Atanu Dey On India's Development

Innovation and Entrepreneurship in India

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US Innovates

It is fairly widely acknowledged that there is a very strong connection between the US’s economic success and the entrepreneurial character of its people which generates innovations. It can be plausibly argued that economic success and entrepreneur-driven innovations are bi-directionally causally linked: each gives a boost to the other in ever widening upward spirals of mutually reinforcing, positive feedback. It is perhaps difficult figure out which came first: the economic success or the entrepreneurial character of the people.

It is also fairly widely acknowledged that India is not a hotbed of innovation and entrepreneurial ventures. Why is it so? My conjecture – and it is only a conjecture – is that the primary reason is that India is a late-comer in the race for economic development.

India is economically backward relative to the US. The US has solved the basic problem of survival for most of its 300 million citizens. Food, housing, education, medical care, etc. Its annual per capita income is around $47,000.

India’s Equivalent Population

India is a subsistence economy. India is still struggling to provide even the most rudimentary necessities of life to a majority of its 1,100 million population. India’s annual per capita income is around $940, or about 2 percent of the US’s. That’s the average in an economy which has high income disparity. There are an estimated 800 million Indians whose income is less than $2 per day, and an estimated 500 million with incomes is less than $1 per day.

People who barely eke out a living cannot be reasonably expected to be innovative and entrepreneurial in the same sense as people who are economically advanced enough to engage in risky, although highly rewarding, activities.

Of the approximately 300 million Indians who have above $2 a day in income, let’s assume 10 percent of them have a per capita income which gives them a life-style comparable to the average American life-style. That means about 30 million Indians have the ability and willingness to engage in activities that are innovative and entrepreneurial like that of the Americans. We are therefore now comparing two economies: the US with 300 million and India with 30 million. That’s an order of magnitude difference.

Ability and Willingness

There are three necessary elements required for any activity: ability, willingness, and opportunity. Let’s focus on the opportunity available to the 30 million Indians who have the ability and the willingness to be innovative and entrepreneurial.

The 30 million Indians exist in an environment which is starkly different from the environment that 300 million Americans live in. The problems the two societies face are qualitatively different.

The Indian environment requires implementation of rather well-known solutions. It is a question of execution and not one of advancing into unknown frontiers. No cutting edge research and development is required to address the concerns that face India. The answers are well understood. Execution of the known solutions is sufficient to engage the skills and talents of the 30 million. There are low-hanging fruits and people are busy picking them whenever they are allowed by the “colonial” government.

(I am not so stupid as to not know that the British colonizers have left the place a while back. I just don’t see the difference between the British colonial administration and the administration of the post-independent governments of India.)

Opportunity

The US faces issues that require innovation because all the low-hanging fruits have been picked long ago. They don’t need more of anything, only better of everything that they already have. They all have phones; now they need better phones. They have to push the frontier because most of their population is at the frontier. They have to be innovative because the next things they want will be delivered by innovation, not just more of what they already have.

Indians lack the opportunity to be innovative in India because India does not need innovations; it only needs execution of known innovations. Indians who wish to innovate, have to migrate to an economy that demands innovation. And they do. The US has more Indian innovators in the US than India has in India because the demand for innovation is greater in the US.

When will Indian entrepreneurs start innovating as their American counterparts? When India has stopped being a subsistence economy. And when will that be? That will be when India has exhausted the available known solutions by implementing them, and therefore become more than just a subsistence economy. Then the opportunity will exist in India for innovations and that’s when the willing and able entrepreneurs of India (whatever their numbers then) will do the thing that the Americans do so well.

This blog post was in response to the question that Sramana Mitra posed on her blog and her post on India’s Innovation Gap.

  • AG

    Atanu, i am not sure i agree with the line of reasoning.

    Lack of innovation in india (which is not true by the way, will come to that) is not a result of subsistence existence.

    Lack of innovation and subsistence existence are BOTH the results of socialism and nehruvian stalinism that india followed. And continues to follow.

    Under socialism, the individual — and everything he owns — property, ideas, everything — is stolen by the state, ostensibly for “the general good”.

    As a result, no one has any incentives to innovate — because there is no reward for taking that risk.

    Despite this, innovation thrives in india — especially in niches and areas where the octopus like tentacles of the state do not reach.

    This includes in developing breakthrough economic models (think nano, and so many others), in identifying breakthrough areas to make money (e.g. at traffic lights, what not) or even in identifying breakthrough ways to make money while keeping the incubus like government of your back. Think Amul.

    Where the state does reach, and enforces its “government knows best” policy, innovation is extinguished, to be replaced by subsistence. Think agriculture. india can be the food basket of the world, but it is not to be.

    In sum, unless india discards socialism, it will not move beyond subsistence to innovation.

  • vishu

    Antanu – The questions to ponder is that will there be innovation and Entrepreneurship in India. Innovation happens in US is a known fact.

    The penetration of Mobile is a kind of innovation for India. Nobody though that Mobiles would become so common.Indian IT is an innovation.
    Is it comparable to way US Innovates. No way.
    Will it ever become like US. Time will tell and the way it looks now
    even if it is tough going now we will have more innovation and entrepreneurship. It will all depend on luck, as do may things happen in India.

