India 14th among 22 Asia-Pacific economies in Creative Productivity Index

Red tape, corruption, regulatory issues inhibit investment in innovation, says report

India ranked 14th on a list of 24 economies on Creative Productivity Index, being launched on Friday by the Asian Development Bank and Economist Intelligence Unit.

Recently, India's position had slipped 11 notches to 71 in the Global Competitiveness Index of the World Economic Forum for 2014-15, compared to a year earlier. And, India came 134th among 189 countries ranked by the World Bank on the ease of doing business, for 2014.

The report carrying the ADB-EIU index said regulatory hurdles, red tape and corruption provide little incentive for the private sector to invest in innovation in India. The index is designed to give policymakers a tool to measure progress in fostering creativity and innovation in 22 Asia-Pacific economies (plus those of the US and Finland, for comparison purposes). It measures the innovative and creative capacity of economies by relating creative inputs to outputs.

On the input side, creative productivity is measured on three dimensions - the capacity to innovate, incentives to innovate and how conducive the environment is for innovation. The output side measures innovations by considering both conventional indicators such as the number of patents filed, as well as a broader set of measures on knowledge creation.

While India is ranked lower on the input side at 15, compared to its overall rank, it has a relatively better score at 13 on the output side. This implies India is able to get a bit better of an output compared to its inputs.

However, agriculture productivity is a big question mark.

A commentary carried with the index says despite recent productivity gains, India still lags in terms of output, with a low score on agricultural productivity, showing the need for rural innovations.

On the input side, India lags in the knowledge-skill base, showing the need for further investments in physical infrastructure and human capital, the report said.

India is in 21st place for both competition and human capital. For human capital, the country scores well for the number of top-500 global universities but the overall ranking is dragged down by its low scores for rate of urbanisation, mean years of schooling, and technical and vocational enrolment of students in secondary school.

"This suggests that although India's tertiary institutions are sound, more investment is needed in primary and secondary schooling," the report said.

Nevertheless, on the whole, India has a solid pool of skilled, English-speaking graduates. This will continue to aid in expansion of the services sector, such as in information communication and technology. Elsewhere, larger productivity gains are needed in the agricultural sector.

"Among other things, India's agricultural productivity is hindered by the small size of average land holdings, the lack of adequate irrigation systems, leaving farmers at the mercy of the weather (India is the most rain-dependent agricultural economy in the world) and ineffective government policies and institutions, which hurt competitiveness and constrain diversification," the report said.

Though the country was ranked sixth in the index for ease of labour turnover, our labour laws are overlapping and cumbersome, and employers face difficulties in making workers redundant, the report said. Companies with more than 100 employees, for instance, are obliged to obtain government authorisation to lay off workers or to close unprofitable business units.

The report said, nevertheless, most of India's labour laws apply only to the (less productive) organised sector, which does not include small-scale manufacturing and services, agriculture and most construction work.

"The country's relatively high ranking for this indicator is likely to reflect the fact that only a small minority of India's 500 million workers are employed under formal contracts," the report said.

It said establishment of the National Innovation Council in 2010 had shifted the policy focus towards "a decade of innovation" but India lagged emerging countries such as China.

"While research and development expenditure has risen sharply and is set to be increased to two per cent of gross domestic product, as part of a Science, Technology and Innovation Policy announced in 2013, the gap with countries such as China is widening," it said.