India s Competitiveness: A Perspective from States Presented By: Amit Kapoor Chair, Institute for Competitiveness
WHAT IS COMPETITIVENESS? Competitiveness is the productivity (value per unit of input) with which a nation, region, or cluster utilizes its human, capital, and natural resources. Productivity sets a nation s or region s standard of living (wages, returns on capital, returns on natural resources) Productivity depends both on the value of products and services (e.g. uniqueness, quality) as well as the efficiency with which they are produced. It is not what industries a nation or region competes in that matters for prosperity, but how firms compete in those industries Productivity in a nation or region is a reflection of what both domestic and foreign firms choose to do in that location. The location of ownership is secondary for prosperity. The productivity of local industries is of fundamental importance to competitiveness, not just that of traded industries Devaluation and revaluation do not make a country more or less competitive Nations and regions compete in offering the most productive environment for business Source: Michael E. Porter and Institute for Strategy and Competitiveness
WHAT DETERMINES COMPETITIVENESS? MICROECONOMIC COMPETITIVENESS Quality of business environment State of cluster development Sophistication of company operations and strategy MACROECONOMIC COMPETITIVENESS Sound monetary and fiscal policy Human Development and effective public institutions ENDOWMENTS Source: Michael E. Porter and Institute for Strategy and Competitiveness
WHY INNOVATE? The capability to innovate and to bring innovation successfully to market is a crucial determinant of the global competitiveness of nations. Land Labour Capital Inherited Prosperity (Natural Resources) Created Prosperity Firms create value adding goods and services by realizing the potential of natural resources Government To create conducive conditions to enable innovation
Data Source: Global Innovation Index GLOBAL INNOVATION
Total Number of Patents granted in 2015 COUNTRY-WISE GROWTH IN PATENTS 1000000 100000 UNITED STATES JAPAN 10000 1000 100 10 SRI LANKA BERMUDA GERMANY SOUTH KOREA TAIWAN FRANCE CANADA CHINA UNITED KINGDOM NETHERLANDS ISRAEL SWITZERLAND INDIA SWEDEN AUSTRALIA AUSTRIA FINLAND BELGIUM SPAIN SINGAPORE DENMARK NORWAY RUSSIA IRELAND NEW ZEALAND BRAZIL MEXICO MALAYSIA POLAND SOUTH AFRICA HUNGARY THAILAND CHILE TURKEY ARGENTINA GREECE KUWAIT UKRAINE ICELAND ROMANIA PORTUGAL PHILIPPINES UNITED ARAB EMIRATES COLOMBIA ESTONIA VENEZUELA EGYPT BULGARIA INDONESIA COSTA RICA CUBA LITHUANIA LEBANON PAKISTAN URUGUAY PERU KENYA SAUDI ARABIA 1-10 -5 0 5 10 15 20 25 30 35 Source: USPTO, http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cst_utlh.htm CAGR Growth Rate of Patents granted from 2002-2015
Number of Patents filed in 2015-16 (in log scale) LINK BETWEEN PATENTS AND COMPETITIVENESS 10000 1000 100 10 West Bengal Assam Jharkhand Tripura Mizoram Odisha Goa Bihar Jammu & Kashmir Chhattisgarh Kerala Punjab Rajasthan Madhya Pradesh Haryana Uttar Pradesh Himachal Pradesh Uttarakhand Sikkim Delhi Andhra Pradesh Karnataka Gujarat Maharashtra y = 118.32x - 6267.6 R² = 0.5581 Tamil Nadu 1 Nagaland 50.00 52.00 54.00 56.00 58.00 60.00 62.00 64.00 66.00 68.00 70.00 Source: Annual Reports of CGPDTM Various Rounds State Competitiveness Index Scores 2016
R&D Expenditure as a Percentage of GDP Country-wise R&D Expenditure as a Percentage of GDP 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Brazil India Sweden China Israel United States European Union Russian Federation World Source: World Bank
