INDIA finds herself at a very interesting juncture in her story. The story is remarkable, evolving from tales of mythical kingdom states to battering invasions and colonial jurisdiction, to today — a young, democratic nation with over one billion aspirations. Host to a dramatic economic upturn, the most recent decades have ushered liberalisation, propelling development. Present day India is set against a backdrop of technological foray into outer space, corruption and pre-election fever. Great contrasts are perhaps the only true constant in this story.

The liberalisation of the Indian economy began in the early 1990s. Prior to this, the state carried colonial baggage and favoured socialist policies. Copious amounts of red tape, protectionism and rigid government control made for a hostile business environment, culminating in a serious economic crisis. In 1991, markets opened up. Foreign investment and trade was welcomed. Privatization was a realistic option. The new neo-liberal stance spurred on over two decades of strong economic growth.

Today some of this momentum has tapered off, warranting introspection. For a developing country like India slowing down — even relatively — has major socio-economic implications. The most important of these, arguably, is its impact on the pace of human development.

There are several sound economic explanations to the slow down. Inflation stands tall amongst these, and is a problem that India is dealing with through tightened monetary policy and higher interest rates. As expected, economic growth suffers. In the short term this line of reasoning holds well. The risk, however, is that other more deeply rooted concerns, that over time consume the real potential of an economy, are overlooked.

For India, one such major concern is efficiency. The Indian economy is plagued by inefficiency across all spectrums of activity, eating away at scarce resources. Traffic. Bureaucracy. Business. Infrastructure. Land acquisition. Investment. The Indian model appears to have settled in a comfort zone, where in contrast to the inefficient framework, astonishing economic growth was achieved. The pessimist-economist however, can’t help but wonder how much more could have been accomplished, given the momentum. The current slowdown is perhaps an indicator of these inefficiencies beginning to catch up with growth.

Globalization has made the world smaller. For India to remain relevant in a vastly competitive global environment there is a need for new, updated policy that provides the economy with incentive to address inefficiency, for long-term gains. A shift in economics towards innovation capitalism would offer significant inroads.

The virtues of a competition driven marketplace that bases itself on innovation are many. The two complement one another; competition creates a constant need — an urge — to improve and outperform, while innovation provides the means to do so. The union of innovation and capitalism is powerful. It models an economy where inefficiencies are punished.

India ranks poorly on the Global Innovation Index. The number of resident patents filed per billion dollars of GDP is trending downward. Even if one could — and one can’t — identify India as an export driven, production powerhouse, these facts are worrying. The Indian economy is relatively unique in that it poises itself on services, circumventing the traditional building block of industrialization: manufacturing. Despite a large workforce, India’s manufacturing sector is sluggish, anchored by poor infrastructure, red tape and complex labour laws.

The situation is remarkably intricate. Starting out as export driven manufacturing hubs allows developing economies to accumulate positive balance of payments, and slowly gravitate towards being an advanced service economy that can support and fund innovation. India’s story differs, and it finds itself in a position where it must encourage innovation to remain competitive, given its chosen growth trajectory.

Fundamentally, innovation is synonymous to effectivisation. When you innovate you improve, solve and substantiate progress. The term applies itself broadly — especially with respect to India. Innovation across all strata of economic activity, as superfluous as it may sound, is a necessity to address the inefficiencies that are slowing down progress. Tangible, technological innovation is as relevant as innovation in governance.

Mainstream growth theory, an economic building block, highlights the importance of innovation. The theory centers economic activity and decision making on the traditional factors of production (land, labour, capital). Through substitution (adjusting the factors to produce more frugally) and technological change (innovation) growth is sustained. The takeaway: to drive long-term economic growth one needs to constantly reinvent, addressing inefficiency through innovation.

Attuning economic policy to strive for innovation in a developing society where large populations inherently yearn for improved standards of living, can work wonders for human development. It plays on the already present tide of people’s aspirations, establishing a basis for more inclusive growth. If supported by new educational infrastructure that emphasizes the importance of problem solving and creative thinking, innovation capitalism in India can thrive on a spiraling, competitive environment that nurtures development in a manner, sustainable.