    Vishal

  • vishu

    Also there are needs of 300 million people.
    Can there be no innovation for this market.

    Vishal

  • prateeksha

    Very insightful. I guess, its not really innovation India is looking for, for its greater problems. It is courage. Now how does one develop the courage to take to entrepreneurship, with all the risks involved? That there is great chance of failure. What if the venture you’ve started does not work out, what protection do you get? Maybe having two earning members in the family permits one to experiment, while the other provides steady sustenance. But, then if you plan to have more than one child, their education is the biggest sink for your earnings. I know its like that, because I know how much my parents have spent on me.

    Alright, there are VCs. Especially, ones who’ve earned a sizable amount in a foreign country and are looking for investing in India. But, you won’t find many of them. Maybe the attitude of the people will change if the policies of the government will change; them relaxing rules, or making it easier for people to start their own ventures. Government can play a huge role, positively. I’d like to quote from an article: Made in Taiwan I read in the Forbes,

    “How did Taiwan emerge as an electronics workshop to the world? The island has an abundance of relatively low-cost engineers, many of them returnees from the U.S., and strong connections to Silicon Valley. The Taiwan government stimulated the high-tech industry with tax and venture capital incentives. The country has a deeper technical and industrial base than its Southeast Asian neighbors. Taiwan’s entrepreneurs have been much more adaptable than its competitors in Japan and Korea to the rapid change and short product cycles in the computer industry.”

    So, what does a ‘budding’ entrepreneur do to make the planets work for him?

  • pankaj

    Atanu as u have already mentioned somewhere before Culture matters , it is no secret that us/europe/east asia has a strong progressive culture,which we lack ,they think for long term we short term, they are homogenous we are more varied than bhel puri.and lastly as u were in usa for a long time u may have noticed that there or in east asia/europe, is a feeling of goodwill and benevolence among the public which is sorely missing here.

  • amit.shipra

    Great Article (as usual deep insights).

    @Vishu: Definitely there is the market for 300 million people and in fact that is what Atanu said – “it only needs execution of known innovations”.

    I believe innovation’s basic pre-requisite is ‘demand/needs’ – of any sort. However, if the majority of junta in our country is mired in daily struggle then what sort of new ‘innovative’ product do they demand/need. I mean how does it matter if you listen you fav. song via iPod or your 10 year old Sony walkman. How many do really care about the quality etc?

    So essentially, the basic perception of ‘need’ is very different in two countries. I am sure if iPod would have been innovated in India – it would have been killed in its infancy. The problem is not with the innovation lacking people – its the link of innovation to the ‘needs’ affecting the majority. The innovation which maintains this link are definite winners. For example, look at Micro-finance concept (recent financial innovation) – Regionally the highest concentration of these accounts was in India (188 million accounts representing 18% of the total national population).

  • http://www.sundarmail.com Sundar

    Atanu,

    Why not much innovation happens in Metros and Cities is intriguing. Poor ecosystem and low apetite for Risk are some of the reasons.

    Where did you get this statistics from:
    “There are an estimated 800 million Indians whose income is less than $2 per day, and an estimated 500 million with incomes is less than $1 per day.”
    I feel these income levels are very low and actual numbers could be two to three times this figure. If you consider in Purchasing power parity terms, it would be 10 to 20 times more.

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  • tarang_72

    But why we are not able to pick low hanging fruits if those don’t need innovation / entrepreneurhsip?

  • pankaj

    Also Innovation Happens when there is a market for innovation ,people are open minded willing to try new products and lastly very important which is the bane of india lawlessness .innovators require strong protection from law so that their innovation is not copied by someone else.Does india have any of these HA!.

  • vishu

    Amit-
    “Definitely there is the market for 300 million people and in fact that is what Atanu said – “it only needs execution of known innovations”.

    I think the above statement may not be fully applicable as this 300 million are different. You cannot simply copy innovations from some other market.
    Also innovation need not be tied to ipod and iphones of the world.
    Meeting a need of the market in a cost effective way is innovation.
    It can be in any field!

    Vishal

  • vishu

    Ag – I think you summed it well.
    If tentacles of the Government do not reach there is chance of innovation or else there will be darkness!

    Vishal

  • Asheesh

    Atanu,

    I don’t think I agree with your assessment. You are looking at only today, where as to go to the root of the issue you have to look at the historical background.

    US did not come into existence as a developed nation, infact when the nation came into existence, India was ways ahead. Americans innovated because they had a need to do so. How do you connect with people living thousands of miles away? Telegram and then comes the telephone, and they innovate because they do not expect the Government to solve or provide solutions to their problems and whatever chances India had of catching up were destroyed by the evil Socialist government we had up until late 90′s.

    I think India’s biggest drwaback is that we never grew out of the fuedal mindset. We always are looking towards our government to solve our problems, sure we are a democracy and elect our leaders, but we treat them more like royalty than one amongst us. Even today we do not see solutions for problems coming from Private Sector, the do have the capital to do so today so the capital argument is not valid.Look at our education system, it is designed to stymie any creative thinking that a child may have…from where will you find the innovators? I have serious reservations about the generations who are graduating from our schools today and the future ones to come, unless we do something about it fast, we are doomed.I think the problem is deeply cultural and I do not see any disruptive innovation coming out of India for a long long time.

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