In an age of cutting-edge technology and immensely disruptive innovation, can India ever become an innovations hub for the world? Will, say, a Tesla equivalent be born in India? I put this question to a bunch of thinkers, economists, and colleagues, and get an almost unequivocal answer: No. I’m taken aback, to be honest. I’ve been favourably impressed by the work done by the wonks at Ericsson, IBM, Tata Consultancy Services (TCS), and other information technology majors.

That’s not innovation, scoffs a colleague; real Indian innovation continues to be low-cost tweaks at the bottom of the pyramid, or, to use a word Indians love, jugaad. I appeal to Vijay Govindarajan, Coxe Distinguished Professor at Dartmouth, and Marvin Bower Fellow at Harvard Business School, whose work has focussed on innovative thinking across the value chain. “The time for incremental change is over,” he tells me. “It is time for non-linear, breakthrough innovations, not just for solving the country’s complex problems, but also for creating a far more equitable and inclusive society.”

From Bengaluru, Lakshmi Pratury, founder, host and curator of INK Talks, a platform for exchange of cutting-edge ideas and inspiring stories, says something similar. It’s time for India to take some “exponential risks”, she says. “Today, Singapore is the innovation hub for biotech. India too needs to make some huge bets on some emerging technologies like blockchain, for instance, to ensure financial inclusion at an affordable price.”

N. Chandrasekaran, chairman, Tata Sons.
N. Chandrasekaran, chairman, Tata Sons.

Put in that light, yes, it seems that India is not really ready to drive disruptive innovation. But does that mean we should completely write off the country as an innovation hub? Ask a simple question, and you can be sure the answer will be far from simple.

Blockchain technology is the second-biggest innovation of the 21st century, even bigger than the Internet revolution, because of its ability to democratise the financial system, transform every sector in the economy and also the lives of individuals, including consumer behaviour,” says Brock Pierce, serial entrepreneur, digital currency visionary, and chairman of the U.S.-based Bitcoin Foundation. In India to speak at the SingularityU India Summit in Mumbai in early April, Pierce says blockchain technology will “allow India to leapfrog into the next phase of financial inclusion for its unbanked millions, as it did in the case of telecom, when it jumped from wired [landline] to wireless services”.

The secure, transparent, low-cost, and highly efficient system of transactions provides an opportunity to bring 3 billion unbanked people across the world into the formal financial sector. And Pierce says that since the technology is only now being explored by governments, India can take pole position by becoming an early adopter.

Globally, while blockchain is seen as a technology that can be a force for good, it is also seen as the technology behind cybercurrencies such as bitcoin, which is widely used in illegal transactions. But with blockchain and its distributed ledger backbone, banks can reach a wider population with fewer physical branches. The technology seems tailor-made for the Narendra Modi government, which has been pushing the idea of a ‘digital India’.

So, is this how innovation will evolve in future? The adoption and implementation of ideas that originated elsewhere does not really fit my idea of innovation, so I ask Abhijit Bose, CEO of Bengaluru-based Ezetap, ranked third on last year’s CNBC Disruptor 50 list, if adopting blockchain could be considered an innovation. Bose, co-founder of Ezetap, a mobile payments system that aims to be the Square of the developing world, says blockchain adoption may not necessarily be an innovation, but it’s something that will help the economy hugely. “It will help in disbursing subsidy and other doles to the poor without any leakages,” he says. And in a country where more is lost to leakages than reaching beneficiaries, this is huge.

Well, that didn’t really answer my question, so I go back to Pierce and ask him what he considers the greatest innovation of our time, since he describes blockchain as the second. Perhaps that will define the future of Indian innovation. Pierce doesn’t pause before replying: AI or artificial intelligence. Every product from now, he says, will have a layer of AI, not just to connect it with other products (which is IoT or the Internet of Things) but to make them more intelligent through self-learning, using structured and unstructured data.

So, if AI, machine learning, and analytics are going to drive innovation, what are Indian companies doing about it?

Enter Sanjeev Tyagi, the boyish-looking founder and head of research at Ericsson’s Bengaluru research and development centre. My idea in reaching out to Tyagi is to understand how one of the top telecom equipment manufacturers in the world sees innovation developing in India. When I speak to him, Tyagi is in the midst of research work on cloud computing, machine learning, and IoT. With his team of 10 researchers, Tyagi is equipping a fleet of buses in Bengaluru as well as selected passengers with sensors to study their movement. They will then use IoT to optimise bus routes. “Once we know where people board buses from, at what time, and what routes are the busiest, we use that data, apply machine learning and machine intelligence to optimise bus routes,” he says.

It sounds pretty impressive, but there’s more. Tyagi, who returned to India after 20 years in Silicon Valley, helped set up Ericsson’s Network Operational Centre, which analyses the patterns of alarms (how problem areas in the network of telecom carriers will spread) and also takes preventive action so that the crisis does not spread. “By studying the patterns over time and learning from them, the network operational centre knows what alarms are likely to go off after the first—whether it is faulty billing, or drop calls, etc.—and take the necessary action, an example of predictive analytics,” says Tyagi.

