Soumitra Dutta first thought about creating an index for innovation ten years ago. He was then at the Paris-based business school INSEAD, observing the rise of innovation as a key idea for business. But the concept, as it was understood then, was mostly technology driven. Dutta had seen that a lot of innovation did not require patents or PhDs. Was there a way to capture the idea in broader terms, and to measure it for countries around the world?



This holistic approach to innovation was particularly relevant to India, although Dutta had a global perspective in mind when he conceived the idea. India was poor in intellectual property development. It generated few science PhDs and fewer engineering PhDs. Its R&D investments were low. But the country was still innovating in business models and select areas of technology.



Innovation of a unique variety was thriving in its villages. Dutta and his colleagues started developing an index that could capture innovative capability in broad terms. Ten years later, the Global Innovation Index (GII) has become an annual feature, and examined carefully by policy-makers around the world. "I am surprised at how quickly the holistic view of innovation has been accepted," says Dutta, who is now dean of the graduate school of management at Cornell University. Although still a work in progress, GII offers insights about i nnovation in India and where it stands compared with other countries.



Last week's results show that India is improving fitfully, with pockets of excellence. It also shows that China is in the big league, and that India is wasting a lot of its capabilities. "There is a big gap between India's achievement and potential," says Dutta. A few numbers first, along with a few caveats.



In 2008-09, India was ranked 41 and China 37. India gradually slipped every year, reaching a low of 81 last year. China improved gradually, and broke into the top 25 this year. India's position improved to 66 this year, which was where it was four years ago. Such jumps are rare. The GII index authors always warn against reading too much into individual rankings, and to focus on the trends. The trends show one thing unambiguously — India is on a roller-coaster ride while China is constantly improving.



GII parameters and methodologies are being tweaked continuously, and the changes in ranking are as much due to new parameters and data as they are due to changes within a country. And yet the truly innovative nations remain steady in their rankings. Switzerland has been ranked one for six successive years.



India is among the few big countries with fluctuating positions, which indicates the rapid changes the country is going through. In spite of the low ranking, this year's GII report marks India as an innovation overachiever, a small number of countries that perform at least 10 per cent better than their peers based on GDP.

Researchers, venture capitalists and policymakers in India think that the country is changing rapidly, and expect these changes to reflect in its ranking over the next few years. "There has been a significant broadening of the innovation ecosystem in recent years," says former Infosys co-founder Nandan Nilekani . The ecosystem consists of educational institutions, research output, patents, entrepreneurship, venture capital, government policies and so on. Improvement is evident in some of these areas, and some of the improvements have been captured in this year's GII's sub-indices.India has improved its ranking primarily because of better achievements in human capital, research, market sophistication and business sophistication. In human capital, India improved its ranking to 63 from 103. This was mostly achieved because of improvements in education, and specifically tertiary education. Indian universities have improved their rankings internationally, and this improvement has had an impact on scores for education and in turn on overall rankings. The Indian Institute of Science (IISc), for instance, broke into the top 150 universities in the QS University ranking system, a first for any Indian university.The research output from Indian universities has been increasing steadily in the last decade, and has helped bag higher rankings. A deeper look at the education rankings show that the improvements are partly in perceptions, as the QS University Ranking system uses opinion of peers as a key input. As the government invested more on education — through new institutions and improved research funding — Indian educational institutions improved in the eyes of their global peers.Even so, India fares poorly in education. Its overall rank in education, including primary and tertiary, is 118. China is ranked 4 here. This ranking is somewhat deceptive, as some data are not available for China. But India compares poorly with China where data are available. China has superior student-teacher ratio. In fact, the GII report marks poor student-teacher ratio as a weakness of the Indian innovation ecosystem, and the scores have worsened since last year. But there is a surprise here. In spite of having five universities in the top 100 in the world, China ranks lower than India in tertiary education, ostensibly due to paucity of data. India is ranked eighth in the world in the number of graduates in science and engineering, while China is not ranked.Things look much brighter for India in R&D compared with previous years, as the country has been investing consistently, with a few dips, in R&D over the last decade. India bounced back quickly from the 2008 recession. R&D powerhouses like the UK and the US are still struggling in R&D. Even China, which has been investing increasingly R&D for three decades regardless of GDP growth, is now showing signs of slower R&D growth. India's investment has vacillated in recent years, but R&D impacts the innovation ecosystem with a time lag.Within the GII, India improved its ranking in R&D this year because of a new parameter: top multinational R&D centres within a country. With over 1,000 multinational R&D centres, India is a global R&D powerhouse. Precise figures are not disclosed by companies, but senior bureaucrats estimate their spending to be roughly at same level of that of the union government. These R&D centres raise the level of technical knowledge and skill in the country, but have no direct and significant impact on the economy. In spite of such a large base, India's global ranking is 20, an indication of the relatively low investments by the global R&D in India.Overall, the GII shows a country's weaknesses and strengths, and tells policy-makers where to focus for producing innovationled growth. "Innovation is the greatest component of economic growth," says Francis Gurry, director-general of WIPO, a partner in the GII report. "It is the principal means of improving the quality of life in a country." It is not easy to capture the essential and inessential parts of an innovation system. "The US is the innovation centre of the world but it doesn't top the rankings," says Gurry.

