NEW DELHI: India has the potential to innovate on the lines of Silicon Valley but it needs to do more for expanding the innovation ecosystem as it aspires to become a middle income country, World Bank India head Junaid Kamal Ahmad said today.

He said what drives productivity is pertinent when it comes to innovation and is a very relevant question for India as it seeks to move up the ladder from low middle income to high income country.

Releasing a World Bank report on innovation in developing countries, he said: "I think we can do a Silicon Valley in India in the next five years..as the world is changing, we can leapfrog.

"I believe firm size, firm capability and innovation have a strong relationship. More needs to be done in the innovation ecosystem in India where firms continue to remain stagnant."

In developing countries, the concept of national innovation system must be expanded, said the World Bank Chief Economist for Equitable Growth, Finance and Institutions, William F Maloney.

According to the report, investments for innovation often consist of marginal improvements in process or products, rather than significant technology adoption or new product imitation.

"They very rarely involve frontier research...if a firm (or country) invests in innovation but cannot also import the necessary technology, contract or hire trained workers and engineers, or draw on new organisational techniques, the returns to that investment will be low."

Returns from investments in research and development (R&D) rise initially, but lack of complementary factors over time result in their decline, the report said.

"The policy maker's conception of the national innovation system (NIS) must go beyond the usual institutions and policies designed to offset standard innovation-related market failures. The scope of the NIS must include broader complementary factors and supporting institutions," it added.

Further, innovation cannot be supply driven, there must be demand from firms that have the capabilities to innovative.

"On this demand side, the firm and its decisions to innovate, policy makers must be concerned with the incentives for firms to accumulate the necessary physical, human and knowledge capital," Maloney said.