Global Competitiveness Index 2016-17 7 Link between Innovation and Competitiveness at Global Level COUNTRY-WISE GROWTH IN PATENTS 6 5 4 3 United Arab Emirates Qatar Malaysia Saudi Arabia Azerbaijan Thailand Chile Lithuania Poland Indonesia Bahrain Mauritius Panama India South Kuwait AfricaRussian Federation Portugal Italy Rwanda Kazakhstan Philippines Mexico Costa Rica Turkey BulgariaLatviaSlovenia Botswana Jordan Oman Georgia Colombia Vietnam Romania Slovakia Sri Lanka Morocco Peru Uruguay Macedonia Hungary Guatemala Tajikistan Albania JamaicaIranBrazil Armenia Montenegro Croatia Algeria Honduras Cambodia Namibia Ecuador Serbia Ukraine Greece Cyprus Cote Nepal divoire Trinidad Kenya Dominican and Tunisia Tobago Republic Moldova Bangladesh Ethiopia El Salvador Lebanon Argentina Mongolia Egypt Uganda Senegal Kyrgyzstan Tanzania Paraguay ZambiaCameroon Mali Benin PakistanBolivia Zimbabwe Nigeria Madagascar Burundi Malawi Mozambique Spain Switzerland Singapore United States of America Germany Netherlands Hong Japan Kong (China) United Kingdom Sweden Norway Finland Belgium New Canada Zealand Denmark Australia Austria Israel France Luxembourg Ireland China Estonia Czech Republic Malta Iceland South Korea y = 0.0495x + 2.4882 R² = 0.8064 Yemen 2 10 20 30 40 50 60 70 Global Innovation index Score 2017
Factors of Production Land Labor Capital Infrastructure (Physical and Technological) Human Capital Social and Political Institutions Healthcare Institutions Educational Institutions Administrative Institutions Financial Institutions State Innovation Index Demand Conditions Market Size Market Sophistication Market Growth Industries, Innovation and Entrepreneurship R&D New Firm Creation Firms Industrial Clusters New Knowledge Creation (Patents, Copyrights etc.)
State Per Capita SDP ( ) State Innovation Index Rank Stage Maharashtra 130056 42.98 1 Tamil Nadu 120767 42.18 2 Delhi 235361 38.02 3 Kerala 127187 32.27 4 Goa 231509 31.94 5 Gujarat 124934 31.18 6 Sikkim 203515 27.26 7 Himachal Pradesh 125680 26.06 8 Haryana 137513 24.80 9 Uttarakhand 133047 23.68 10 Karnataka 119711 34.93 1 West Bengal 70059 29.87 2 Arunachal Pradesh 91061 28.65 3 Andhra Pradesh 88082 26.29 4 Rajasthan 70966 25.03 5 Telangana 115316 24.61 6 Punjab 107776 24.27 7 Mizoram 81413 23.31 8 Nagaland 68688 17.59 9 Chhattisgarh 72459 15.39 10 Uttar Pradesh 40469 31.75 1 Jammu & Kashmir 64406 24.11 2 Madhya Pradesh 50183 22.46 3 Manipur 48684 21.37 4 Assam 51016 19.31 5 Tripura 65414 18.15 6 Odisha 63122 17.92 7 Meghalaya 66058 16.20 8 Bihar 27675 13.85 9 Jharkhand 53335 11.48 10 Innovation-Driven States Investment-Driven States Factor-Driven States
State 2017 Rankings 2016 Rankings Stage Maharashtra 1 1 Tamil Nadu 2 2 Delhi 3 3 Kerala 4 6 Goa 5 4 Gujarat 6 5 Sikkim 7 8 Himachal Pradesh 8 7 Haryana 9 10 Uttarakhand 10 9 Karnataka 1 1 West Bengal 2 4 Arunachal Pradesh 3 6 Andhra Pradesh 4 2 Rajasthan 5 7 Telangana 6 Punjab 7 3 Mizoram 8 5 Nagaland 9 9 Chhattisgarh 10 8 Uttar Pradesh 1 1 Jammu & Kashmir 2 5 Madhya Pradesh 3 4 Manipur 4 2 Assam 5 8 Tripura 6 3 Odisha 7 6 Meghalaya 8 9 Bihar 9 7 Jharkhand 10 10 Innovation-Driven States Investment-Driven States Factor-Driven States
STATE INNOVATION INDEX Maharashtra and Jharkhand are the most and least innovative states in the country Innovation seems to be seriously lacking in the resource-rich eastern states A maximum score of 43 indicates the potential for Indian states to climb up the innovation ladder
STAGES OF DEVELOPMENT Factors of Production 70 60 50 40 30 20 Social and Political Institutions 10 0 Demand Conditions Industries, Innovation and Entrepreneurship Bihar Karnataka Tamil Nadu
