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Comparative Institutional Technology Transfer in India, Turkey, and Israel: Historical Policies and Development Outcomes

Vipin Gupta Simmons College, Boston

Gupta05@wharton.upenn.edu

Arnold Reisman Reisman and Associates, Shaker Heights, OH. USA.

reismana@cs.com

April 23, 2005 ABSTRACT This paper discusses India’s post independence technology transfer (TT) policies and practices and examines their impact on economic development. It then juxtaposes similar findings for two other countries - Turkey and Israel. All three gained independence in the 20th century. At independence time all three were quite undeveloped. Three different models of institutionalizing TT as a means to development emerged in the respective countries. They are: (1) Acquire and use foreign technology from a limited number of suppliers -

replace similarly - leading to manufacture under license or by joint ventures for import substitution and for export by a small group of established oligarchs.

(2) Reverse-engineer foreign technology; incrementally improve it, adopt it to local or similar conditions, and produce for import substitution and for export by state owned enterprises and a small group of established oligarchs, ultimately leading to SMEs1 taking over in few niche technologies and growing to become worldwide suppliers.

(3) Acquire foreign technology from whatever the source and by whatever the means; use it, learn from it and from the field - leading to production of break-through innovations for use and for export in a great diversity of technologies by a large number of SMEs growing to significance in the global marketplace.

Key words: Technology transfer; Comparative technology transfer; History of technology transfer, India technology transfer; India; Israel; Turkey; Intellectual property; Diffusion of technology; Development; Comparative development Agricultural extension; Incubators; Technoparks; Policy; Technology policy; Technology management.

1 Small and medium size enterprises

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INTRODUCTION

Previous studies described different policy models for institutionalizing technology transfer

(TT) in two developing countries – Israel and Turkey, (Reisman (2004), and Reisman et al, (2004)).

Subsequently, the models were critically examined and compared in Reisman (2005). In this paper

we present a different model – the one of post independence India - and juxtapose it on the first two.

Whereas the first two countries are on lands for centuries dominated by the Ottoman Empire, India

for centuries was part of its British counterpart. All three gained independence in the 20th century.

Turkey became a state in 1923. India gained independence in 1947 and Israel in 1948. Initially all

three had socialism-based economies. They all viewed economic development in terms of large state-

owned enterprise industrialization based on imported technologies. To a greater or lesser degree, in

late 1970s all three began to shed their socialist roots.

Poor countries do not need to create new ideas to increase their standard of living. They need only apply existing ideas to the production of goods and services. Pg5. Our view is that differences in international incomes are the consequences of differences in the knowledge individual societies apply to the production of goods and services. These differences do not arise because of some fundamental difference in the stock of usable knowledge from which a society can draw. Rather, these differences are the primary result of country specific policies that result in constraints on work practices and on the application of better production methods at the firm level. pgs 1,2. Parente, and Prescott (2000)2.

Whereas Turkey based its development predominantly on applying “existing ideas to the

production of goods and services,” Israel did the same but, additionally, it created “much usable

knowledge from which a society can draw.” Turkey’s development was basically, if not

exclusively, through partnering (joint venturing) with or licensing from established firms in

developed nations. These contracts involved manufacture (largely assembly) and marketing of

products, such as automobiles, and providing services such as telecommunications (Reisman et al,

2004). Israel did some of that as well but it relied much more heavily on partnering in various areas

of R&D while doing its own resarch much of which was transferred to the private sector. This was

accomplished by very efficent and effective TT from its universities and govenrment laboratories as

welll as defense enterprises. India on the other hand, recognized quite early a need to modify the 2 Parente and Prescott (2000), preface their book using the words “ideas” and “knowledge” (pgs1,2) but they conclude the book by using the word “technologies” instead, (pgs 133, 142, 143). Hence these three words are interchangeable in their Barriers to Riches context and the reasoning that was awarded a Nobel Prize in Economics for 2004.

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“existing ideas [for] the production of goods and services,” to its local conditions and made such

practices an integral part of its national policy.

Turkey’s major economic development started in the 1980s after significantly reforming its

banking system as mandated by the World Bank and the IMF(Mercan et al, 2003). During the same

period Israel liberalized foreign exchange transactions as well as control of its currency. Both

countries opened roads to privatization. India at this point was still in the process of nationalizing its

banks.

Turkey like many developing countries, managed to squander much of its indigenously developed

talent through “country specific policies that result in constraints on work practices and on the

application of better production methods at the firm level” - brain drain - Israel on balance, like the

United States, engaged most of its indigenously educated cadres while importing much talent through

immigration (Reisman and Cytraus, 2004).

For several post independence decades India, engaged some of its talent in modifying imported

technology to meet local conditions and local needs. However, many of India’s elite educated in

technology and the sciences found pastures to be greener outside their native borders. This changed in

the waning years of the 20th century. Using indigenously developed talent, India evolved to become

self sufficient in many technologies and a world class provider of IT software.

The role of technology transfer in the economic development of nations.

Many scholars considered the process of technological learning in developing economies (e.g.

Westphal, Kim & Dahlman, 1985; Lall, 1987; Enos and Park, 1988; Bell and Pavitt, 1993). These

studies suggest that countries should rely on imported inputs and export-oriented growth, and should do

so rather heavily during the early phases of technology accumulation. For rapid growth, they need to

exploit and build upon the local capacity to assimilate, absorb, and improve upon the foreign

technology.

Several problems, however, are associated with foreign-technology based development,

which may lead to a substantial volatility in the economic growth of the nations. Experiences of East

Asian nations over the past decade attest to some of these problems. First, foreign technology and

techniques may not be appropriate for the climate, culture, and resources of an emerging market.

International technologies tend to be capital and scale intensive, and require large markets and

sophisticated infrastructure to support them. Similarly, imported techniques tend to be more

appropriate for large, professionally managed firms, for activities that can be systematized and

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routinized (Nelson & Winter, 1982). When applied to activities that require custom applications,

they tend to result in rapidly escalating costs, and require a significant market premium to cover these

costs (Gupta, 1998).

Second, some technology and techniques are not readily tradable and transferable to emerging

markets. The recognition, application, and improvement of foreign technologies and techniques

require substantial prior knowledge and research experience (Cohen & Levinthan, 1991).

