Transcript Slide 1

Regional Economies in a Globalising World
Enhancing Intellectual Capacity and
Innovation
Friday 21 November 2008, Cardiff University
The New California and sub-Sahara
in India
Sharmistha Bagchi-Sen
Department of Geography
State University of New York at Buffalo
Globalization and Spatial
Inequality
Innovation-led development /technology-led development
Pre-reform – S&T policy
Post-reform – recognition of innovation-led growth, FDI,
trade
Outcomes – role of agglomeration, industrial clustering,
regional and intra-regional disparity, slowdown in
implementation of reforms
Some evidence from auto, software and bio-pharma sectors
Innovation-led Development
Characteristics
 An evolutionary path; resilient industrially advanced areas
are strengthened
 Non-linear processes / collaborative / alliance capitalism
Interaction between firms and other organizations (e.g.,
research institutes, universities, venture capital, financial
organization, labor organizations, industry associations,
government and non-government agencies)
 Changing role of policy – centrally driven R&D or S&T
policy to the recognition of endogenous factors; National
Innovation and regional innovation systems (NIS-RIS)
Policy Shift
S&T to Innovation-led
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S&T – stimulate basic research (e.g., the creation of
CSIR and research labs), not much emphasis on
transfer/dissemination
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Innovation-led (NIS and RIS) – focus on industrial
creativity (e.g., policies aimed at improving education,
infrastructure and institutions, R&D base,
entrepreneurship, IP, knowledge exchange) and
subsequent development through the promotion of
innovation (processes, products, services etc) and an
economic structure conducive to innovation.
Innovation-led development and
Industrial Clustering (geographic)
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Porter’s Diamond – demand, supply, competition, related
industries
Porter and regions/clusters – “a concentration of ‘interdependent’ firms within the same or adjacent industrial
sectors in a small geographic area” (Isaksen 2001, p.
104)
Regional Innovation System / RIS is defined as the
“cooperation in innovation activity between firms and
knowledge creating and diffusing organisations …” (p.
107)
Porter – firm interaction
RIS – interaction among firms and others; firms are
embedded in regions, state, international value-chains
RIS/Regionalization
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Regionalization – the concentration of location-specific
knowledge formation processes and capabilities in
certain places (Kenney and Florida 2004)
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Regionalization of national innovation policy –
acknowledgment of local dynamics based on networks,
trust, institutional mechanisms
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RIS and endogenous growth model (Edquist 2001)
Determinants of innovation versus “a region depends on
technological development progress and the utilisation of
knowledge that is conditioned by location”
(agglomeration effects)
Regionalized Innovation Policy
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Avoid imitation or “off-the-shelf best practice” (Asheim
and Coenen 2005)
Avoid one size fits all
Problems with RIS:
-Definition of the innovation system
-Definition of the boundaries of the region (e.g.,
state/administrative, functional boundaries)
-Determining if local institutions, actors, and relations are
sufficient
In reality, most RIS have elements of an open structure
that promotes innovation through linking trans-territorial
actors and institutions that have cognitive/knowledge
proximity
Economic Development in
India
Old Model (Planned Economy)
-Government-driven (State is entrepreneur and regulator)
-Private sector regulation through controls (industrial licensing,
import quota, use of foreign exchange, financial markets,
pricing structure)
-Incentives to enterprises
-State directing resources to backward areas (goal -> reduce
regional inequality)
New Model (post 1990-1991 reform)
-Private sector driven, lesser role of the state
-Collaborative with government, research institutions, etc
-Private sector is attracted to areas with developed
infrastructure/already industrially advanced
economy/agglomeration economies
Agglomeration Economies
Marshall (1920)
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The sharing of inputs whose production involves internal
increasing returns to scale
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Labor market pooling that allows a better match between
employer’s needs and a worker’s skills
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Knowledge spillovers between workers
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Other sources of agglomeration – home market effects,
economies of consumption (Kar 2006)
Five Regions
North India, South India, West India,
East India, North East India
Infrastructure - highlights
Himachal Pradesh, Goa and Punjab
-electricity to almost almost 100%
of their households
-50% have no electricity in West
Bengal, Orissa, Uttar Pradesh,
Jharkhand, Assam and Bihar
Kerala - 84% of its resident families
own a “pucca” house compared
to 12% in Tripura
Tamil Nadu has topped in having the
lowest number of persons in each
household to be 3.5
Urban-Rural dichotomy everywhere
India – Regional Differences
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Regional differences in growth reflect differences in
marginal productivity of investments by sub-sector
Urban-focused as well as ports (Mumbai, Kolkata,
Chennai and Kandla in Gujarat – international trade)
A clear East-West divide; no obvious north-south divide
Rain-fed agricultural regions are lagging behind (low
productivity)
Some benefit from international remittances - Punjab,
Haryana, Kerala (industrial progress is slow: long-term
communist govt, labor union, resource-based ind.)