FACTORS OF PRODUCTION Goa, Delhi and Telangana are the leading states under this pillar Indicative of low infringement on land rights, high labour force participation and high credit availability As expected of a developing nation, factors of production is the most developed aspect of Porter s Diamond having the lowest standard deviation of the four pillars (6.5 as compared to 16 for the other three)
DEMAND CONDITIONS Maharashtra, Delhi and Tamil Nadu are the leading states under this pillar A combination of market size and market sophistication define the demand conditions of a region Therefore, states with higher purchasing power tend to perform well
INDUSTRIES, INNOVATION AND ENTREPRENEURSHIP Tamil Nadu, Maharashtra and Uttar Pradesh are the leading states under this pillar These states being India s leading manufacturing centres have expectedly done well in innovation and entrepreneurship The eastern part of India has been a poor performer in this aspect
SOCIAL AND POLITICAL INSTITUTIONS The map is reflective of India s poor institutional standards. Healthcare, educational, financial and administrative institutions have been considered to measure the country s institutional performance Eastern and northern-most states have scored the highest. However, that is the case because troubled regions usually have a higher incidence of institutional support
State Competitiveness Scores, 2017 LINK BETWEEN INNOVATION & COMPETITIVENESS: STATES 60 50 y = 1.021x + 5.6586 R² = 0.6564 Karnataka Gujarat Maharashtra Goa Delhi 40 Chhattisgarh Uttarakhand Tripura Punjab Haryana Himachal Pradesh Andhra Pradesh Sikkim Kerala Tamil Nadu 30 20 Jharkhand Bihar Assam Nagaland Rajasthan West Bengal Madhya Pradesh Jammu & Kashmir Uttar Pradesh 10 Meghalaya Odisha Manipur 0 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 State Innovation Scores, 2017
Social Progress Index LINK BETWEEN INNOVATION AND SOCIAL PROGRESS : STATES OF INDIA COUNTRY-WISE GROWTH IN PATENTS 70 65 y = 0.4771x + 43.326 R² = 0.3833 Uttarakhand Punjab Himachal Pradesh Kerala Tamil Nadu Sikkim Goa Delhi 60 55 50 Haryana Gujarat Nagaland Andhra Pradesh Chhattisgarh Manipur Jammu & Kashmir Madhya Pradesh West Bengal Tripura Meghalaya Rajasthan Odisha Karnataka Maharashtra Uttar Pradesh Jharkhand Assam 45 Bihar 40 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 State Innovation Index
Access to Information & Communication LINK BETWEEN INNOVATION AND ACCESS TO INFORMATION & COMMUNICATION: COUNTRY-WISE STATES OF GROWTH INDIA IN PATENTS 90 80 Delhi 70 60 Punjab Himachal Pradesh Kerala Tamil Nadu 50 40 30 Jharkhand Uttarakhand Haryana Gujarat Andhra Pradesh Sikkim Jammu & Kashmir Madhya Pradesh Chhattisgarh Manipur Rajasthan Tripura Meghalaya Nagaland West Bengal Maharashtra KarnatakaGoa Uttar Pradesh 20 Bihar Odisha Assam 10 0 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 State Innovation Scores
Average Wage, 2014 350000 LINK BETWEEN INNOVATION AND WAGES: STATES OF INDIA COUNTRY-WISE GROWTH IN PATENTS 300000 250000 200000 Assam Punjab Sikkim Uttar Pradesh Jammu & Kashmir Meghalaya Manipur Haryana Andhra Pradesh Kerala y = 350.98x + 163959 R² = 0.0496 Maharashtra Karnataka 150000 100000 Himachal Pradesh Uttarakhand Tripura Goa Gujarat Madhya Pradesh Tamil Nadu Jharkhand West Bengal 50000 Odisha Bihar 0 0 20 40 60 80 100 120 140 160 180 200 Patents per 100000 employees Figure 12. Average Wage vs Patents per 100000 employees by States, 2014 Higher innovative capabilities provide a region with a considerable competitive advantage over other regions. Patenting is the best available measure for quantifying this aspect. It seems to be the case that larger states by employment size show higher innovative tendencies.