Technological growth tends to be historically conditioned. Effective improvement of technology is

feasible only when a nation has a substantive prior base in related technologies and techniques, and in

the disciplines associated with them (Cantwell, 1989). The original developers of international

technologies and techniques tend to enjoy well-established markets, and well-endowed resources and

capabilities, for rapid, continuous innovation (Porter, 1990). The high cost of TT and its assimilation

makes it often difficult for the emerging markets to successfully catch up with the original

developers, using the technology and techniques traded or copied from the original developers

(Teece, 1977). Also, the original developers have little incentives to transfer their entire package of

technology and techniques. One time TT also has limited developmental benefits for the emerging

markets, since the local firms are rarely able to develop capabilities for fundamental innovation and

engineering based on a single generation of know-how transfer. Such capabilities are generated over

a period of time by working on multiple successive generations of inter-related know-how (Cantwell,

1989).

Third, only the larger firms in the emerging markets have the reputation or resources to be

able to purchase foreign technology and to invest in learning foreign techniques. Often, it is the

government and government supported institutions that seek to play a major role in financing the

imports of foreign technology. Since there are significant subsistence and developmental demands

on foreign exchange reserves in emerging markets, the governments tend to limit private sector

initiatives that strive to import even small amounts of foreign technology (Chandra, 2002). The

government-supported institutions have limited, well-defined roles, and are usually unable to invest

in development of complementary sets of resources needed to commercialize their versions of the

imported technologies.

Given these problems, it is imperative to examine an alternative model based on indigenous

capabilities of emerging markets, a model allowing more reciprocal, comprehensive, and sustained

exchange of techniques and technologies with foreign firms, and enabling broader participation of

private firms and individual entrepreneurs in the development process.

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Is it feasible and prudent for emerging markets to set such a vision for their developmental

model? In this article, we investigate India’s government led or enabled experience with institutional

TT and juxtapose that experience with counterparts in Israel and Turkey.

INDIA’S POST INDEPENDENCE TECHNOLOGY TRANSFERS

At the time of its independence, India had a fair foundation for science and technology. However,

according to INSA (2001: 54) this largely involved individuals who “were products of the indigenous

culture, largely self-taught, and without the advantages of foreign education and guidance.”

Nevertheless, the Indian Institute of Science at Bangalore was established in 1909 and the Indian

Statistical Institute in 19313. By 1948, Israel and Turkey each had three functioning institutions of

higher learning (Reisman et, al, (2004); Reisman, 2005). At independence time, India’s agriculture grew

at a mere 0.3 %, and its manufacturing sector was miniscule (INSA, 2001). This was not much different

then in contemporary Turkey and Israel, Reisman et, al (2004), Reisman (2005). In 1950, India became a

constitutional republic, and turned its attention to the development of institutions for facilitating

technological and industrial growth. (INSA, 2001).

1951-65: Scientific Revolution

Soon after India gained independence its Prime Minister, Jawahar Lal Nehru, advocated the

adoption of the Soviet type Five Year Planning system, as a means to solving India's poverty (Nehru,

1936/1972). Nehru (1937) envisioned science and technology as a way of accelerating national

development. "The future belongs to those who make friends with science." Furthermore: "It is the

inherent obligation of a developing country like India, with its tradition of scholarship and original

thinking and its great cultural heritage to participate fully in the march of science, which is probably

mankind's greatest enterprise today" (Government of India, 1958). Additionally, Nehru’s scientific

resolution identified the critical role of technology in overcoming resource deficiencies that India

faced at the time. "The key to national prosperity, apart from the spirit of the people, lies, in the

modern age, in the effective combination of three factors, technology, raw materials and capital, of

which the first is perhaps is the most important, since the creation and adoption of new scientific

3 Appendix 1 lists various apex level science and technology related institutions established over the 20th century.

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techniques can, in fact, make up for a deficiency in natural resources, and reduce the demands on

capital" (Government of India, 1958).

The scientific resolution laid a framework for cooperation with many nations to create a number

of universities, policy institutions and publicly funded R&D laboratories, and for vigorously promoting

basic science and basic industries to improve the living conditions of an average citizen. Nehru led

India’s role as a founding member of Non-Aligned Movement (NAM), to maintain open relations with

both Soviet Block as well as NATO-bloc, and to seek technological inputs from both camps.

The focus of the First Five-Year Plan (1951-56) was on basic amenities and basic infrastructure.

Depleted wartime rail-net and rolling stock was repaired, fresh irrigation water augmented, and idle

industrial capacity was brought into use for rapid growth in national income. Communication

connectivity of the nation was another priority. At the time, telegraph and telephone infrastructure was

based in the larger cities. Now the government sought to upgrade and expand telecom services into all

towns with a population of 5,000 or more, and eventually into rural and backward areas.

With a basic foundation in place, the Second Five-Year Plan (1956-61) aimed to triple annual

iron ore, double coal, and double electric power production. It laid down the framework for the

separation of roles between the private and public sectors, and introduced a “license raj” to regulate

private sector companies. The logic of the licensing system was to enable most efficient allocation of

the resources, and to minimize unbalanced investments in different inter-related sectors. Investment

funds were offered to the large public and private sector borrowers only if the relevant production was

pre-approved; and in such cases, funds were offered at rates substantially lower than those charged by the

private financiers in the unorganized sector. Most foods, steel, coal, and other basic commodities were

subject to price controls, pegging prices well below world prices. The system did result in a tendency for

rent seeking amongst the enterprises that received licenses, but on the whole was oriented towards a

gradual reduction of concentration. Research evidence suggests that over time, industry-wise

concentration ratios (the shares of top 3 or 5 firms in the total output) generally fell (Chandra, 2002).

Additionally, the government ‘reserved’ a large number of industrial products for the small

sector, thereby fragmenting the market, and forcing the concentration ratio in many industries below the

Western levels by the 1980s (Chandra, 2002). Both the 1948 and 1956 resolutions entrusted heavy

industry projects, such as steel, cement and hydro-power, to the public sector. (Uppal, 1979).

India’s Third Plan (1961-66) sought to mobilize foreign aid and technical collaboration for

developing basic and heavy industries. Through collaborations with several nations, India became the

seventh most advanced steel-producing nation in the world, with steel production rising several times.

