Dahlman Dahlman Finance and Private Sector Development Unit n the global economy of the twenty-first century, India will have to use South Asia Region knowledge even more effectively to raise its productivity in agriculture, I The World Bank industry, and services and to reduce poverty. It can draw on • a number of existing strengths as it strives to transform itself into a • Utz Utz 32924 knowledge-based economy—availability of skilled human capital, a democratic system, widespread use of English, macroeconomic stability, a dynamic private sector, institutions of a free market economy, a local market that is one of the largest in the world, a well-developed financial sector, a broad and diversified science and technology infrastructure, and Public Disclosure Authorized IND global niches in IT. IND INDIAINDIA But India can do much more to leverage its strengths and seize today’s ANDAND THETHE IA AND THE KNOWLEDGE ECONOM opportunities. India and the Knowledge Economy suggests actions to IA AND THE KNOWLEDGE ECONOM strengthen its economic and institutional regime, develop educated and skilled workers, create an efficient innovation system, and build a KNOWLEDGEKNOWLEDGE ECONOMYECONOMY dynamic information infrastructure. In so doing, it will be able to improve its international competitiveness and join the ranks of countries LEVERAGING STRENGTHS AND OPPORTUNITIES that are making a successful transition to the knowledge economy. “This excellent book documents India’s potential to make more effective use of knowledge to improve its economic and social development. It argues for Public Disclosure Authorized concerted action integrating reforms in the economic and institutional areas with initiatives in education, the information infrastructure, and the innovation system; and identifies some of the key issues that need to be addressed. Realizing India’s potential requires broad consultation among a wide range of stakeholders to get their buy in and ownership to undertake the necessary reforms. India and the Knowledge Economy is a must read for those in government, the private sector, and civil society committed to Carl Dahlman improving India’s future in an increasingly competitive and demanding Anuja Utz international environment.” Arun Maira, Chairman, Boston Consulting Group, India “Like China and Brazil, India has become an IDC—an Innovative Developing Public Disclosure Authorized Country—with immense scientific and technical manpower. It has demonstrated its global leadership not only in high-end research and development, but also in using public private partnerships to harness the power of traditional knowledge to meet health and welfare needs and to reduce poverty. This book contains a wealth of comparative statistics and analysis, as well as excellent examples of initiatives that are already Y flourishing in India. India and the Knowledge Economy will be of interest not Y only to key stakeholders in India, but also to those interested in the tremendous power of knowledge and innovation as central elements of a country’s development strategy.” Dr. R. A. Mashelkar, Director General, Council of Scientific and Industrial Research of India Public Disclosure Authorized ™xHSKIMBy362075zv":<:-:!:( THE WORLD BANK THE ISBN 0-8213-6207-0 WORLD BANK WBI Development Studies WBI DEVELOPMENT STUDIES India and the Knowledge Economy Leveraging Strengths and Opportunities Carl Dahlman Anuja Utz Finance and Private Sector Development Unit of the World Bank’s South Asia Region and The World Bank Institute The World Bank Washington, D.C. © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 All rights reserved. [insert printing code] The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. ISBN 0-8213-6207-0 978-0-821-3-6207-5 E-ISBN: 0-8213-6208-9 Library of Congress Cataloging in Publication Data Dahlman, Carl J., 1950- India and the knowledge economy : leveraging strengths and opportunities / Carl Dahlman and Anuja Utz. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-8213-6207-5 ISBN-10: 0-8213-6207-0 1. Intellectual capital--India. 2. Information technology--Economic aspects--India. 3. India--Economic policy. 4. India--Economic conditions. I. Utz, Anuja, 1966- . II. World Bank Institute. III. Title. HC440.I55D34 2005 330.954--dc22 2005049051 Cover photos: Woman with cell phone, John Fiege, International Finance Corporation; other photos, World Bank. ii Contents Foreword x Acknowledgments xi Currency Equivalents xiii Abbreviations and Acronyms xiii Summary xv Strengthening the Economic and Institutional Regime xviii Developing Educated and Skilled Workers xx Creating an Efficient Innovation System xxiii Building a Dynamic Information Infrastructure xxvii Looking Ahead xxix Launching a Process xxxi A Final Note xxxiii Chapter 1 India and the knowledge economy: Opportunities and challenges 1 The Current Economic Context 1 Knowledge Is Key in an Increasingly Dynamic and Competitive Global Environment 7 Assessing India’s Opportunities and Challenges in the Knowledge Economy 10 Other Global Comparisons with India 16 Road Map for the Book: Strengthening the Four Pillars of the Knowledge Economy 19 Chapter 2 Economic and institutional regime, including governance 21 Benchmarking the Economic and Institutional Regime 21 Benchmarking Governance 23 Issues and Recent Developments in the Economic and Institutional Regime 24 Measures to Strengthen the Economic and Institutional Regime 36 Summary of Issues and Recommendations 44 Chapter 3 Education and human resources 47 Benchmarking Education 48 Issues and Recent Developments in Education and Human Resource Development 50 Measures to Strengthen Education and Human Resources 63 Summary of Issues and Recommendations 72 Chapter 4 Innovation system 75 Benchmarking Innovation 76 Issues and Recent Developments in the Innovation System 83 Measures to Strengthen the Innovation System 91 Summary of Issues and Recommendations 100 Chapter 5 Information infrastructure 103 Benchmarking Information Infrastructure 104 India’s Global Standing in Information Communications Technology 106 Issues and Recent Developments in the Telecommunication and IT Sectors 111 Measures to Strengthen the Information Infrastructure 121 Summary of Issues and Recommendations 127 iii INDIA AND THE KNOWLEDGE ECONOMY Chapter 6 Moving ahead with the knowledge economy in India 131 Indian Initiatives in the Knowledge Economy 131 Looking Ahead 135 Taking Action 137 Launching a Process 138 A Final Note 140 Annexes 1 India’s Total Factor Productivity Construction: Theoretical Framework 141 2 Knowledge Assessment Methodology 143 3 Knowledge Economy Index for India and Comparator Countries, 1995 and Most Recent Period 145 4 Overall Knowledge Economy Scorecards for Brazil, China, Korea, Poland, and Russia, Selected Variables, 1995 and Most Recent Period 147 5 Data for the Scorecards for India, Brazil, and China, 1995 and Most Recent Period 149 6 Economic and Institutional Regime: Scorecards for Comparator Countries, Selected Variables, Most Recent Period 151 7 Governance Data for India 153 8 Various Costs of Doing Business in India, 2004 155 9 Education: Scorecards for Comparator Countries, Selected Variables, Most Recent Period 159 10 Innovation: Scorecards for Comparator Countries, Selected Variables, Scaled by Population, Most Recent Period 161 11 Information Infrastructure: Scorecards for Comparator Countries, Selected Variables, Most Recent Period 163 12 ICT Indicators for India and China, Various Years 165 Notes 167 References and Bibliography 173 Figures A India: Real Gross Domestic Product Per Worker, Alternative Projections, 1995–2020 xvi B India: Percentage Share of Global Gross Domestic Product, Years 0–1998 xxx 1-1 India: Real Gross Domestic Product Per Worker, Alternative Projections, 1995–2020 3 1-2 Gross Domestic Product Per Capita (Purchasing Power Parity), India and Compara- tors, 1990–2003 7 1-3 Growth in Per Capita Income for Korea and Ghana, 1960–2000 8 1-4 Knowledge Economy Index: India, Comparators, and the World, 1995 and Most Recent Period 12 1-5 Cross-Country Comparison on the Four Pillars of