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New S&T Policy in the Works Has a Chance To Foster Demand-Driven Innovation

New S&T Policy in the Works Has a Chance To Foster Demand-Driven Innovation

The ongoing public consultations around India’s new ‘science, technology and innovation’ (STI) policy 2020 offers an important occasion to reflect on the trajectory of India’s STI policies, and suggest course-corrections to improve India’s overall innovation performance.

As the new policy aims to “reorient STI in terms of priorities, sectoral focus and strategies”, it is essential that Indian policymakers put into place a well-designed policy matrix and so spruce up the R&D ecosystem, and capture opportunities to generate and diffuse innovations in the country.

Traditionally, India’s STI policy toolkit has involved various supply-side tools to address constraints related to capability and resources among innovating firms.

Supply-side tools focus on improving and protecting firms’ knowledge resources. Intellectual property rights are the classic supply-side instrument: these rights seek to promote investment in R&D and knowledge creation by balancing private and social returns on investments. Similarly, R&D grants, subsidies, fiscal incentives, support for training and mobility, incubators, science parks, etc. are all examples of supply-side tools.

On the other hand, demand-side instruments seek to build on firms’ existing knowledge capacity to pull innovations into the market. Examples include government procurement and standards, which help to generate socially relevant innovations. In India, the problems of good-quality public infrastructure and amenities, and inadequate innovative solutions for day-to-day problems, can be addressed to a great extent by combining demand- and supply-side tools.

To this end, the STI policies have focused creating an infrastructure to ‘supply knowledge’ to firms and so help develop innovation capabilities in the industrial ecosystem. The policies also provided for incentives such as research grants, fiscal benefits, soft loans, etc. to boost private investments in R&D and to stimulate the development of new technologies. Although some recent policy documents, such as the S&T policy 2003 and the STI policy 2013, have tried to balance both supply- and demand-side drivers of innovation, the supply-side instruments continue to dominate the policy toolkit, with little or no direct progress on demand-side policies.

The STI policy 2020 under-construction can make an important contribution here by emphasising the role demand-side innovation policies can play in nurturing indigenous innovation and capitalising on unfulfilled demands for social and environment-friendly technologies.

In the context of demand-driven innovation, public procurement has widely emerged as a preferred policy tool in many OECD countries, under the rubric of public procurement of innovation (PPI). This idea in the context of the EU refers mainly to improving the overall framework conditions for the uptake of innovations and to incentivise the industry to undertake risks.

To implement the PPI, the EU procurement policy directives have adopted novel instruments like innovation-friendly regulations, access and simplification of tender procedures, subsidies for additional costs of procurement, etc. While developing countries like India differ from those of advanced industrialised countries in terms of the latter’s unique technological and institutional context, public procurement promises to be a powerful tool for us as well.

Also read: How the Indian Government Can Help Improve the Ease of Doing Research

In particular, a strong demand-pool exerted by the public sector can help firms overcome barriers in launching novel products and services, and to enable their dissemination to a wider user base. In the past, Indian policymakers have intermittently used public procurement to support a variety of socio-economic goals, such as supporting small and medium enterprises, fostering underdeveloped regions, etc. The 2008 global financial crisis and the ‘return’ of industrial policy saw a growing interest in the use of public procurement, to enhance the share of manufacturing and value addition by domestic industry.

The national manufacturing policy (2011), along with the defence production policy (2013), explicitly regarded procurement as a means to strengthen manufacturing and build technological competence. Subsequently, Prime Minister Narendra Modi’s ‘Make in India’ initiative put government procurement at the heart of the industrial strategy, to enhance the share of manufacturing in the country’s GDP.

As part of this initiative, the government has announced a slew of preferential procurement and domestic content requirements to reduce import dependence in many sectors by encouraging domestic sourcing of raw materials, intermediates and components. Additionally, the requirements are also considered to be important to generate employment and create value within the country.

On the innovation policy side, however, we have made little progress to identify specific procurement pathways to supporting “indigenous innovations” as envisaged in the 2013 STI policy. Leveraging public procurement as an innovation policy tool is very significant for developing countries like India, given the steady decline in policy space for public intervention in the innovation process. Being a non-signatory to government procurement agreement under the auspices of the World Trade Organisation affords India a certain degree of flexibility to use its purchasing power to foster domestic technological capabilities.

In India, the vast share of government procurement varies between 20% and 30% of the GDP, and offers enormous potential for firms to meet the demand for new solutions in wide-ranging areas – including energy, healthcare, agriculture, education, ‘Smart Cities’ and transportation. The demand for healthcare solutions has grown due to the ongoing COVID-19 pandemic, and has induced strong innovative responses from industry. The opening-up of innovation-intensive sectors like defence, space and atomic energy are promising new opportunities for the private sector.

STIP 2020 can thus make an important contribution in this area by explicitly linking public procurement with innovation policy goals. The new policy, for example, can adopt some well-known instruments like accreditations for indigenously designed and developed goods, and catalyse their uptake by both public and private sector. Second: it can also channelise government agencies to signal the need for sustainable as well as new and emerging technologies, and make it act as a ‘lead user’ for these products, enabling them early entry into the market.

Also read: In Webinar, ISRO Spells Out Its Plans for IN-SPACe and Private Sector Participation

Similarly, by engaging with the industry through regular buyer-supplier meets, stipulating latest the standards and specifications, and consolidating the demand for innovative goods across government departments, the public sector can help industry step-up its innovation game. Use of unsolicited bids and ‘ideathons’ have also grown in salience and can be used by public agencies to address specific societal needs and challenges.

In principle, STIP 2020 – by combining both ‘supply-push’ and ‘demand-pull’ – can serve as an innovation engine for the Indian industry. In doing so, it can fill an important institutional void to implement innovation-oriented public procurement in the country and help achieve faster, sustainable and inclusive growth in the long run.

Kapil Patil is a researcher in the science diplomacy programme at RIS, New Delhi.

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