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Similarly, in the tractor industry, several firms were set up: Eicher (German collaboration), Escorts (tie

up with Ursus of Poland), Hindustan (tie up with Zetor of Czechoslovakia), TAFE (tie up with Massey

Ferguson of Yugoslavia), and International (tie up with International Harvester, UK) – (Mohan, 2003).

Nehru foresaw the need for a massive quantitative expansion of India’s educational system at all

levels – from primary schools to universities. Soon after independence the Education Commission

(1948–49) known as Radhakrishnan Commission suggested, among other things, rural universities to

provide education for development of rural India, because most of India’s people lived in villages. In

the 1950s, India signed an agreement with the US to improve agricultural education and research in

India, and to launch an extension service aimed at providing advice to farmers on new agricultural

technologies and state of the art practices. In 1955, a five member Indo-American Joint Team was

formed to study the land-grant university system in the US. The land grant system in the US had been

set up under the Morrill Act of 1862 (Reisman and Cytraus, 2004), to create institutions of higher

learning that were dedicated to education and research relevant to common persons and needs of the state

in all domains, including agriculture, health, arts, humanities, industry or military studies. However, in

India, a pure state agriculture university concept was adopted (Planning Commission, 2001).

Five state agricultural universities were established with help of the United States Agency for

International Development (USAID), the U.S. Department of Agriculture, and the Ford and Rockefeller

Foundations. 2000 or more hectares of land were allotted to create State Agriculture Universities. The

US universities sent several educators and agricultural advisors for collaborative work with scientists

and students in India, and invited many Indian agricultural specialists for learning about farm

technologies employed by the US (Mulford, 2004). For instance, the Punjab Agricultural University

was established in 1962 through a long-term collaboration with Ohio State University. Following the

US extension model of offering services to the private farmers, the Punjab Agricultural University

forged strong relationships with local farmers, that enabled a rapid adoption and acclimatization of the

green revolution technologies. A major activity was extension (besides education and research): to

produce seeds for distribution through National or State Seed Corporations. Unlike the US, however,

this extension activity was not commercial, and the universities remained financially dependent on the

government, and were not focused on rural development as their mission (Sinha, 2000). Sinha (2000)

observes that no educationist or agriculture scientist was involved in developing an Indian adaptation of

the US model, perhaps because of the British Raj governance framework which. ‘believed in the

theory that the experts should not be on the top. He should be down below so that his knowledge could

be tapped’ (Randhawa, 1979). Additionally, the Indian Council of Agricultural Research, which had

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been formed in 1929 with a research focus, was reorganized into a Deemed University in 1956, and

became the first research-based institution to offer higher education in agriculture (Sinha, 2000).

Other institutions were also set up through links with and adaptation of the US system. With

help from the Ford Foundation the Indian Institutes of Management (IIMs) were set up to provide

higher education degrees in management, in collaboration with Harvard and Massachusetts Institute

of Technology (MIT) in the early 1960s (Gupta, Gollakota, and Sreekumar, 2005). Similarly, a

strong infrastructure of institutions of higher technical education was created through the Indian

Institutes of Technology (IIT) and the Regional Engineering Colleges (REC), and through the All

India Institute of Medical Sciences (AIIMS). At the state-level, many governments created and

funded government colleges of engineering. The IITs, the IIMs, and the AIIMS recruited several

outstanding faculty members, many with doctoral degrees from the US, and introduced competitive

tests for merit-based admissions. However, the institutes had limited interaction with Indian industry,

so the graduates emigrated in large numbers, principally to the United States – a brain drain even

more extensive then in contemporaneous Turkey. To be sure some did join government research

establishments, or took up management positions with multinational firms. For comparative

purposes, by 1947 both Israel and Turkey each had three institutions of higher learning (Reisman,

2005).

India secured US assistance in several related domains. These included procurement of

fertilizers, financing construction of fertilizer plants, developing rural electricity infrastructure, and

establishing modern irrigation systems for reducing dependence on rain-fed irrigation (Mulford,

2004).

1966-80: Green Revolution

In 1960s, India faced an economic crisis both externally and internally. Externally, the Aid India

Consortium forced a 57.5 percent devaluation of rupee in June 1966, by making it a pre-condition for

the resumption of aid. This meant that the cost of foreign loans outstanding rose sharply in rupee

terms. Internally, droughts, famines, and inflation compounded the crisis, and generated a shift in

voter behavior towards one based on the swadeshi factor (indigenous self-reliance, based on import

substitution). Nehru’s daughter, Indira Gandhi propagated the slogan of "Garibi Hatao” (eradication

of poverty) to obtain the support of the poor and the leftists (Esho, 2004). After becoming Prime

Minister in January 1966, she ushered the nation into a new era of internally driven technological

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growth. A major thrust was laid on agriculture and rural revolution, and on the creation of advanced

defense related technological capabilities. Even if it meant reengineering the wheel, it was India’s

policy to leverage and develop local capabilities, and to seek collaborative assistance – where

available – not just from the West, but also from the former Soviet Union. To support the

revolutionary thrust and broader spillover, in 1969 Indira Gandhi nationalized 14 major commercial

banks, and strengthened regulations on the concentration of power and foreign repatriation of funds.

As late as 1980 India nationalized six more banks, six more banks were nationalized in 1980. The

share of public sector banks in deposits rose from 31% (represented by the State Bank of India), to

86% after nationalization of 14 banks in 1969, and to 92% after nationalization of 6 more banks in

1980 (Burgess & Pande, 2002). Only after being forced to seek balance of payment aid from the IMF

as recently as in 1991, did India, embark upon major economic reforms, including dismantling of the

‘license raj’ system, reducing the number of sectors reserved for state owned enterprises, and

removed price controls in basic industries, (Salgado, 2003). This is significant in the fact that during

1970s Israel had started along Thatcher revolution’s path of privatization and currency deregulation

(Reisman, 2004) while Turkey did not begin such privatization/deregulation until the 1980s

(Reisman, 2005).

Localization of agricultural R&D

Between 1966-69, India introduced a series of Annual Plans, focused on the agricultural green

revolution. The thrust was to achieve adequate food grain production by introducing science and

technology in agriculture.4 For fastest and greatest impact, research emphasized environmentally

well-endowed regions. New organizations such as The National Dairy Development Board, The

National Seed Corporation of India, and The Food Corporation of India, were set up. The policies for

procurement of food grains, buffer stock and public distribution system were put in place, and

Agriculture Price Commission was created, to ensure fair prices to the farmers and fair access for the

poor.