Employment in High-tech Clusters HIGH-TECH CLUSTERS Employment growth does not show a relationship with the presence of high-tech clusters 250000 Employment in High-Tech Clusters vs Growth in Employment 200000 Maharashtra y = -328.64x + 29522 R² = 0.0015 150000 Tamil Nadu Gujarat Dadra & Nagar Haveli Karnataka 100000 Uttarakhand Andhra Pradesh Himachal Pradesh Uttar Pradesh Rajasthan Delhi 50000 Haryana Kerala Goa West Bengal Chhattisgarh Tripura Chandigarh Bihar Sikkim Manipur Meghalaya 0-5 0 5 10 15 20 25 CAGR of Total Employees
RELATIVE IMPACT BY STAGES OF DEVELOPMENT 120 100 80 60 40 20 0 Low Income Countries Middle Income Countries High Income Countries MACROECONOMIC POLICY SOCIAL INFRASTRUCTURE AND POLITICAL INSTITUTIONS MICROECONOMIC COMPETITIVENESS Data: Michael E. Porter and Institute for Strategy and Competitiveness Competitiveness in high-income countries is mainly driven by innovation.
GIPC INTERNATIONAL IP INDEX 2017 0 5 10 15 20 25 30 35 United States United Kingdom Germany Japan Sweden France Switzerland Singapore South Korea Italy Spain Australia Hungary New Zealand Poland Israel Canada Taiwan Malaysia Mexico Russia China Brazil South Africa India 8.8 12.7 13.2 14.8 15.5 17.2 16.9 20.6 23 22.3 21.4 24.1 25.4 28.3 27.7 27.5 27.1 28.6 29.9 31.3 31 30.9 32.6 32.4 31.9
DIMENSIONS OF INNOVATION POLICY Research Dimensions of Innovation Policy Education Finance Government can support innovation in two ways: Directly - by investing in development of technology Indirectly - by creating an environment that supports research and development. Industry
DIMENSIONS OF INNOVATION POLICY ROLE OF GOVERNMENT Incentives to support innovators Establish institutions to facilitate research and development Provide environment that supports innovation by removing obstacles faced by companies Invest in the creation of knowledge workers
DIMENSIONS OF INNOVATION POLICY ROLE OF GOVERNMENT Incentives to support innovators Establish institutions to facilitate research and development Provide environment that supports innovation by removing obstacles faced by companies Invest in the creation of knowledge workers
Data: Global Innovation Index
DIMENSIONS OF INNOVATION POLICY ROLE OF GOVERNMENT Incentives to support innovators Establish institutions to facilitate research and development Provide environment that supports innovation by removing obstacles faced by companies Invest in the creation of knowledge workers
Data: World Bank
Data: World Bank
DIMENSIONS OF INNOVATION POLICY ROLE OF GOVERNMENT Incentives to support innovators Establish institutions to facilitate research and development Provide environment that supports innovation by removing obstacles faced by companies Invest in the creation of knowledge workers
Data: Global Innovation Index
DIMENSIONS OF INNOVATION POLICY ROLE OF GOVERNMENT Incentives to support innovators Establish institutions to facilitate research and development Provide environment that supports innovation by removing obstacles faced by companies Invest in the creation of knowledge workers
RESEARCHERS IN R&D (PER MILLION PEOPLE) IN 2013
Data: Global Innovation Index
