Monday, 11 June 2012


Now a day, it is a widely accepted fact that Innovation and Entrepreneurship is prime driver of economic progress (Kasper & Streit, 1998; Leff, 1979). And entrepreneurship is a consequence of a country’s development – specifically the adoption and development of institutions that encourage the entrepreneurial aspect of human action. Stimulating entrepreneurial action will in turn spur economic development and growth. Therefore, if economic growth is the goal, attention should be paid to achieving the institutional mix that encourages the entrepreneurial aspect of human action. (Peter J. Boettke and Christopher J. Coyne, 'Entrepreneurship and Development: Cause or Consequence?')

In any country, the existing state of economy is most important factor, which needs to be understood to do an analysis on prospects of Entrepreneurship. WEF (World Economic Forum) Global Competitiveness Report identifies three phases of economic development based on GDP, per capita and the share of exports comprising of primary goods. These are (a) the factor-driven phase dominated by subsistence agriculture and extraction businesses, with a heavy reliance on labor and natural resources, (b) the efficiency-driven phase, further development is accompanied by industrialization and an increased reliance on economies of scale, with capital-intensive large organizations more dominant and (c) the innovation-driven phase, businesses are more knowledge intensive, and the service sector expands.

Global Entrepreneurship Monitor 2010 Global Report places Indian economy in the phase of factor driven economy. Even in this group of economies, India has lower Percentage of Early-Stage Entrepreneurs. Following are other important findings (given in the report) on factor driven economy 

1.    Total Early-Stage Entrepreneurial Activity (TEA) includes individuals in the process of starting a business and those running new businesses less than 3 ½ years old. These rates are highest for the factor-driven economies, and decline with greater development levels.

2.    While the factor-driven economies have the highest TEA rates, they also have the highest proportion of necessity-driven motives, where entrepreneurs are pushed into entrepreneurship because they need a source of income.

3.    Individuals in factor-driven economies tended to generally rate more positively on the attitude measures, with declining patterns exhibited with higher development levels.

4.    The factor-driven economies have, on average, the lowest level of international customers.

When it comes to Innovation, India was ranked at 62nd position in the 2011 edition of the Global Innovation Index rankings. The scenario for Innovation in India can be summarized in the following excerpts taken from Business Line (article - 'India slips to 62nd rank in innovation: Report' published July 01, 2012)

“The Global Innovation Index is computed as an average of the scores across inputs pillars (describing the enabling environment for innovation) and output pillars (measuring actual achievements in innovation), a WIPO (World Intellectual Property Organization) statement said. It added that five pillars constitute the Innovation Input Sub-Index: ‘Institutions,' ‘Human capital and research,' ‘Infrastructure', ‘Market sophistication' and ‘Business sophistication'. The Innovation Output Sub-Index is composed of two pillars: ‘Scientific outputs' and ‘Creative outputs'. The Innovation Efficiency Index, calculated as the ratio of the two Sub-Indices, examines how economies leverage their enabling environments to stimulate innovation results.

India comes in at 44th on the Output Sub-Index, within the top 30 on labour productivity growth (21st with 4.5 per cent) and computer and communications services exports (4th globally, with 70 per cent of total commercial service exports).

It also has positions within the top 40 on two knowledge diffusion indicators: high-tech exports (32nd, at 6.34 per cent of GDP) and FDI net outflows (38th, at 1.08 per cent of GDP). On creative outputs, it ranks 39th on national feature films produced, 22nd on daily newspapers, 9th on creative goods exports, and 29th on creative services exports.

India's position, however, is dragged down by its poor performance on the Input side (ranked 87th): India is in the last quintile on sub-pillars business environment, elementary education, tertiary education, and knowledge workers.

But the country has high marks (within the top 40) on R&D (35th); general infrastructure (11th), a result driven by its 9th position on gross capital formation (at 35 per cent of GDP); and investment (15th), a result driven by a deep and dynamic stock market.”

It is given in chapter 13 (Human Development) of Economic Survey 2011-12 Report that, the census projection report shows that the proportion of working age population between 15 and 59 years is likely to increase from approximately 58 per cent in 2001 to more than 64 per cent by 2021. In absolute numbers, there will be approximately 63.5 million new entrants to the working age group between 2011 and 2016. Accordingly, a three-tier institutional structure on Coordinated Action on Skill Development consisting of (i) the Prime Minister’s National Council on Skill Development(NCSD), (ii) National Skill Development Coordination Board (NSDCB), and (iii) National Skill Development Corporation (NSDC), has been constituted.

Further, to enhance prospects for innovations and entrepreneurship, a national plan to develop skillful workforce (at all levels) would need to be addressed to meet the future demands of human resource.  The recent economic growth has been driven by dissemination of technology and expansion of services sector in India. And what has significantly contributed to make all this happen is the initial edge India developed in business of revolutionary ICT technology. So far, India has catered well in developing sufficient skills required for complexity and diversity of ICT business. A World Economic Forum (WEF) in the year 2010 reported that India will face huge skills gaps in some job categories due to low employability over the next 20 years and also warned of a looming global labour crisis. Indicating on future talent shortages, Piers Cumberlege, senior director, partnership, at the World Economic Forum had said that "Today's high unemployment rates mask longer-term talent shortages that may affect both developing and developed countries for decades". The report calls on governments, companies, educational institutions and international organizations to collaborate systematically to address talent shortages and increase talent mobility.

There is tremendous scope to boost innovation and entrepreneurship through systematic development of suitable business environment. But, it should also be taken into cognizance that eroding traditional paradigm of “Distributed Production” (Economy of Livelihood) is resulting in unemployment (more so for illiterate and unskilled population). In the prevailing patriarchal social set-up in India, this is further causing migration of male population (in search of jobs) into cities (increasing number of 'Environmental Refugees'). In the process rural females are becoming poorer (a phenomenon known as 'Feminization of Poverty'). All this is suggestive of a changing patterns of earnings in society, which appears to be much favorable for a certain class of skilled labors, but not so favorable for larger mass of unskilled or illiterate labors. Therefore, an analysis of available capabilities of earning across different sections of society could be carried out. This will become basis for doing balancing act by strategic promotion of industrial development (for mass production) in selected sectors (like ICT, Steel, Cement, where skilled people would be absorbed) to leverage skilled workforce, but at the same time taking conservative approach in certain traditional sectors (like say agriculture, fishing, which have been traditionally fort of unskilled laborers) to facilitate livelihood of unskilled workforce. And then, in follow up it may be advisable to chart out a development plan for traditional sectors to promote systematic modernization through step by step process in such a way that labors dependent on these sectors do not lose their means of livelihood and slowly start adapting to use of newer ways in traditional sectors.  

Following could be prime considerations for the way ahead in this dimension:-

a)    Selective promotion of Innovation and Entrepreneurship (through suitable legislation and adoption of appropriate policies) in such a way that a balance between Mass Production and Distributed Production is established for larger benefit of society.
b)    Developing ecology and supportive environment for business to prosper.
c)    Human resource development as per future prospects in business and academics.


Please refer to REFERENCES section given in the blog ‘ICT FOR DEVELOPMENT IN INDIA’


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