Within state variation is less in Punjab, Haryana,
Karnataka, Kerala (lagging behind)
Intra-regional disparity in Andhra Pradesh, MP,
Maharashtra (rural to urban migration)
Poorest states – BIMARU (Bihar, MP, Rajasthan, UP)
Three distinct Indian S&T
phases
1947-66: Nation’s Trust in Science and Investment
 Power of science to solve real life problems
 invested significantly beyond the means of a developing
nation
1967-86: Nation’s Demands on Science and Delivery
 Science and technology provided viable solutions
 Self-reliance
1987-2006: Challenge and Introspection
 use of knowledge for generation of wealth and
development of economy
(Aiyagiri 2007)
Regional Factors in Sectoral Growth
Key determinants
for growth
Favored states
Time period
Current
contribution
to growth
Agriculture
Climate, agri
technologies
Punjab,
Haryana
Green Rev
Low
1970s-1980s
Manufactur
ing
Urban, coastal,
major port, FDI
locations and
export
orientations
Maharashtra,
West Bengal,
Tamil Nadu,
Gujarat
1980s
Rising
importance
in the 1990s
High
Tourism
Historical and
cultural, proximity
to major entry
points
Rajasthan
(through Delhi),
Maharashtra
1980s
Onward
Moderate
High-Tech
(finance
and ICT)
Urban, skilled
labor, universities
Maharashtra,
Tamil Nadu,
Karnataka, WB
Auto Clustering in India
1957 – import substitution strategy
Birla – Hindustan Motors in Kolkata
Doshi – Premier Auto in Mumbai
Standard Motors – Chennai
*TELCO now TATA Motors – Jamshedpur
*Ashok Leyland - Chennai
Restrictive policy until the mid 1980s
Restriction of FDI in Auto
1963 Monopolies and Restrictive Trade Practices Policy
Mid 1980s – JV with Suzuki Motors
Chennai
Historical – TVS group (in business since 1911) set up an
industrial enclave (parts and components) in Padi
outside of Chennai in the post-indep period. It now has
29 companies.
Political – Local firms were supported by state politicians in
getting licenses
Agglomeration – TVS, MRF, Ashok Leyland, Standard
Motors, and the Rane Group (e.g., MRF’s start was in a
toy ballon plant in 1946 in a chennai suburb; in 1952 –
rubber mfg; in 1961 – technical collaboration with US
Mansfield Tire and Rubber Co.; 1967- exports to the US;
access to ports incl. all-weather Tuticorin
Recent FDI – Ford, Hyundai, Mitsubishi
Evolution of the Auto Sector in Chennai
(i) TVS’ Wheels India Ltd – a JV with Dunlop-UK (1960)
Lucas – TVS – a JV with Lucas Variety Group-UK (1961)
Other 1960s JVs with the UK are major exporters of parts
and components
1980s, 1990s – Germany, Japan, and the US
TVS-Suzuki – 100cc motorcycles in 1984; 1999-2000 –
TVS-Suzuki folded into Aundaram Auto Engineers Ltd
and in 2000-2001, Suzuki ceased to be a shareholder
(ii) Rane Group’s Rane Engine Valve Ltd was estd in 1959;
its companies continue to lead in valves; Japanese 5050 collaborations for steering etc.;
(iii) Ashok Leyland – estd in 1948 (used to assemble Austin
parts; 1955 – agreement with Leyland Motors UK; Ashok
Leyland and TVS’ Sundaram Industries have a JV with
Spain’s Irizar group to manufacture bus bodies in India
Evolution contd …
1. IT firms in Chennai – IT enabled systems for OEMs and
their suppliers (GM and Ford)
2. US government discourages forging and casting firms,
MNEs started to outsource, Chennai has been the recipient
of many contracts
3. Passenger car production and assembly by MNEs
-Hyndai ($1billion), Ford ($400 million), and Hindustan
Motors-Mitsubishi ($150 million) combined capacity of
230,000 cars; Hyundai is 2nd now to Maruti; Ford and
Hyundai export; Hyundai has 100% owned subsidiary (estd
1998) and brought 14 component manufacturers; all have
local content sourcing to some extent
4. State govt invested in industrial estates to promote
SMEs earlier on; skilled labor formation/spillover
National Capital Region - NCR
1982 – Maruti Udyog Ltd. – a JV with Suzuki – a greenfield
operation; 2nd plant (1992) in the same location
(Gurgaon) and a 3rd in NOIDA in 1999; largest
manufacturer
2003 – set up a foundry plant Suzuki Metal Ltd.