During the 1960s, the Rockefeller and Ford Foundations undertook the task of helping

establish an international agricultural research system to serve the research needs of developing

countries. The first efforts were in public research for rice, wheat, and maize, where high-yielding 4 As is shown in Reisman (2005), Israel began such practices with the opening of the Hebrew University of Jerusalem in 1925 and of the Technion, (Israel Institute of Technology) in 1924. Moreover the practice was modeled after the US Land Grant universities and their Agricultural Extension Divisions, originated in the Morrill Act of 1862 which was signed by President Lincoln, Reisman and Cytraus (2004).

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varieties were developed through genetic improvements, and then given away or sold at low prices.

The new varieties matured in shorter periods of time and with less loss of grain, thereby enabling

double or even triple cropping in areas that previously produced only one or two crops per year. An

even more dramatic rise in productivity and yields was realized by adopting a systematic battery of

practices and complementary inputs, including a greater use of fertilizers, pesticides, irrigation, and

tractors. By the late 1960s, there was a notable increase in crop yields and in per capita food

production (USDA, 2003). India also emphasized conservation to contain ecological losses from

more intensive farming, which would allow it to expand its forests and woodlands by 21 percent

between 1963 and 1999 (USDA, 2003). Research was conducted on technologies and practices to

mitigate the negative effects of chemical residues and synthetic pesticides on farm, soil, and ground

water health – a major side effect of Green Revolution.

Punjab was the most successful in adoption of Green Revolution technologies. In an early

assessment, Ladejinsky (1970: 760) observed that over the 1960s, Punjab farmers had “planted 80

percent of the land with ‘miracle’ wheat varieties; increased the number of tubewells for irrigation

from 7,000 to 120,000; virtually tripled the consumption of fertilizers in four years – moving from a

mere two to three kilograms per acre to as high as 40 to 60 kilograms in 1968-69 – and almost double

the yield.” While the Ford Foundation pioneered and demonstrated the utility of the new ‘package of

services’ idea, the Rockefeller Foundation helped develop the Mexican ‘dwarf’ wheat varieties upon

which the wheat revolution was based. The new seed varieties were disseminated through Punjab

Agricultural University; various central and state agencies provided the necessary complementary

inputs and output off-take.

Initially the Green Revolution outside of wheat proved to have a more limited impact in India then

elsewhere because of country specific conditions. Yet, successes with wheat helped public research

institutions focus on developing strains and practices suitable to the diverse Indian context, so that

production of most food crops could be raised by early 1980s. New varieties were developed for crops

grown by poor farmers in less favorable agro-ecological zones. Among these were sorghum, millet, barley,

cassava and pulses. Public institutions also successfully researched and developed plants with durable

resistance to a wide spectrum of insects and diseases, plants that are better able to tolerate a variety of

physical stresses, crops that require significantly lower number of days of cultivation, and cereal grain with

enhanced taste and nutritional qualities (Evenson and Gollin, 2003).

India was thus able to attain food self-sufficiency and resilience, while effectively withstanding a

severe drought in 1979. By the 1980s, India’s agricultural growth had risen to three percent, for the first

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time since independence outpacing population growth, and facilitating a dramatic fall in rural poverty from

60% in the late 1960s to 40% in late 1980s. Indian farmers were able to diversify their operations with

new crops and livestock products, particularly dairy and poultry, and were able to hire more paid labor, as

food grain production rose from 70 million tons in 1954 to 200 million tons by early 2000s (Mulford,

2004).

Localization of Defense-Related Technologies

In 1966, the Bhabha committee – comprising scientists-technocrats mostly trained in the US –

suggested that India could be self-sufficient in manufacturing computers within 10 years, and laid a

vision for developing an informatics sector, particularly to be self-reliant for military needs in the wake

of US electronics equipment cutoff during the 1965 Indo-Pakistan war (INSA, 2001)5. At the time,

informatics was based entirely on imports, with just limited local manufacturing by the wholly owned

foreign multinationals. For instance, IBM and UK’s ICL were supplying only old and refurbished

equipment at a substantial markup. Though the Indian government requested IBM to share ownership locally

in 1966, IBM threatened to shut down its operations, leading the government to back down until 1978

when it would decide to assert itself and induce IBM to close its Indian operations. India’s only local

capability was in Bangalore-based Bharat Electronics Ltd. (BEL), a state-owned producer for the

military, set up in the 1950s. In the early 1970s, BEL took on the full cycle of semiconductor wafer

fabrication, and served as the training ground for thousands of engineers. However, its products remained

commercial failures.

In 1967, the Electronic Corporation of India Ltd. (ECIL) was formed, under the aegis of the

Bhabha Atomic Research Center. Its brief was to tie up with international companies for local

manufacture of computers, sufficiently different from those available from abroad, and to increase the

local value-added to the point of self-reliance. For systems beyond its capabilities, it tied up with ICL to

fabricate mini-computers. The foreign currency needs of ECIL and ICL were to be offset by the

earnings of foreign electronics firms in the export zone. Finally, Burroughs supplied a few very large

high-end mainframe systems to cover requirements beyond the capabilities of minicomputers. These

5 This has a parallel with Israel’s having to face a number of embargoes. One of these, in 1967, involved France’s refusal to transfer contracted and paid for Phantom fighters. On the other hand, once Turkey joined NATO in the early 1950s it has always obtained all desired weapons systems, usually paid for by the US. Turkey has never had to face the need of becoming self reliant in military technology, Reisman (2005)

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imports were to be financed partly through export of software and dot-matrix printers by Burroughs, and

partly through United Nations Development Program (UNDP) funding.

In 1970, the Department of Electronics (DOE) was established to coordinate policies for the

computer industry, and in 1971 the Electronics Commission were established to lead research and

technology development. DOE carefully regulated the import of computers depending on ECIL’s

production capacity, taking at least 6-8 months to clear import requests, if at all. ECIL formed

collaborations with several international distributors — ECIL minicomputers were built around DEC

PDP-8 and PDP-16 architecture, incorporating components from Intersil and Motorola, hardware from

Shugart, Pertec, BASF, Memorex, and Dataproducts. ECIL took up to 18-24 months to deliver systems,

there were limited applications for its proprietary operating system, and more powerful foreign systems

cost less than its systems (Mulhearn, 2000). Eventually, though, by the 1980s, ECIL would evolve into a

successful large-scale systems integrator, providing solutions to key developmental domains, such as an

automated monitoring system for offshore oil/gas wells at a fraction of internationally quotes prices.

