Report of Task Force on Innovation

Innovation is widely recognized as a central driver of economic growth and development. The Global Innovation Index (GII) aims to capture the multi-dimensional facets of innovation. India’s ranking in GII-2016 jumped 15 places to 66th position.

Aiming to strengthen the eco-system of innovation in the country, and thereby further improve India’s ranking in GII, the Department of Industrial Policy & Promotion had set up a Task Force on Innovation in 2016.

The Team comprised of Government officials and experts from private organisations – Mr. Naushad Forbes (Co- Chairman , Forbes Marshall Group; President, CII), Dr. Anil Wali (MD, FITT, IIT Delhi), Mr. Gopichand Katragadda (CTO, TATA Sons), Mr. Kris Gopalakrishnan (Executive Vice Chairman, Infosys), Dr. Nikolai Dobberstein (Partner, A.T. Kearney Limited), Mr. Rajeev Srinivasan (Adjunct Faculty, Innovation IIM-B), Representative from the Department of Science and Technology and the Convenor of the Task Force Mr. Rajiv Aggarwal, Joint Secretary, DIPP.

The Task Force assessed India’s position as an innovative country and suggested the following measures to enhance the innovation eco-system in India and thus improve India’s ranking in the GII.

Global Innovation Index

Global Innovation index ranks countries on an annual basis for their contribution towards successful innovations based on their capacity.

Published by Cornell University, INSEAD and WIPO in partnership with other organizations and institutions, it is based on both objective and subjective data derived from several sources such as the International Telecommunication Union (ITU), World Bank and World Economic Forum (WEF).

The GII report has been published each year since 2007, becoming a leading benchmark tool for policy makers and business executives who seek insight into the state of innovation around the world, as a tool to measure progress.

GII marks indicators for ranking world economies, their innovation capabilities and subsequent results. It provides a broader horizon by marking indicators going beyond the traditional measures such as levels of research and development.

The GII has two sub-indices: The Innovation Input Sub-Index and the Innovation Output Sub-Index.

The Innovation Input Sub-Index includes five input pillars which capture elements of the economy that enable innovative activities: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication.

The Innovation Output Sub-Index includes two output pillars which captures the results/ outcomes of innovative activities within the economy. These are: (6) Knowledge and technology outputs and (7) Creative outputs.

The Innovation Efficiency Ratio is ratio of the Output Sub-Index score and Input Sub-Index score. It shows how much innovation output a given country is getting for its inputs.

Recommendations by Task Force on Innovation:

Political stability and absence of violence/ terrorism index

a. “Political stability and absence of violence/ terrorism”, as defined in GII 2016, is “Index that captures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically motivated violence and terrorism”. India’s rank on this parameter is a lowly 113 out of a total of 128 countries. Clearly, with a vibrant and stable democracy, the largest in the world, ever since Independence 70 years ago, India deserves much better. The ranking needs to be based on a quantifiable methodology approach, rather than the present composite indicators approach.

b. An objective measure such as the number of unconstitutional changes in government in last 50 years or since independence (whichever is later), should be used to better capture the status of any country under this indicator.

Government effectiveness index

a. A program should be designed in a way which increases the synergies between different Ministries and Departments so that efforts can be combined in a particular direction or project to give better output.

b. Adoption of new technologies should be promoted in government organizations to further increase efficiency of work.

Regulatory quality index

a. Systematically carrying out ex-ante and ex-post estimates of economic benefits of regulatory reforms as well as creating the necessary policies, institutions, and processes to implement transparent, evidence based regulation-making system (using best practice tools), would greatly enhance the country’s position.

b. Regulations should be made and enforced only after careful thought, and necessary stakeholder consultation.

c. However, even as any such regulations should keep in mind the state of our domestic industry and needs of our people, they should not be unnecessarily restrictive or out of sync with global best practices.

d. Predictability and continuity in policies are of paramount importance hence a consistent effort in this direction should be considered by policy makers.

e. An increased focus on improving the procurement cycle from project design through the tendering process, and to the contract management would help mitigate risks of waste and corruption. Additionally, extending the use of regulatory quality tools, including competition assessments, to all new regulations would enhance the quality.

Rule of law index

a. There is a need to fill up the vacancies of Judges, especially at the district level, by timely appointments, as well as to revise, repeal and update the old laws to be in sync with modern technologies and latest developments in various fields. The establishment of Commercial Courts is a step in the right direction.

b. Establishment of an Indian Judicial Service at an all India level would help bring uniformity in application of law and dispensation of justice.

c. The states have an important role to play in areas such as order and security, fundamental rights, civil justice, criminal justice and informal justice. Measures need to be taken so that the states work in harmony with each other and help to reduce disparity amongst them.

d. Develop Training Material/ Toolkits for enforcement agencies and various stakeholders in the fields of law which are at nascent stage, like IPRs should be treated as priority.