1990s – Daewoo and Honda but Daewoo failed and Honda
just started production in 2000-01
Maruti’s suppliers are clustered in the same region:
-central govt is the partner
-local content requirement
-focused on domestic market
-attracted domestic supplier such as the TV group
-exchange rate (increased value of Yen in early 80s)
-early JIT system
Chennai and NCR
NCR –
Anchor firm led cluster development;
The role of the central govt;
Proximity to the Capital region;
Chennai –
Auto components sector in existence from preindependence period;
Role of indigenous business groups;
Local politicians;
More FDI than NCR
Both have access to engineering graduates and the supply
of skilled labor force
IT Clusters
Rank
1980, India HQ
1990, India HQ
2004, India HQ
Founder
1
TCS - Mumbai
TCS - Mumbai
Infosys- Bangalore
MIT
2
Tata Infotech - Mumbai
Tata Infotech mumbai
Infosys – Bangalore
U Mysore, IIT
3
Computronics - Mumbai
Citibank- Mumbai
Wipro – Bangalore
Stanford, IISc
4
Shaw Wallace - Kolkata
Datamatics Mumbai
Satyam – Hyderabad
LoyolaChennai, Ohio
U
5
Hinditron - Mumbai
TI- Bangalore
HCL – Delhi
Coimbatore
6
Indicon System Mumbai
DEIL - Mumbai
PCS – Mumbai
MIT
7
ORG - Mumbai
PCS - Mumbai
i-Flex – Mumbai
Pilani, TCS,
Citicorp
8
Systime - Mumbai
Mahindra-BTMumbai
Mahindra-BT –
Mumbai
Harvard
Mkt
(%)
90
65
38
Pharmaceuticals
The pharmaceutical firms are mainly located in
Maharashtra, Gujarat, TamilNadu, and Andhra
Pradesh.
Cases: MNE roots and indigenous firms
1.
Glaxo – estd 1924 in Maharashtra and now a plant in
Karnataka (started to distribute baby food)
2.
Cipla – estd in 1935 – Maharashtra – bulk drugs
3.
Nicholas Piramal – estd 1947 – Maharashtra-Gujarat
and now in TamilNadu and Andhra (in 1947, it was a
subsidiary of British Schering but was acquired by
Piramal in 1988)
4.
Ranbaxy (1961) – NCR and Punjab – a JV with Eli Lilly
5.