India's low ranking, therefore, has to be taken with a pinch of salt. With a large and poor population, India has plenty of weaknesses. But it has unique strengths and capabilities that do not reflect in global rankings. "The GII does not measure the best in a country," says Dutta. International rankings help a country to benchmark achievements that are globally relevant.The GII report shows some strengths and glaring weaknesses too for India. Its large technical workforce and R&D system are strengths, compared with peers measured by GDP. Its market scale and ease of protecting minority investors are also strengths. As is growth rate of GDP per person. "A lot of innovation in India is about creating affordable products," says IIM Indore director Rishikesha Krishnan. "I am not sure this is captured in indices." Weaknesses are also significant. Low political stability is one, especially when combined with terrorism impact. Difficulty in starting and closing a business is a big weakness. Poor education system is a weakness in spite of recent improvements. Indian innovation is also hampered by poor environment performance, low density of startups, and low publishing output.One big drawback is the absence of elite universities that can expand a country's innovation capability rapidly. "Poor investments in education is the most important reason for India's under-leverage," says Dutta. India has its IITs and a few good technical institutions, but broad-based elite universities have an influence beyond creating technology capabilities."Science-led innovation is almost absent in India," says RA Mashelkar, former director-general of CSIR and National Research Professor. Science-led innovation can create entire industries that last long.The emergence of campus startups is a significant change. Top Indian institutions like IIT Bombay and IIT Madras are generating student startups of quality. "One in four undergraduate students are now interested in either starting a company or joining a startup," says IIT Bombay director Dewang Khakhar. Faculty at the National Chemical Laboratory in Pune and IISc in Bengaluru are starting companies that try to solve serious scientific challenges. The Centre for Cellular and Molecular Platforms (C-Camp) now incubates similar startups using biology. For a large country like India, science startups are still at sub-critical levels. However, there is hope among policy-makers and business leaders that this trend will expand into a country-wide movement in the near future. "The government is taking a number of steps that are making science-based innovation and entrepreneurship hassle-free," says Mashelkar.New programmes by the current government would accelerate this trend. The government has funded research parks and incubation centres around the country, but will start investing in companies in these parks. "Supporting entrepreneurship is now getting integrated into policy," says Rishikesha Krishnan, director of IIM Indore. As incubation centres generate startups in large numbers, they are forcing venture capitalists to look at companies of a different kind: from companies that copy western models – like e-commerce – to those that solve genuine Indian problems.IIT Bombay and IIT Madras are leading this change at the moment. At IIT Madras (IITM), for example, incubation centres and the research park have supported 104 companies.In the recent ET Startup awards, four out of the five finalists for campus startups came from IIT Madras. The winner, Ather Energy , was a student startup incubated four years ago at the IITM. "Most of these companies are trying to solve Indian problems," says Ashok Jhunjhunwala, professor of electrical engineering and mentor-in-chief of many companies. "They have plans to compete in the global market as well later."The market is also forcing a change in the nature of startups. "The copy-paste model is dead," says angel investor Sharad Sharma. "Companies have to focus on uniquely Indian problems." These companies can have a big impact on the economy over the next few decades, provided they are supported by improved infrastructure, good universities, sustained R&D investments and a good public procurement system.