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Friday, July 26, 2019


Global Innovation Index-2019

The Government of India, has launched the Global Innovation Index (GII) in New Delhi.
§  This is the first time that the GII is being launched in an emerging economy.
§  The Department for Promotion of Industry and Internal Trade (DPIIT) of Ministry of Commerce and Industry, Government of India, World Intellectual Property Organization (WIPO) and Confederation of Indian Industry (CII) are co hosting the event.

India’s Performance

§  India’s ranking in the Global Innovation Index is 52 which shows an improvement of 5 points from the last years ranking (57).
§  India’s rankings has been consistently increasing over the last few years and is among the top in the world in innovation drivers such as Information and Communication Technology (ICT), services exports, graduates in science and engineering, the quality of universities, gross capital formation (a measure of economy-wide investments) and creative goods exports.
§  India stands out in the world’s top science and technology clusters, with Bengaluru, Mumbai, and New Delhi featuring among the top 100 global clusters.
§  India continues to be the most innovative economy in central and southern Asia (a distinction held since 2011).

Global Performance

§  Switzerland tops the GII index followed by Sweden, United States of America, Netherlands, United Kingdom, Finland, Denmark, Singapore, Germany and Israel.

Global Innovation Index

§  The theme of GII- 2019 (12th edition) is “Creating Healthy Lives - The Future of Medical Innovation” which aims to explore the role of medical innovation as it shapes the future of healthcare.
§  It is published annually by Cornell University, INSEAD and the UN World Intellectual Property Organization (WIPO).
§  The GII relies on two sub-indices :

o    Innovation Input Sub-Index.
o    Innovation Output Sub-Index.
§  These sub indices are built around several key pillars namely , Input pillar and Output pillar :

o    Input pillars capture elements of the national economy that enable innovative activities

·         Institutions
·         Human capital and research
·         Infrastructure
·         Market sophistication
·         Business sophistication.
o    Output pillars capture actual evidence of innovation outputs: 

·         Knowledge and technology outputs
·         Creative outputs.

R&D Expenditure Ecosystem in India

The report titled “Research and Development (R&D) Expenditure Ecosystem” was also released during the global launch of Global Innovation Index (GII)–2019 by the Economic Advisory Council to the Prime Minister (EAC-PM).
§  The objectives of the report are:

o    To address the data gaps in compiling R&D data so that up to date data on R&D is available in order to reflect India’s true rank globally.
o    The second objective is to examine expenditure trends in various sectors and their shortcomings.
o    The final objective is to lay down the road map for achieving the desired target of R&D spend by the year 2022, i.e 2% of the GDP.
Economic Advisory Council to the Prime Minister
§  Economic Advisory Council to the Prime Minister (EAC-PM) is a non-constitutional, non-statutory, independent body constituted to give advice on economic and related issues to the Government of India, specifically to the Prime Minister.
§  As of July, 2019, the Council consists of: Dr. Bibek Debroy (Chairman), Shri Ratan P. Watal (Member Secretary), Dr. Rathin Roy (Part-Time Member), Dr. Ashima Goyal (Part-Time Member) and Dr. Shamika Ravi (Part-Time Member).
§  The terms of reference of EAC-PM are:

o    Analyzing any issue, economic or otherwise, referred to it by the Prime Minister and advising him thereon,
o    Addressing issues of macroeconomic importance and presenting views thereon to the Prime Minister.

·         These could be either suo-motu or on reference from the Prime Minister or anyone else.
·         It also includes attending to any other task as may be desired by the Prime Minister from time to time.

Recommendations

§  The growth in research and development (R&D) expenditure should be commensurate with the economy’s growth and should be targeted to reach at least 2% of the Gross Domestic Product (GDP) by 2022.
§  The line ministries at the Centre could be mandated to allocate a certain percentage of their budget for research and innovation for developing and deploying technologies as per the priorities of the respective ministries.
§  To stimulate private sector’s investment in R&D from current 0.35% of GDP, it is suggested that a minimum percentage of turn-over of the company may be invested in R&D by medium and large enterprises registered in India.
§  To help and keep the industry enthused to invest in R&D, the weighted deduction provisions on R&D investment should continue.
§  The states can partner Centre to jointly fund research and innovation programmes through socially designed Central Sponsored Schemes (CSS).
§  The report also pitched for creating 30 dedicated R&D Exports Hub and a corpus of Rs 5,000 crore for funding mega projects with cross cutting themes which are of national interest.

Background

§  Investments in R&D are key inputs in economic growth. The impact of this is proven on productivity, exports, employment and capital formation.
§  India’s investment in R&D has shown a consistent increasing trend over the years.

o    However, as a fraction of GDP, it has remained constant at around 0.6% to 0.7%.
o    This is below the expenditure of countries like the US (2.8), China (2.1), Israel (4.3) and Korea (4.2).
§  Government expenditure, almost entirely the Central Government, is the driving force of R&D in India which is in contrast to the advanced countries where the private sector is the dominant and driving force of R&D spend.

o    There is a need for greater participation of State Governments and the private sector in overall R&D spending in India especially in application oriented research and technology development.
§  Earlier in 2018, the Prime Minister of India had underlined that there should be greater emphasis on collaborative R&D by the Central Public Sector Enterprises (CPSEs) with a focus on partnerships with Indian Institute of Technologies and Universities.
o    Consequently, one hundred fifty-four such innovation cells have been set up by CPSEs which will work on market oriented research.
o    From the year 2014-15 to 2017-18, there has been an increase of 116% in R&D spending by CPSEs.
o    CPSEs of the petroleum and power sector are the biggest spenders in R&D. Therefore, the need of the hour is that all CPSEs must come on board for higher spend on R&D.