Context for Firms Strategy And Rivalry WHAT IF A COUNTRY LACKS A ROBUST IP REGIME Factor Conditions Distortion in access to high quality business inputs especially in :- Information Scientific and Technological infrastructure. Intellectual capital is not being recognised. In case of no protection this may result in companies having no incentive to innovate. Local rules and incentives that encourage productivity and investment are decreased : Lower salaries due to low end work. Lower capital investments as companies want adequate standards. Lesser incentive to innovate as knowledge is not adequately protected. Competition between companies becomes more distorted as there is an absence of a level playing field. Companies reduce spending on R and D as they expect others to invest while they reap the benefits. Related, Supporting Industries And Institutions Demand Conditions Sophisticated and demanding local customers and needs. Strict quality, safety, and environmental standards are not met as IPR laws are weaker. Greater imports as companies are not able to meet sophisticated demand. Government procurement of advanced technology as no laws are in place. Source: Michael E. Porter and Institute for Competitiveness Analysis IPR rules if they are not adequately present. Distort incentives to share knowledge. Adverse impact on innovation at the related and supporting industry level. It also results in a reduced network effect in clusters as different firms in clusters are adamant about sharing their business knowhow.
DOES LACK OF TRUST UNDERMINE COMPETITIVENESS? Context for Firms Strategy And Rivalry Factor Conditions Trust is critical in factor markets for appropriate resource allocation. Rent seeking reduces trust and creates an atmosphere of corruption. Inadequate/arbitrary policy design leads to erosion of trust. Risk of the market is in the form of trust that the goods and services produces will be consumed. Lower level of trust in market competition leads to collusion and illegal cartels as well as corruption. Low trust also results in negative perception of the regulators. Trust in regulators and rule of law also critical for smooth functioning. Independent regulators critical for institutional trust. Related, Supporting Industries And Institutions Lower level of trust in institutions undermines the rule of law. Low level of trust leads to non sharing of know how resulting in lesser network externalities of agglomerations. Trust in institutions undermined when they harass companies. Vicious cycle also leads to poor quality services as nobody is willing to provide them in an over-regulated economy. Demand Conditions Quality, price and differentiation are the main considerations essential for the consumer to trust the producer. If the consumer does not trust the producer sale may not happen. Effect is a slowing down economy with low level of consumption and investments. Safeguards in the economy include quality certifying institutions as well as branding of the product.
HOW CORRUPTION UNDERMINES COMPETITIVENESS? Context for Firms Strategy And Rivalry Heightened income disparity. Consumer interests are compromised. Social versus self-interest. Factor Conditions Resource allocation is skewed; providing goods and services at below market price. Rent seeking behaviour by bureaucracy. Arbitrary tract for fast track treatment. Disincentives for labour to perform. Source: Institute for Competitiveness Analysis High level of government intervention. Degree of regulation a predictor of corruption. Collusion and Cartelization. Too much market power to a few companies. Innovation is curtailed. Manipulation of Policy and provision of poor quality services. Failure of Institutional support. Related, Supporting Industries And Institutions Demand Conditions Lower acceptance of established institutions. Beauraucratic rigidity. Weakening institutional Foundations.
India s Competitiveness: A Perspective from States Presented By: Amit Kapoor Chair, Institute for Competitiveness