In 1974 and 1977 respectively, DOE spearheaded technological and communication

infrastructure for software and hardware development, including graduate and undergraduate programs

and R&D in computer sciences at the Indian Institutes of Technology. However, over 80 percent of all

funding provided by EC and DOE during the 1970’s went to ECIL and the Tata Institute for

Fundamental Research (a division under the Atomic Energy Commission that focused on developing

data communication and networking technologies).

Beyond defense needs, the government wisely saw informatics as a sector where small firms

could flourish6. It actively limited entry and capacity expansion of the existing private sector large

firms. Specifically, it turned down a 1972 proposal for licensing 12 applicants to make minicomputers.

The DOE also had little faith in the ability or desire of the larger firms to spearhead the informatics

development, where ECIL itself had to make a strenuous effort to be maximally technologically

independent (Evans, 1995).

Under UNDP stimulus in 1975, the Government of India decided to introduce computer-based

decision support systems in government ministries and departments to further the growth of economic

and social development. The National Informatics Center was set up in 1977, as a unit of DOE, and

partly funded by UNDP, for leading this Informatics-led development through a Memorandum of

6 This corresponds to Israel’s policy for all of its high tech sectors. Turkey on the other hand, did not support nor promote SMEs as a matter of public policy until late 1990s, Reisman, (2005). This policy had roots in the socialist idea of industrialization involving heavy or large scale manufacturing

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Understanding (MOU) with all state governments and district centers. NIC set up the Government

Network, NICNET, as the nationwide computer communication network (INSA, 2001).

In the 1970s, over 80% of India’s R&D was government financed. Much of it was in the

strategic sectors of atomic energy, space research, and defense. The nation developed a range of

techniques and technologies for prospecting raw materials, and the design, construction and operation

of large power reactors. In these, as well as in the defense sector, early emphasis was on improving

imported equipment and minor adaptations and modifications, with a view to move towards import

substitution, (INSA, 2001).

A network of forty laboratories was formed under the Council of Scientific & Industrial Research

for work of relevance to industry; though the transfer of knowledge to the industry remained limited

because of various persistent restrictions on the private sector. These restrictions included limits on

capital inflows, expansion, diversification, importation of capital goods and of technology, and of course

the high cost of local inputs. The firms permitted to import technology were required to commit to

progressive localization. The high and effective protection from imports, along with industrial licensing,

acted as a major barrier to entry, growth, and to competing in export, and limited incentives to innovate

for the private sector – except where R&D could help create local sources of inputs and substitute costly

and cumbersome imports (Krishnan, 2003). On the other hand, the small scale sector was offered

priority if not exclusivity in many spheres. Fiscal benefits such as lower excise duties, encouraged the

firms to develop imitative products through reverse-engineering and improvisation, though without any

incentive to grow to exploit economies of scale or scope (Tyabji, 2000).

Reengineering the wheel

For the most part, the early R&D conducted in India sought to ‘reinvent the wheel’ and to localize

the techniques and technology to the indigenous conditions in response to the emergent problems. As

will be illustrated with specific examples below, two broad models may be identified: large systems

innovation model and incremental innovation model. In the large systems innovation model, the nation

received a comparatively more active help from the international sources, especially in key formative

inputs including machinery, materials, methods, and manpower training; but decided to develop

indigenous capabilities in domains where the help was less forthcoming or was available at very costly

terms. In the incremental innovation model, the nation sought to study the international processes and

products, and to develop independent versions consistent with local capabilities and climate, even if it

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entailed inefficiencies and escalating costs of learning, process integration, and product design. The

incremental innovation model was applied particularly in those industries where the foreigners were

unwilling to offer desired technical assistance.

The Green revolution and allied domains is one of the examples of large systems innovations. In

Green revolution, the nation adopted high yielding breeds, new pesticides, new agricultural implements,

and collaborative scientist-farmer extension model, with the help of the US, and then conducted

additional innovations on its own to in areas where the American approaches were not in tune with

Indian climate. Given the wide variations in climate within India, a majority of the R&D expenditure by

state governments even in mid-1990s remained devoted to the field of agriculture. In 1996-1997 it was

93.3 percent of total. (Ministry of Science and Technology, (1997).

India also created the world’s largest irrigation network. Similarly, India launched successful

“White Revolution” relating to the dairy industry and milk distribution, and emerged as the number one

milk producer of the world (Sadasivan, 2005). Other industries, such as chemical fertilizers and

pesticides, were also developed as part of the "Green Revolution". With the discovery of offshore

natural gas, the nation fostered world’s one of the largest chemical industry, achieving world-class levels

in process systems design and catalysis. While India had been an importer in chemicals during 1950s,

indigenous capability was built through linkages with a variety of sectors, for instance chemical dyestuffs

were linked with not just textiles (which consume 80% of dyestuffs), but also with leather, paper,

plastics, printing ink and foodstuffs, allowing India to emerge as a global supplier of dyestuff and dyes

intermediates by the 1980s (chemicals.nic.in, 2005). Indian pharmaceutical industry also mastered the

process technologies.

Additional enterprises were started in several key emerging areas, such as

environment, new and renewable energy sources, ocean development and biotechnology

(INSA, 2001). In these and other areas, such as automotive components to support tractor

industry, the nation developed pockets of excellence through various incremental innovations.