Ease of starting a business (distance to frontier)

a. It is observed that in the methodology, the cost is measured as percentage (%) of per capita income of the country. In India, while the country’s per capita income is low, the cost is calculated based on the case study cities- Delhi and Mumbai- as percentage of
per capita income. To have comparison of costs across cities, the calculations of such costs should be in terms of purchasing power parity (PPP) terms, instead of as the percentage of per capita income of the country. Alternatively, the per capita income of the case study cities should be considered to have a fair comparison; costs vary depending on the cost of living index, which is much higher in the case study cities vis a vis the rest of the country as a whole.

b. The list of respondents/ contributors is not even across nations. The reforms undertaken by a country, or the prevalent procedures, are measured by relying on the statement of a few respondents in countries like New Zealand/ Singapore with just 3 to 4 respondents per indicator. While in case of India, the respondents are 30 to even 80 in few of the indicators. Most of the times, respondents are not aware of actual government procedures specific to the issue. Due weightage should be given to proof submitted by Governments.

c. In order to truly understand the business environment of a country in terms of innovativeness, the entire set of values need to be accounted for. The World Bank report comprehensively measures 10 indicators and assesses prevailing laws and practice. There is a need to enhance the indicators in GII to include more, if not all, of these 10 indicators. For starting a business, a basic requirement of industry is getting an electricity connection. The ease of ‘Getting Electricity’ from World Bank Doing Business Report for assessing the business environment of country should be included as a data point.

d. For large countries like India, drawing respondents from only 2 cities is not a true representation of the ground realities. Thus, more geographical regions need to be covered in the World Bank report, and these will get automatically reflected here in the GII ranking also.

Ease of starting a business (distance to frontier)

a. Simplify the process for registration of company

b. Remove Company Seal requirement, especially from Bank Account opening forms

c. Alternative for digital signature to be introduced such as user name/ OTP, e-signature, etc.

d. Integrate PAN and TAN registration into a single application/ process

e. Mandate online submission of documents for PAN registration for companies and eliminate hard copy submission

f. Generate e-PAN card and number

g. Reduce time and cost for PAN/ TAN registrations

h. Mandate online GST registration within one day and inspections, if required, should be replaced by post-registration advisory visits.

i. Make registration for ESIC real time with no hard copy submission and no need for physically signed certificate

j. Reduce time for EPFO/ ESIC registrations

k. Integrate ESIC/ EPFO registration into an online single form

l. Make registration under Mumbai Shops and Establishment Act online and real time eliminating the requirement of inspection for granting registration

Ease of resolving insolvency (distance to frontier)

a. The Insolvency and Bankruptcy Code, 2016 aims to promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound manner and for maximization of value of the assets of such persons and matters connected therewith or incidental thereto. This will have a positive impact on India’s rank in upcoming years.

b. Provisions should be made for:
– Debtors to initiate both liquidation and reorganization proceedings
– Creditors to initiate both liquidation and reorganization proceedings
– Debtor (or an insolvency representative on its behalf) to continue performing contracts essential to the debtor’s survival
– Allowing the debtor (or an insolvency representative on its behalf), after commencement of insolvency proceedings, to obtain financing necessary to function during the proceedings.
– Post-commencement finance to receive priority over ordinary unsecured creditors during distribution of assets
– Reorganization plan to be voted on only by the creditors whose rights are modified or affected by the plan
– Creditors entitled to vote on the plan are divided into classes, each class votes separately and the creditors within each class are treated equally
– Dissenting creditors to receive as much under the reorganization plan as they would have received in liquidation
Creditors to participate in the selection of an insolvency representative
– Creditors to approve the sale of substantial assets of the debtor in the course of insolvency proceedings
– Individual creditor to object to a decision of the court or of the insolvency representative to approve or reject claims against the debtor brought by the creditor itself and by other creditors

Ease of paying taxes (distance to frontier)

a. Simplify the forms for filing Income Tax return, VAT return, CST return and GST return, EPFO(Employees’ Provident Fund Organisation) and ESIC(Employees’ State Insurance Corporation) return. To make return filing mandatorily online (including GST) along with e-payment.

b. Any form of excess credit should promptly be refunded to applicants as is prevalent in the current VAT laws.

c. Devising a mechanism to reduce the time to comply and complete corporate income tax audit.

d. Mandate a single return, single challan and online payment of fees for EPFO and ESIC

e. Mandate unified e-filing, returns and payment of contributions for EPFO and ESIC by eliminating offline filing of returns and payment.