The incremental innovator Vs the trader : Contrasts between the sectoral systems of innovation of the Indian pharmaceutical and telecommunications industries

India has pursed a policy of economic growth with technological self-reliance rightthrough the 1950s when she embarked on a planned form of development. Two industriesthat were targeted especially was the manufacturing of drugs and telecommunicationsequipments. However the final outcomes have been very different. The drug industry hasbecome self sufficient, has emerged as net exporter and has a strong patenting recordabroad while the telecommunications industry has increasingly become dependent onMNCs and imports and the industry does not have many patents to boast of. I argue thatalthough the broad external environments obtaining to both industries are roughly similar,the differences in outcomes could be explained by the differences in their sectoralsystems of innovation (SSI). The SSI of the pharmaceutical industry presents an idealpicture where private sector business enterprises occupy the central stage. They havebeen supported very well by a conducive intellectual property regime, which enabledthem to reverse engineer known technologies, and thereby emerge as incrementalinnovators. On the contrary, a public laboratory dominates the SSI of the telecomsindustry and the production enterprises in the system did not have much innovationcapability: the enterprises were completely dependent on the public laboratory. Thegovernment too did not support the laboratory adequately and very often the publictechnology procurement- the main instrument pursued by the state supposedly to supportdomestic technology generation through the laboratory was actually against it.Consequently most of the enterprises constituting the SSI of the telecoms industry havebecome mere traders- distributing products manufactured elsewhere. The analysis thusbrings out important but practical policy prescriptions. The paper is structured into four sections. Section 1 will outline the framework foranalysis, which is essentially the sectoral system of innovation propounded by Malerba(2004). The second section provides some numbers on the innovative performance of thetwo industries. The third section undertakes a detailed mapping out of the sectoralsystem of innovation of two high tech in the Indian context, namely the pharmaceuticaland telecom equipment industries. India’s pharmaceutical industry is one of the mostinnovative industries in the country’s manufacturing sector. The innovation system of theindustry has three strong pillars: very pro active government policy regime especiallywith respect to intellectual property right, strong government research institutes andprivate sector enterprises which have invested in innovation. The TRIPS compliance ofthe intellectual property right regime making it mandatory for pharmaceutical products tobe patented has not reduced the innovation capability of the industry although it has not made them work on R&D projects that may lead to the discovery of drugs for neglecteddiseases of the developing world. Although the innovation system has the capability todevelop new chemical entities the two main components of the innovation system,namely the enterprises and the Government Research Institutes does not appear to behaving all the requisite capabilities to bring a new drug to the market. Although the statehas been very proactive with respect to this industry, this is an area where public policysupport is still required. On the contrary in the case of the telecom equipment industry,India followed a very rigid policy of indigenous development of domestic technologiesby establishing a stand-alone public laboratory that developed state-of-the-art switchingtechnologies. These were then transferred to manufacturing enterprises in both public andprivate sectors. The enterprises themselves did not have any in-house R&D capability.The public laboratory was also not given any strategic direction, even though it wastechnologically speaking, very competent. Consequently the country, despite possessinggood quality human resource was unable to keep pace with changes in the technologyfrontier and the equipment industry has now become essentially dominated by affiliatesof MNCs. and by imports. The fourth and last section contrasts the two SSIs within thesame national system of innovation and draws out the policy implications.