Molecular Framework for Superbugs

Researchers at the Indian Institute of Technology (IIT) Kanpur and the Lucknow-based Central Drug Research Institute (CDRI) have designed a novel molecular framework that would help drugs latch on to the germs and thus prevent them from multiplying.
§  It’s structure is such that it stops energy production in the bacteria for 20 minutes thus preventing it from multiplying.
§  The new molecule targets gyrase B. 

o    A substance called gyrase is essential for bacteria’s survival and multiplication.
o    In most organisms, there are two types of gyrases — gyrase A and gyrase B.
o    Almost all of antibacterial drugs in use currently work by targeting gyrase A. The bugs modify gyrase A in such a way that the drugs fail to bind to them.
o    Gyrase B is more conserved in organisms and hence difficult to mutate.
§  The new molecule when used in combination with fluoroquinolone drugs, the first line of antibiotic drugs, both gyrase A and gyrase B are attacked, making them more effective. This makes it possible to destroy the bacteria with the same class of drugs to which they have developed resistance.
§  The framework is still in a proof-of-concept stage but the scientists have found it to be effective in lab-grown bacterial cells.
§  Scientists have also found that the bacteria do not develop resistance to the new molecule that easily.
§  This development has come at a time when there is a fear that the multidrug-resistant superbugs may kill as many as 10 million people worldwide by the year 2050.
Note:
§  The scientists used staphylococcus aureus bacteria frequently found in the nostrils, upper respiratory tract and on the skin of nearly 30% of people for developing the framework.
§  While this bacteria is innocuous in healthy people, in those with low immunity levels, it causes many infections, some of them lethal. Over the years, it has become resistant to most drugs that are commonly used in clinics.
§  CDRI is a constituent laboratory of the Council of Scientific and Industrial Research (CSIR), Ministry of Science & Technology.


Context: The government has announced its plans to raise a portion of its gross borrowing from overseas markets. With the help of Reserve Bank of India (RBI), the government will finalise the plans for the overseas issue of sovereign bonds by September.

What exactly are sovereign bonds?
A bond is like an IOU. The issuer of a bond promises to pay back a fixed amount of money every year until the expiry of the term, at which point the issuer returns the principal amount to the buyer. When a government issues such a bond it is called a sovereign bond.

Why is India borrowing in external markets in external currency?
  1. Indian government’s domestic borrowing is crowding out private investment and preventing the interest rates from falling even when inflation has cooled off and the RBI is cutting policy rates.
  2. If the government was to borrow some of its loans from outside India, there will be investable money left for private companies to borrow; not to mention that interest rates could start coming down.
  3. A sovereign bond issue will provide a yield curve — a benchmark — for Indian corporates who wish to raise loans in foreign markets. This will help Indian businesses that have increasingly looked towards foreign economies to borrow money.
  4. Globally, and especially in the advanced economies where the government is likely to go to borrow, the interest rates are low and, thanks to the easy monetary policies of foreign central banks, there are a lot of surplus funds waiting for a product that pays more.
  5. In an ideal scenario, it could be win-win for all: Indian government raises loans at interest rates much cheaper than domestic interest rates, while foreign investors get a much higher return than is available in their own markets.

What is the controversial part?
  • The current controversy relates to India’s sovereign bonds that will be floated in foreign countries and will be denominated in foreign currencies.
  • This would differentiate these proposed bonds from either government securities (or G-secs, wherein the Indian government raises loans within India and in Indian rupee) or Masala bonds (wherein Indian entities — not the government — raise money overseas in rupee terms).
  • The difference between issuing a bond denominated in rupees and issuing it in a foreign currency (say US dollar) is the incidence of exchange rate risk.
  • If the loan is in terms of dollars, and the rupee weakens against the dollar during the bond’s tenure, the government would have to return more rupees to pay back the same amount of dollars. If, however, the initial loan is denominated in rupee terms, then the negative fallout would be on the foreign investor.

Why are so many cautioning against this move?
  1. The volatility in India’s exchange rate is far more than the volatility in the yields of India’s G-secs (the yields are the interest rate that the government pays when it borrows domestically). This means that although the government would be borrowing at “cheaper” rates than domestically, the eventual rates (after incorporating the possible weakening of rupee against the dollar) might make the deal costlier.
  2. Borrowing outside would not necessarily reduce the number of government bonds the domestic market will have to absorb. That’s because if fresh foreign currency comes into the economy, the RBI would have to “neutralise” it by sucking the exact amount out of the money supply. This, in turn, will require selling more bonds. If the RBI doesn’t do it then the excess money supply will create inflation and push up the interest rates, thus disincentivising private investments.
  3. Based on the unpleasant experience of other emerging economies, many argue that a small initial borrowing is the thin end of the wedge. It is quite likely that the government will be tempted to dip into the foreign markets for more loans every time it runs out of money. At some point, especially if India does not take care of its fiscal health, the foreign investors will pull the plug on fresh investments, creating dire consequences for India.

Sources: Indian Express.

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