tariffs on automobiles, auto-components and a range of consumer products. The threat of being pushed out of business is an impetus to invest in technology like no other.

  4.5. And Finally, to Firm Strategy and Entrepreneurship

  In the mid-2000s, a new confidence seemed to be spreading across Indian industry. This showed in international acquisitions, which have ranged from disastrous (e.g. Tata Steel and Corus) to brilliant (e.g. Tata Motors and JLR). But it also showed in a few Indian firms choosing to become multinationals and combining this choice with strong investment in technology. No group illustrates this better than Tata, India’s largest group, with over half of its $100 billion in revenue coming from outside India and investing just under $3 billion in R & D worldwide. Tata is betting in business after business—energy, food and wellness, automobiles, digital consumer products—on building an international business resting on proprietary technology.

  The group appointed a chief technology officer in 2014, as a part of its increasing investment in R & D. In 2015, the group invested $3 billion of its $100 billion turnover in R & D. While investment has been growing, it is still uneven across the group companies. There are still some group companies that invest under 0.5 per cent of turnover in R & D. The group CTO, Gopichand Katragada, believes that one needs an investment above 1 per cent of turnover to start seeing outcomes, and that around 4 per cent is needed to build leading positions in sectors that are
technology intensive.

  The group works to three time horizons. In the zero to three-year horizon, the innovation focus is within each company and aimed at technology differentiation. Board-level reviews take place of each company’s innovation and technology road map. An explicit assessment of innovation and technology has been included in the Business Excellence Model, with a CTO team trained in evaluation.

  In the three to five-year horizon, the group technology function brings multiple companies together, to work on technology and product development at the intersection of companies. Beyond five years, there is group-level collaboration with universities globally. A research centre focusing on graphene has been set up at IIT Madras, and initiatives at the Royal Society in the UK and at Harvard and Yale are under way.

  Tata is not alone. Mahindra, Sun Pharma, DRL, Cipla, Kirloskar, Forbes Marshall, United Phosphorus, SRF, Triveni and a hundred other firms have all been expanding investment in both international markets and R & D. The slowdown of the 2010s has dampened confidence, but it has not retrenched ambition. India needs a thousand multinationals, operating around the world, in every sector, building brands and reach. Our industrial structure, as we saw earlier, is already concentrated in skill and capital-intensive sectors. Building leading international positions in engineering or machinery requires substantial investment in innovation. A hundred Indian firms must match GE and Bosch and Emerson, each employing thousands of engineers in R & D. Our design institutes must produce world-class graduates that define new product functionality. Research-intensive higher-education institutes must provide a standard of graduate education second to none. And a combination of trade policy and firm strategy must push firms overseas, deploying their technical capability worldwide. As our firms grow into multinationals, a few could emerge as giant firms with the wherewithal to be leaders in R & D. The aggregate data will then finally reflect a transformed National Innovation System.

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  27

  Consumer India’s Journey from Zero to Hero

  Rama Bijapurkar

  Indian consumers have been on a winning streak since 1991 and they have made the consumption explosion fully desi. The pace of change in Indian lifestyles, for the better, has been staggering and palpable even if one were to take stock every few years. By 2020 or 2030, India will be in the top five consumer markets of the world for almost everything.

  It is not hard to imagine the consumption explosion that occurs when a very large group of people is liberated from shoddy goods and services, unaffordable prices, unaccountable suppliers and trying shopping environments. That is exactly the story of Consumer India since 1991 when the Indian government decided to decontrol the Indian economy and ‘open up’, allowing businesses to operate unshackled, in a free market. Consequently, Indian consumers started to experience quantum jumps in quality at lower prices and encounter products and services that they had never seen before; suppliers started to woo and seduce them instead of saying ‘take it or leave it’; and shopping environments designed to warm the heart and quicken the pulse started mushrooming. This was the magic of competition and the result of the government’s shift in strategy to get more tax revenue by lowering tax rates and betting on increasing economic activity. This wave of supply-side improvement has broadened, deepened and swelled steadily since 1991.