Elsewhere, Ericsson has joined hands with Intel, the global chipmaker, to build the next generation data centre—a new area of research for the telecom equipment manufacturer. Traditionally, data centres have racks upon racks of computers, huge storage spaces, and network switches to connect everything. Scaling up meant scaling all these up as well. Today, it is possible to disaggregate it, which means that individual pieces can be scaled up, according to demand.

What Ericsson and Intel are trying to do is to ensure that the different pieces of the data centres can be put in different places—like the CPU of the computer need not necessarily be kept next to the monitor—so you don’t require huge data centres. “The future of data centres lies in changing the rack scale architecture and that’s what we are working on,” says Tyagi.

If the future is an interconnected world, it will require the coming together of fifth-generation (5G) technology, cloud computing, and IoT. Experts predict that by 2020 or so, there will be between 20 billion and 50 billion interconnected devices, which will require an infinitely complex network to manage. And humans may not be able to do this.

“So we will need to create a system that uses machine learning and IoT for self-learning [learning from the past], self-healing [the ability to find solutions when something goes wrong], and self-organising, so it can allow new devices to become a part of the system,” says Tyagi.

Over at IBM’s research centre, also in Bengaluru, Sriram Raghavan, the centre’s director, says the future lies in blending different technologies—IoT and cognitive computing; IoT and blockchain technology; AI and blockchain technology—to create new applications and provide different services to clients. “How do I, for instance, provide for a transformational retail experience or a shopping experience to customers, which is very similar to the actual experience of visiting a store, trying out a combination of clothes and jewellery for the perfect match?’’ asks Raghavan.

His company has built a fashion assistant that uses technology to help online customers make choices while selecting clothes and accessories. “All this,’’ explains Raghavan “is made possible through a combination of technology around natural languages understanding, image analysis, and deep learning to collate vast amount of data to therefore predict the future patterns and trends, which also helps fashion designers.’’

IBM is also using blockchain technology for financial transactions. In India, it is working on a project with auto major Mahindra & Mahindra, and globally, on a pilot project with Bank of America Merrill Lynch. “This [blockchain] technology can drive efficiency by reducing the time on paperwork when goods move from one country to another, enable clear visibility of every transaction [everything can be tracked], and act as a strong hedge against duplication of documents,’’ says Raghavan. And if connected to IoT, it can achieve much more. For instance, one can track the movement of the product throughout the journey, know exactly when a good has been damaged and by whom, thereby helping insurance companies.

Raghavan says commerce is just one of the many applications. Marrying cognitive computing with IoT can transform Indian agriculture and help millions of farmers. “If we can get three sets of data—sensor data from the fields, like the water content in the soil; weather forecast data from government offices; and actual photographs of fields and plants sent by the farmers’ mobile phone—we can transform the life of a farmer.’’

I ask for explanation, and he says technology can provide a lead time to the farmer to prepare his field by giving him accurate information about the weather, the true condition of the soil, as well as a customised, fine-tuned solution for every part of the field. And it can predict the exact yield from the field, says Raghavan proudly.

Other labs are working on solutions for global clients. “We are no longer working to localise global products for India, but are producing truly global innovative products across sectors,’’ says an R&D head in a multinational. For example, HCL Technologies has developed two mission-critical systems for the new Boeing 787 Dreamliner, one to avoid collisions in the sky, and another to allow landing in zero visibility.

Brock Pierce, chairman, Bitcoin Foundation.
Brock Pierce, chairman, Bitcoin Foundation.

Again, here’s the thing: All these are applications of existing technology. Clearly, this is going to be how innovations happen in this country, where the technology may not be original, but the use of it is.

Meanwhile, Indian IT companies are also looking at megatrends that can be game changers for their clients. For instance, TCS is investing heavily in high-potential areas such as genomics; metagenomics; integrated computational materials engineering for building stronger, lighter metals; robotics and automation; and human-centric systems. It has already helped a leader in wind energy with an analytics solution for its Big Data; a Silicon Valley technology leader has used the company’s capabilities and co-innovation network for mobility and user experience solutions; and it has also enabled a global retail chain manage its carbon footprint.

But if every company is focussing on these four or five megatrends, what’s the difference? The answer is in how they see advanced applications. For instance, Ericsson may use AI to develop intelligent network management systems, while Microsoft may use it develop newer versions of Windows.

But while there is competition, there is collaboration too. “If software is eating the world, the new, collaborative open-source code will be eating software in the future,’’ says Tyagi, adding that building on an open-source code like “OpenDaylight’’ is happening more within the same industries than across industries. The idea is to build a common hardware for everyone to use and then overlay it with a company’s own software. “Companies today want a common hardware so that they have the flexibility to shift to a new application as and when they desire.’’

So what do all these developments mean for companies? “While hardware will become more and more commoditised, creating differentiated software or applications will be where the action is, where the money will flow, and where the revenues will come from,’’ says Tyagi.