For the most part, these pockets of excellence were compartmentalized, where the end users

and private industry was generally insulated from the actual scientific and technological

systems (Rajan, 2001). As a result, by the mid-1990s India suffered a huge technology gap

compared to Israel. Table 1: Comparative Technological Leadership of India

15

Fields/ Ranks India Israel

Commercialization of Research 51 2

Pvt. Sector Investments in R&D 52 7

Research Co-operation between Industry & University 53 9

Technological Sophistication

(Overall Technology Leadership) 44 3

Source: World Economic Forum (1998)

The case of the development of tractor industry is instructive about the approach to incremental

innovation, within the context of systemic innovations of green revolution. In 1965, despite several

existing foreign tie-ups referred to earlier, India was producing only 13,000 units of tractors annually,

mainly through import of knocked-down components. To support Green Revolution, India wanted to set

up a plant to annually manufacture 20,000 tractors, but no foreign partner was interested in technology

transfer. Central Mechanical Engineering Research Institute (CMERI), Durgapur, proposed that an

indigenous technology be developed. All foreign players had provided detailed workshop manuals of

their tractors, as part of their certification, to the National Certification Center. CMERI benchmarked

these to incorporate the best design concepts of competitor models, such as sealed disc brakes, better

seating posture and positioning of controls, aesthetic sheet-metal with zero tooling costs. It studied

international patents to avoid infringing on those patents, and developed its own designs and patented

them. It pioneered the concept of unified series', similar to the common platform' concept used in

passenger cars today, that used common sub-assemblies, such as hydraulics and gear boxes, across

tractor models, while keeping the basic design same. Though the additional manufacturing cost in a

unified series between different tractors was marginal, the difference in selling price was huge (Mohan,

2003).

Aside from green revolution and allied sectors, another set of large systems innovations took

place in the strategic areas of space, defense and atomic energy (Sadasivan, 2005). Consider, for

instance, ground systems technology related to rocket launching systems, satellite control and tracking

16

systems (Baskaran, 2000). Ground systems technology, being less complex than rockets and

satellites, was the first area of India’s space program R&D.

India set up its first rocket launching range, the Thumba, in 1962, with the help of foreign

collaborations. Two other ranges -- Sriharikota and Balasore – were constructed in the 1970s; here

India sought to develop whatever systems it was capable of locally, and imported the rest. The

Thumba was set up through an agreement with the National Aeronautics and Space Administration

(NASA), as the world’s first ground facility to launch rockets into the magnetic equator. India offered

the Thumba to the United Nations for use as an international facility to conduct scientific experiments,

and received a sponsorship from the UN General Assembly in 1965 (Department of Atomic Energy,

1966). India thereby got an opportunity to work closely with space agencies of both Western nations

(the US, West Germany, and France) as well as the Soviet Block on various scientific experiments, and

to freely import critical sub-systems and components in the area of rocket launching and spacecraft

controls. These foreign space agencies offered satellites for international experiments, training, testing

of components and sub-systems made in India, and some equipment for earth stations. India also

received financial and technical aid from the UNDP to build capabilities in the area of earth stations for

satellite communications and remote sensing. These collaborations gave India a first-hand exposure to

various skills such as designing, fabricating, testing, and installing systems (Baskaran, 2000).

Foreign support was less forthcoming in areas outside the specific experimental interests of the

foreign nations. From the late 1960s, the Thumba sought to develop capabilities to design and construct

universal launchers, to launch different types of rockets, such as Nike Apache, Centaure, British Skau,

Russian M-100, Petral, Booster Arcas, Dragon, Judi Dart, and Rohini series. Capabilities were also

developed for constructing supporting facilities, such as digital data system and payload integration

facility, through strong and sustained indigenous efforts by employing available local resources and

accessible foreign inputs. At the time, while India had mechanical engineering capabilities, it was

entirely dependent on foreign assistance in electronics systems (Baskaran, 2000).

By early 1980s, India developed capabilities in all areas of ground systems technology,

including locally constructing and modifying new earth stations, spacecraft control and tracking

stations, and continuously augmenting rocket launching stations. Linkages had been developed

among Indian space agency (ISRO), other R&D institutions, academic institutes, universities, and

industry. ISRO faced an increasing demand for ground systems technology for supporting various

needs, as well as tightening foreign exchange situation. Consequently, it pioneered a model of

industry cooperation, based on a belief that the local firms are more capable of executing elements of

17

ground systems projects (in particular, remote sensing data processing systems), than satellite and

rocket projects. ISRO offered technological know-how, training, quality management skills and

shared information and facilities, to develop capabilities amongst local firms for prototype

development, engineering, fabrication problem solving R&D, and final production. ISRO also

motivated major suppliers to set up a network of subcontractors to cut down cost and development

time, and to transfer the quality management system to these subcontractors, thereby promoting a

broad diffusion of technology. Moreover, ISRO fostered direct linkages among firms and various

R&D and academic institutions. A large number of firms emerged in Hyderabad and Bangalore,

allowing India to make locally almost all the hardware and software for data processing systems.

By the 1990s, India was able to start small-scale exports of ground systems equipment and

software, and had visions to emerge as a major player in satellite communication and remote

sensing for more emerging markets. India also initiated training and consulting to other nations in

design, fabrication, and evaluation of ground systems equipment, and in helping establish and

operate spacecraft control stations. India’s dependence on foreign sources became limited only to

critical subsystems in complex microelectronics and specialty materials (Baskaran, 2000).

However, while India developed substantial independent endogenous capability in nuclear weapons

as well as space and missile systems, most of the conventional systems were sourced about 70%

from abroad and most of 30% the domestic production was based on licensed foreign technologies

even in the 1990s (Rajan, 2001).

1981-95 – Informatics Revolution

In 1984, India’s new Prime Minister Rajiv Gandhi, Indira Gandhi’s son and Nehru’s

grandson, laid a vision of taking India into the twenty-first century through a major emphasis on

technological advancement, with a central role for the electronics industry including consumer

electronics and software. The national and state level policy documents were already talking about

the need to liberalize technological trade, in order to enable import of key components and

technology and to facilitate exports. A new Industrial Policy Statement issued by Indira Gandhi’s

government in 1980, for instance, underlined the need to stimulate industrial growth, in the backdrop

of India’s stagnating industry during the 1970s, using a set of policies that “remove the lingering

constraints to industrial production and, at the same time, act as catalyst for faster growth in coming

decades.' (Dutta, 2002)

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A November 1984 Computer Policy recognized software as an industry, making it eligible for

fiscal incentives and bank credit. Following DOE’s advice, body-shopping, or the provision of labor-

intensive, low value-added programming services, such as coding and testing, at client sites overseas,

were also recognized as valid exports. A Software Development Promotion Agency (SDPA) was set

up under the DOE. The 1986 Computer Software Export, Development and Training Policy explicitly

rejected the idea of self-reliance in software and in complementary hardware and computer

engineering technologies. It underlined the importance of an integrated development of software for

the domestic and export markets, and of a strong base of software industry in the nation, by

promoting the use of computer as a tool for decision making and to increase work efficiency and for

catalyzing development. To facilitate a “quantum jump” in software exports, the policy offered

various incentives to software firms like tax holidays, tax exemption on the income from software

exports, export subsidies, duty free import of hardware and software for 100 per cent export

purposes, and a liberal access to the latest technologies and software tools in any form. It also

included removal of entry barriers for foreign companies, removal of restrictions on foreign

technology transfers, participation of the private sector in policy making, and provisions to finance

software development through equity and venture capital.

