Role of Research and Innovation in India’s Economic Growth

In this essay…

World Bank defines economic growth as ‘Growth in an economy is measured by the change in the volume of its output or in the real expenditure or income of its residents’. It brings quantitative changes to the economy. There are various factors that affect economic growth – consumption, government spending, investment, net exports, etc. These factors affecting economic growth have a direct relation to the production of goods and services. Economists largely divide factors of production into four parts – Land, Labour, Capital, and Entrepreneurship.

A valid question is raised what makes a difference in the economic growth of any two nations? Let’s take the example of Singapore and Sri Lanka. Although Sri Lanka is almost 90 times bigger than Singapore, then why Sri Lanka’s forex reserve in February is mere $2.31 billion against Singapore’s $417 billion in the same month? What does it indicate? It indicates that human capital is the most important of all the factors of production. The development of human capital is progressed with the help of research and innovation.

Research and innovation: A wheel to human progress

History of the mankind reveals that research and innovation have been one of the most important factors of economic growth. As Karl Marx considered the economy as the basic structure of any society, economic growth has some reflection on superstructures like society, state, media, etc. The journey of innovation from the wheel demonstrates how people are thriving towards new goods, services, and production. Subsequently, it has also improved the standard of living of the people as well.

Hence, the society at large has transformed from the stone age to the space age and the economy has also evolved from the barter system to bitcoins. Thanks to research and innovation which have still been transforming society for the better standard of human life. However, in the context of India’s economy, the Ministry of statistics and program implementation reveals that India’s service sector contributes 53.89% of total GDP, the Industry sector contributes 25.92% of GDP, and the agriculture sector contributes 20.19% of GDP. Research and innovation have a great role in the development and progress of these sectors.

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Spell of the service sector in India

India has been one of the leading players in the field of the service sector in the world. According to Economic Survey 2021-22, despite the Covid pandemic-induced global restriction, India’s services exports recorded a growth of 18.4% compared to last year. Thanks to innovation for this achievement. The higher degree of innovation in the field of the IT sector leads to the high demand for services abroad followed by a higher GDP in India. The nature of jobs in the IT sector depends on innovative ways to solve new challenges in society through coding. Thus, economic activities involved in the service sector increase India’s economic growth.

Apart from this, components used in the IT sector have lower life as compared to the manufacturing sector. A degree of uncertainty in computer components is also high due to the use of nanomaterials. It circulates the demand over a period of time. Additionally, the use of computers has become indispensable for almost all sectors. Research and innovation have been satisfying new demands in these sectors. For example, within 5-6 years, a computer’s processor has been evolved from the 4th generation to the 11th generation. Consequently, the lighter weight of laptops and reduced latency create new demands followed by India’s economic growth.

Similarly, the role of innovation is found in the most heating debate of technology versus unemployment. It is often argued that technology is replacing humans and reducing employment opportunities. At the face value, it seems right to some extent. But in reality, it creates more employment than the lost employment due to new innovations. The only difference is that the demand for work is shifted from manual labor to skilled labor. For example, in a library, suppose a machine starts receiving issued books instead of a man. It may replace the man standing at receiving desk. But it has increased the demand for more skilled labor in programming and its maintenance.

Manufacturing sector: Spinning India’s growth wheel

In the case of the manufacturing sector, research and innovation play an important role in producing more quality goods that could attract foreign consumers and potentially enhance the economy at large. Innovation helps in assessing the area at the time of planning economic activity. For instance, let’s take the example of Punjab and Bihar which are landlocked states. In such states, the service sector should be preferred over the manufacturing sector. In the states like Maharashtra and Tamil Nadu, manufacturing can be promoted. Innovation in planning for establishing a cluster of manufacturing units and a Special economic zone (SEZ) can enhance India’s economic growth.

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Similarly, research and innovation in automotive industries have led to the use of artificial intelligence in the workforce. For example, India’s National Electric Mobility Mission Plan 2020 aims to promote electric vehicles in India. But one of the most underlying challenges of such a plan is the lack of ample availability of lithium resources and the share of non-renewable energy in recharging vehicles. In such a scenario, artificial intelligence has been helping the automotive sector in reducing emissions through machine learning. Thus, innovation in improving the I.C. engine helps in matching ‘well to wheel efficiency’ similar to the electric vehicles.

Additionally, innovation also produces differentiation in products that creates new demand in the economy. For example, Micro small, and medium enterprises (MSME) produce different mobile stands, covers, screen guards, toys, etc. A new design in cover and toys creates temptation among the users. Thus, it creates constant demand and helps in moving the wheel of India’s economic growth. Similarly, innovation in the workplace increases the pace of production and ensures better quality checks of goods for consumption as well as exports.

Agriculture sector: Smooth sailing India’s growth

In India’s economic growth, the agriculture sector contributes the least to India’s GDP but it absorbs most of the people as employment. If the agriculture sector in India is contributing the least to India’s GDP doesn’t mean that growth in the agriculture sector is retarding. Since the green revolution, it has also been growing. The only difference is that the pace of growth in agriculture is lower compared to the manufacturing and service sector. However, innovation in the field of the agriculture sector is also increasing its pace in India’s economy.

When India’s production side was lacking on the ladder of agricultural growth, research and innovation leads the green revolution. High Yield Variety (HYV) seeds are being used to increase productivity. Globalization further added mechanization in the agriculture sector for increasing the productivity of the crops. Apart from quantitative improvement, India’s agriculture sector is also taking a qualitative shift. Now, nutrient-rich grains are more preferred over the quantity of grains. For example, micronutrients are being added to crops through bio-fortification and to grains through food fortification. It creates new demand for nutrient-rich grains.

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However, the Agriculture sector has been lacking in the area of the market side of agriculture. For this, new innovations in the face of starts up have been emerging. For example, in the dairy sector, start-up companies like ‘Country Delight’ are delivering milk to the doorstep on daily basis. It connects farm to fork. Similarly, the government has also been taking innovative ideas like transporting grains from one state to another and tracking it through technology. India’s innovation can be found in even India’s foreign policy where it uses grains to earn dollars as well as soft power. Subsequently, it adds value to India’s economic might.

In conclusion

Although research and innovation play important role in India’s economic growth, underlying challenges create thrust against it. For example, according to World Bank, India spends only 0.68% of its GDP on research and innovation in 2018. It is significantly lower than the 1.5-3% of GDP spent by the top 10 economies. Apart from this, India faces issues in WTO in the case of agricultural products and patents. For example, it is also argued that compulsory licensing – when a government allows someone else to produce a patented product without the consent of the patent owner – discourages innovations.

However, India’s support for production through the Atmanirbhar package and production liked subsidy is motivating more sustainable production. Apart from this, a special economic zone and support for start-up programs have the potential to bring India’s economic growth to a new height through research and innovation. Displacing the UK to become 3rd top country hosting unicorns and an increasing number of Indian companies in the list of ‘unicorn start-ups’ to 90 are footprints for India’s bright future.

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