Which is why innovation is so important. D. Shivakumar, chairman and CEO, PepsiCo India, says that if a technology business doesn’t have 30 to 40 innovations every year, it is as good as dead. Speaking of his previous stint with handset manufacturer Nokia, he says: “Our benchmark was 35% to 40%.’’

But the fast-moving consumer goods industry is a totally different animal. “The bulk of the innovation [if you can call that] is either in developing a new variant of the existing product, or launching a new marketing strategy, or packaging the product differently. Real product innovation happens only once in 10-15 years,’’ says Shivakumar, who also had a long stint with Hindustan Unilever. For instance, he tells me, in 2008, there were 72 variants of Pantene shampoo—and just 40 types of hair.

Sumit Malhotra, managing director, Bajaj Corp, a consumer goods company that’s part of the Bajaj Hindusthan group, says that kind of “innovation” is mere gimmickry. He says Indian consumer goods companies have little reason to innovate. The low penetration of these companies and products into rural markets means that to grow, companies simply have to improve distribution. “It is only when the market gets saturated will consumer goods players be forced to innovate,” he says.

I’m not entirely convinced—till I see the miserly spend on R&D by these companies. At less than 1% of total sales spent on research, it’s clear that innovation is not really on the radar of these companies. Hindustan Unilever, for example, spends a measly 0.18% of its total sales on R&D; Nestlé spends 0.28%; Dabur 0.31%; ITC 0.40%; and Britannia 0.51%. Taking a wider view, less than 1% of the country’s GDP goes to R&D. The comparable figures for South Korea and Singapore are 4.3% and 2.2% respectively. In India, 60% of the R&D spend is by the government, 4% by universities, and the remaining by multinational companies in India.

Rajan Raghavachari, who worked for 18 years at Hindustan Lever as R&D head in the company’s home and personal care divisions, believes that breakthrough innovations will come from start-ups and smaller companies because they will need “to create their own product categories” to break through the existing clutter and become brands. “Established brands, which have a market leadership position, are unlikely to take risks by launching completely new products because there is always the fear of bombing in the market and putting one’s reputation at risk. It makes little sense to spend huge sums on creating a new product that may not find many takers in the market,” says Raghavachari.

He also blames policy and regulations such as ‘no animal testing’ for the limited amount of innovation made by consumer goods companies. This means these companies can only make cosmetic changes, since they cannot experiment with or create different ingredients.

All of which is not to say that there have been no innovations from India in the consumer goods space. There’s Fair & Lovely, which created a whole new product category; Pears, which forced the Bureau of Indian Standards to change its policy, bringing down total fatty matter of the soap from 80% to 40%, and Indulekha Bringha hair oil, which created innovation in packaging.

For Sanjiv Mehta, managing director and CEO of Hindustan Unilever, innovation is a profitable application of a hard-to-replicate technology to fulfil unmet consumer needs. To retain its market leadership position in various categories and build categories of the future, the company has divided its business into two: the present and the future core. While the present core allows the company to earn its bread and butter today, investments in the future core will ensure that it remains a market leader.

D. Shivakumar, chairman and CEO, PepsiCo India.
D. Shivakumar, chairman and CEO, PepsiCo India.

“We spend a disproportionate amount of money and time on innovations that will take care of the future core,” says Mehta. For instance, while detergent powders are a mainstay of the company today, the future is in liquid detergents. So, he says, there’s a lot of spending and research on liquid detergents and a robust pipeline of products is being created.

At the end of all this, I’m as confused as when I started out. Sure, there’s innovation happening, but is this what’s going to make India an innovations hub? Will there be disruptive innovations coming out of India in the next decade or so?

In its 2016 study on the top 50 innovative companies in the world, the Boston Consulting Group did not see any Indian company occupy pride of place. The top 10 include the usual suspects— Apple, Google, Tesla, Microsoft, Amazon, Netflix, Samsung, Toyota, Facebook, and IBM. Others in the list include Uber and Airbnb.

The last time any Indian company made it to the list was the Tata Group in 2014 and it was ranked 43. BCG partner and co-author Andrew Taylor says: “Today’s most successful innovators strike a strategic balance between internal and external innovations. They are smart and efficient at scanning for external ideas and deft at bringing them inside.”

Clearly, Indian companies, with their tiny spends on research, are unlikely to convert external ideas into internal innovations.

Sam Pitroda, chairman of the first National Knowledge Commission, says there’s a strong case for building an “inclusive’’ model of innovation in India that could solve the dilemma of improving excellence that it is not at the expense of equity. “The best brains have been working where they are least needed, on the problems of the rich. The big transition in India is to a place where they are working on the problems of the poor,” he says.

And that brings us right back to square one: that India is not going to cut it as a hub for disruptive innovation. Rather, it’s going to remain focussed on low-cost tweaks at the bottom of the pyramid. Which is, really, not such a bad thing.