The Seventh Plan (1985-90) made telecom technology and services a high national priority.

In 1984, Rajiv invited UK-based Indian, Satyen (Sam) Pitroda, to start the Center for the

Development of Telematics (C-DOT) with the goal of replacing the foreign switches on which

Indian phone system was based by designing an indigenous digital telecom switch for licensing to

and large scale manufacture by private firms. C-DOT licensed switching technologies from various

foreign firms for developing its own version. It produced an affordable and adaptable smaller rural

exchange switch (that included solar panels), suitable to Indian conditions of high heat, humidity

and dust, and then built a bigger capacity switch and transmission equipment (www.cdot.com,

2005). In 1985, Rajiv opened the telecom equipment manufacturing sector to the private firms, and

in 1986, created Department of Telecom (DOT) by separating postal and telecom administrative

units. Consequently, during the Eighth plan (1992-97), the number of telephone connections could

rise by 50%, with the telecom services growing by 15-20% in the urban areas and extending widely

into the rural areas.

The policy reform made the full battery of government institutional support, including that

available especially to the small firms and to the export firms, instantly accessible to the software

firms. To illustrate, the government-owned Export Import Bank of India, a developmental bank,

19

introduced several schemes, including a special window for export oriented software companies in

1986. It supported market research quality satisfaction, buyer’s visit to India, and participation in

specialized fairs, besides offering term loans to finance the equity contribution of local companies

in overseas ventures, and to finance software product development to support the industry move up

the value chain. Similarly, at the state level, consider Maharashtra Electronics Corporation Ltd.

(Meltron), set up in 1978. Its New Products Division worked with various private and public sector

groups to promote use and production of electronics in the state of Maharashtra. Among other

things, it helped local entrepreneurs take advantage of the various trade opportunities and financing

schemes, and offered training programs for rural women to become electronics assemblers.

In 1986, UNDP provided support for setting up a nation-wide computer network for the

education and research community (ERNET – the Education and Research Network), and to help

enhance national capability for computer communication. The project initially included five Indian

Institute’s of Technology and Indian Institute of Science at Bangalore, and by 2000 had connected

more than 80,000 users in 750 academic and research institutions with its dedicated satellites (Kumar &

Joseph, 2004). This growth of country wide networks and Internet was enabled by the data transfer

technologies developed at Tata Institute of Fundamental Research (TIFR), and at the National Center

for Software Technology (NCST), set up in Bombay in 1984, both of which were supported by DOE.

By 1990, India had created a capability for a commercially usable modern computers and

communication network. In 1990, DOE established three Software Technology Parks (STP) that

offered core infrastructure including computer facilities, reliable power, and high-speed satellite links

to individual firms for software exports at three cities, including Bangalore and Pune. In 1991, four

more STPs were set up, including at Noida and Hyderabad, and by 2004, there were some 40 such

STPs. The number of units in STPs rose from 164 in 1991 to 7000 in 2002 and accounted for 80% of

India’s software exports (Kumar and Joseph, 2004).

Also, the government policy to computerize its departments and enterprises generated large and

complex assignments for the local firms, and became a key catalyst for development of software

industry. The most notable was the automation of state-owned railways reservation. In 1983, when the

Railway worker union agreed to the government proposal to computerize the railway reservation

system, Indian railways was running the world’s second largest railway system, carrying about 100

million passengers a year, involving "7 different categories of trains, 72 types of coaches, 7 classes of

reservations, 32 types of quotas, and 85 kinds of concessional tickets." (Mulhearn, 2000) Passengers

often had to wait in line overnight for reservations. The contract was given to CMC. CMC, set up in

20

1976 as a substitute for IBM maintenance to initially service IBMs, had grown to service about 40

foreign platforms and a few local platforms as well (Dataquest, 2002). CMC used state-of-the-art

hardware and write indigenous software in DEC’s proprietary operating system (taking 35 engineer

years for automating the first location – Delhi – alone), to produce a system that was both efficient and

far cheaper than what had been quoted by the foreign companies. The average waiting time for the

passengers was reduced to less than 20 minutes (Mulhearn, 2000). This contract helped CMC grow

into India’s second largest informatics company in the 1980s, with more than three fourths of revenue

coming from design of large infrastructure delivery related turnkey projects. While the railway

reservation project resulted in a dramatic mind set change in favor of the personal computers, in 1985,

the Rangarajan Committee decided to computerize all public sector banks, and to use Unix and the

Motorola 68020 chip. And immediately, private companies – starting with HCL – raced to introduce

Unix systems, ahead of the companies in other nations (Dataquest, 2002).

EVOLUTION OF THE PRIVATE INFORMATICS INDUSTRY

In early 1980s, three groups of firms were identifiable in the computer industry. First, firms

like DCM-DP (Delhi Cloth Mills-Data Products), Nelco (headed by JRD Tata) and Microcomp/HCL (a

breakaway of DCM) that had diversified from desktop electronic calculators (Dataquest, 2002).

Formed in 1976 through a tie up of upstart Microcomp with a small state-owned firm having a

computer license, Hindustan Computers Ltd. (HCL) created a venture in Singapore in 1980, and

National Institute for Information Technology (NIIT), as the first private sector training institution for

IT (later to become the largest trainer in the nation) in 1981. On the basis of its strengths in low cost

engineering, HCL in 1984 launched the first PC-compatible in India called the Neptune for Rs. 100,000

($5,000) and diversified into reprographics by licensing Japanese technology, and in 1985 created an

American office in Silicon Valley (Dataquest, 2002; www.hcltech.com, 2005).

The second group comprised firms diversifying from other industries and other late movers,

such as CMS, Blue Star, and Wipro (Dataquest, 2002). Wipro was a diversified cooking oils firm,

which had moved into hydraulic equipment and then in 1981 into minicomputers by hiring away

electronics engineers from ECIL. Wipro built its minicomputers around the early IBM PC chips, and

was able to compete well with ECIL. In 1986, when Intel launched its new 386 processor, Wipro

implemented it in computers within 2 months, and gained a lead over HCL that was slow to adopt 386.