DRL (1984)– Andhra and in London, Yorkshire, Goa,
and Pondicherry; strong in-house R&D
Biotechnology - Bangalore
RIS: Science, Markets and Institutions
-IT cluster – integrated chip design, telecom and system softwares
-Local educational and research institutions (e.g., IISc)
-Venture capital
-State offers tax breaks, uninterrupted power supply, electricity
tariff, permissive labor law (employing women at night), single
window agency to clear projects
-Biotech Parks (i) University of Agricultural Sciences and
(ii) Karnataka U – Dharwad (a marine biotech park closeby)
-Biotech corridor – IISc to U of Agricultural Sciences
-Vision Group of Biotech and taskforces
-Secoral specialization - Genomics, Biofuels, CROs,
Bioinformatics (AstraZeneca, Biocon, Cadilla, Wockhardt,
SmithCline)
Small-Scale Industries - clusters
Horizontal, large-unit based, vertically integrated, mixed
Organic (market or resource based) or infrastructure
(electronics, software, floriculture, and biotechnology)
Sectors: machinery, cotton text, chemical, metal,
hosiery/garments, food, non-metallic mineral, electrical
machinery, wool-silk-synthetic, transport equipment
Location: mainly in the N and W urban (Maharashtra,
Gujarat, Punjab, Rajasthan, UP, Haryana, WB,
TamilNadu, Himachal P – industrialized states)
Artisan-based clusters: low energy use, local markets
One-third of India’s exports: (i) gems and jewelry - Surat,
(ii) textiles – Panipat, (iii) garments – big cities, (iv)
leather – Agra, (v) handicrafts - Moradabad
NIS and RIS for SSI Clusters
Institutions (NIS) – many institutions set up to ease
financing, provide training and marketing; separate
provision for non-modern small units – e.g., small
Industries Development Bank of India
RIS (state-level) – institutions to provide infrastructure,
finance, export and technical assistance, and training
(entrepreneurship development) – e.g., State Co-op
Banks
District level – clearances, licenses, certificates under one
roof (e.g., District Industries Center)
Linking systems for financing
State Financial Corporations and State Industrial
Development corporations have been set up to cater to
long-term needs and to participate in ventures through
equity stake.
These units get refinancing from SIDBI (national insttn).
The state units can also generate their own funds through
state govts, commercial borrowings.
Both national and state insttns now provide working capital.
Like commercial banks, state financial corporations have
remained a source of credit for small and medium
enterprises.
Conclusions
Industrialized states have strengthened their place
Auto – some old clusters are doing well (Chennai)
Auto – new cluster in NCR (state + Suzuki)
In IT, Mumbai lost its place to Bangalore
In Pharma, Mumbai is still important but Bangalore and
Hyderabad are capitalizing on their RIS
In biotech, imitative policymaking to develop RIS is
observed – almost every state has a biotech policy
Urban areas are doing better compared to rural (mainly
because agriculture has been left behind in the reform
era) – however property rights issues becoming critical
FDI focused regions are expected to do well
HDI – state and central governments are investing to
improve sub-Sahara conditions in education and health
(malnutrition)
NIS and RIS coordination is important for innovation-led
development in India
Future
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Investment in physical infrastructure and finance – e.g.,
control of central government over regional infrastructure
was a problem
Investment in human capital, health and education, to
raise productivity especially in backward states
Clusters are difficult to engineer but their existence
indicate the presence of competitive advantage
Policies have usually focused on individual enterprises
Sector/cluster-specific services emphasizing the whole
business system: (i) information provision, (ii) technology
support, (iii) common facilities (iv) cluster-specific
credit/financing for example for those dependent on
seasonal fluctuations in raw material supply
S&T Policy (latest 2003)
1. Science and Technology Governance and Investments
2. Optimal Utilization of Existing Infrastructure and Competence
3. Strengthening of the Infrastructure for Science and Technology in
Academic Institutions
4. New Funding Mechanisms for Basic Research
5. Human Resource Development
6. Technology Development, Transfer and Diffusion
7. Promotion of Innovation
8. Industry and Scientific R&D
9. Indigenous Resources and Traditional Knowledge
10. Technologies for Mitigation and Management of Natural Hazards
11. Generation and Management of Intellectual Property
12. Public Awareness of Science and Technology
13. International Science and Technology Cooperation
14. Fiscal Measures
15. Monitoring
16. The New Vision
Industrial Policy – selected points
Liberalisation of the Locational Policy
 No industrial approval is required from the Government
for locations not falling within 25 kms of the periphery of
cities having a population of more than one million
except for those industries where industrial licensing is
compulsory.
 Non-polluting industries such as electronics, computer
software and printing can be located within 25 kms of the
periphery of cities with more than one million population.
Policy for Small Scale Industries
 Industrial undertakings with an investment upto rupees
one crore are within the small scale and ancillary sector.
A differential investment limit has been adopted since for
41 reserved items. In total, 749 items are reserved for
manufacture in the small scale sector.
References
A complete list of citations is available upon
request for this review article/presentation.
Many references are consulted and used to
prepare this presentation. Due to space
limitations, individual details are not provided.