Amidst faltering foreign investment, blanket corruption scams and economic slowdown reveled Mangalyaan — India’s mission to Mars. The contrasting circumstances are extraordinary. The Mars orbiter is a showcase of technological innovation and efficiency, costing a fraction of other such ventures, and if successful will be the fourth to visit the red planet. In many ways Mangalyaan is a torch for innovation in India, offering policy makers insight on how a uniquely Indian, lean, realistic platform for innovation capitalism can be built.

In 1991 at the onset of its economic liberalisation, India’s then finance minister Dr. Manmohan Singh, presented his first budget, ending his address with panache.

“I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, ‘No power on earth can stop an idea whose time has come.’ I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea.”

A firm stride towards innovation capitalism can herald a new, exciting chapter in India’s story, advancing economic growth and progress.

(Essay as submitted to McKinsey & Company for their series on Reimagining India)

MANGALYAAN, India’s Mars Orbiter Mission will if successful be the fourth space agency in the world to have visited the red planet. The project, highly coveted by the Indian Space Research Organisation (ISRO), is in itself a marked achievement, realized in a very short time frame and at relatively low cost. As Asian space research programs intensify, investments in projects like Mangalyaan are being questioned. Should a developing country, like India, in which sizable portions of the populace still suffer poor standards of living, really be indulging in a race to space?

Whilst Dr. Radhakrishnan, Chairman of ISRO, has clearly stated that the mission to Mars is non-competitive, the premise indicates that the stakes are high. The Japanese and Chinese missions to Mars, Nozomi and Yinghuo-1, have both failed. India is currently mired in blanket corruption scams, slowing economic growth, increasingly hostile neighbors and faltering foreign investment. Morales are low. A reputable project of international, scientific significance, may help wind find India’s sails.

ISRO’s mission to Mars is estimated to have cost the Indian government $73 million, or 0.000039% of its GDP in 2012. Drawing a parallel between this cost and the improvements that it could bring about if invested in areas that would more directly impact the living standards of the average Indian, is by no means straightforward. Studies indicate that 32.7% of the Indian population live below the poverty line. When ranked by the Human Development Index, India features at 136 out of 187 countries measured.

It is a compelling to argue investments in space are extravagant when data clearly indicates that there are key issues on ground, that need to be dealt with. In context however, this argument is not as convincing. In 2012-13 India’s major subsidy bill was approximately 2.4% of it’s GDP. Expenditure on education, 3% of it’s 2010 GDP. For most of this past decade the rate of poverty decline rose to 2.18% annually, an increase from the 0.74% that the 90s offered. The improvement whilst significant, is overshadowed by the magnitude by which the economy grew by, over the same period (perspective).

The impact that an additional 0.000039% of GDP would impart on living standards can be deemed very modest, when compared to current expenditure and poverty decline rates. The main concern then, lies with the framework in place for addressing these issues — not the lack of funding. Red tape and corruption have propagated an inherently inefficient system that absorbs resources disproportionately. A $31 billion food and grain scam recently shook Indian bureaucracy.

Today India ranks 66th in the world on the Global Innovation Index. The number of resident patents filed per billion dollars of GDP between 2004 and 2005 (more recent data could not be found) reduced by 15.7%. Even if one could identify India as an export driven, production powerhouse these numbers are low. But one can’t. The Indian economy is relatively unique in that it poises itself largely on services, circumventing the traditional building block of industrialization: manufacturing. Despite its large labour force, India’s manufacturing sector is sluggish, with poor infrastructure and copious amounts of red-tape, making for a very challenging business environment.

Service led growth thrives on innovation. Projects like Mangalyaan, are of great significance to India. Not only can they tangibly affect lives in the short term, but they also lend credibility to a growing economy. They herald a spirit of innovation, progress and development, key for sustaining long term growth across all strata of the economy. Advances in technology offer a credible means of sustaining upliftment of the poor, bringing new jobs, industries and hopes. Mangalyaan is a unicorn amongst normal race horses, definitely worth betting on.