By 1989, computers constituted a third of the turnover of Wipro (Mulhearn, 2000).

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The third group consisted of many small firms that imported disassembled computer kits from

Taiwan and Korea and made profits by arbitraging on protectionist tariffs (Dataquest, 2002).

Due to the intense price wars, the price of PC fell to less than $1,000 by 1985, when 2,600 PCs

were sold, compared to 1,200 in 1984 (Dataquest, 2002). Soon 8088 PC was replaced with the 8088

PC-XT (with a hard drive), and later with the 80286 PC-AT. And in mid-1980s, local area networking

started with Novell’s Network OS—Netware. Based on the 286, Netware supported the Ethernet,

though with a high cabling cost and with limited applications. In 1986, Intel launched the 386, a 32-bit

chip with significant computing power. The Indian firms sought to run Unix on the 386, with Wipro

introducing perhaps the world’s first 386 Unix system, connecting up terminals at a fraction of the PC

cost. A new industry - the networking and communications – was thus created very rapidly.

Ironically, the most competitive Indian products were design-intensive based on low-cost

indigenous design and engineering talent, as opposed to being commodities (Mulhearn, 2000). Given

the evolving industrial policy climate, it was difficult for the firms to forge the requisite network of

foreign suppliers to reliably deliver high-quality low-cost parts and components, and because no firm

succeeded in commodity production, a base of local suppliers could also not be formed in the nation.

Further, the firms that faltered in hardware, such as CMC, ECIL, and HCL, flourished by moving into

software. Finally, the firms that could not enter the hardware market, either because of limited funds

(for upstarts) or late focus (for established business houses), also found design intensive and software

domains as an easier entry strategy. For instance, Tata Consulting Services, formed in 1968 by Tata

group, emerged as the biggest private player in local software market and the largest software exporter

by 1989. Without the economies of scale of high volumes, the Indian firms found themselves

uncompetitive in an increasingly capital intensive hardware development and manufacturing industry.

By the 1990s, most of the India’s IT hardware companies were transformed into direct or indirect

dealerships for foreign brand computers and related products (Jhungjhunwala, 1999).

The exports of software from India had started in 1974, reaching $4 million in 1980, $28

million in 1985, and rising to $481 million by 1995. Given the weak telecommunication

infrastructure, the Indian firms found it more difficult to do large volume body shopping work from

India, though the intro level programming salaries in India were only a tenth of those in the US. In

fact, while the productivity of work performed offshore in India was 10-50% less than the international

standards, the productivity of Indian firms’ work onsite was 20-50% better than the standards

(Mulhearn, 2000).

22

Under this scenario, three factors enabled an increasing offshore software project work in India:

(1) build up of experiences and client relationships of Indian firms having overseas offices, (2)

improved telecom infrastructure in India, and (3) offshore software development joint ventures of the

foreign hardware firms.

First, many Indian firms set up US offices that served the client’s maintenance, basic

programming and testing needs onsite, and later moved up the trust curve of the client to gain higher

value-added contracts to be performed offshore. Creation of the US offices was facilitated by the

growing network of educated Indian diaspora overseas, as well as improved Indo-US government

relations that allowed Indian firms to send low-cost Indian programmers to work on the client projects

onsite in the US on H1-B visas. Indian firms charged, on average, 70% of Western contract rates for

onsite work and 40% for offshore work (Mulhearn, 2000). Indian firms had learned to work on a

variety of platforms, given the absence of IBM, with Unix operating system, and were so able to

acquire contracts for the maintenance of various legacy systems. They upgraded their project

management skills as the Western clients sought control over the product, scheduling, delivery, quality,

and documentation. The firms thus built a base of in-house training programs, quality processes, and

productivity tools. By 1999, 137 Indian firms would have obtained either ISO 9000 or SEI-CMM

Level 2 certification, and more Indian firms would be certified at the highest Level 5 than the US firms.

Second, as the telecom infrastructure improved by the early 1990s, firms could take up more

body shopping work offshore. In mid-1990s, two thirds of the work on software exports was done

onsite (at client’s site overseas), and one third offshore (in India). Further, two-thirds of the projects

were body-shopping (low skill programming, requiring only coding and testing services, often without

any strong ties with the client) and one-thirds were higher value-added (systems analysis and design

skills, often with client alliances). (Mulhearn, 2000).

Third, Rajiv Gandhi invited foreign multinationals, starting with Texas Instruments in 1986, to

set up software development units in India through a 40%/51% joint venture, so that they may be able

to sell an entire value-added hardware platform in India. Bangalore, which had been the home for

public sector units such as ISRO, BEL and ECIL, was promoted as the India hub for software talent,

and an attractive site for the MNCs. Because of stronger ties with the MNCs, these joint ventures were

able to take far more offshore, turnkey work, than the local Indian firms. By 1992, nearly all major

Indian firms had formed a joint venture with a major MNC: Hiditron with Digital, HCL with HP, PSI

with Bull, Modi with Olivetti, DCM-DP with Control Data Corp, IBM with Tatas, and finally Wipro

with Acer; though by 2000, most joint ventures had been dissolved and MNCs and local firms were

23

operating largely independently (Dataquest, 2002). In the interim, there was a growing demand for the

professionals. Over the 1990s, every year, more than 67,000 computer science professionals were

trained by the state educational institutions, and another 200,000 by private institutes (NASSCOM

1999).

With the post 1984 informatics revolution, computer production nearly quintupled, hardware

exports more than quintupled, and software exports more than tripled by 1989. In 1989, Indian IT

industry’s revenues totaled Rs. 10 billion (as opposed to Rs. 750 million in 1980), with HCL reaching

the Rs. 1 billion mark.

Bangalore as Informatics Hub

One of the major developments during the 1980s was the rise of Bangalore as the IT

hub of India, and later its recognition as the Silicon Valley of India. Bangalore, as part of

Mysore Kingdom, had been known to be a model princely state during the colonial times. In

1898-99, it became India’s first city to use telephone lines to coordinate anti-plague measures,

and in 1900, it was supplying power to run the Kolar gold fields and steam textiles. In 1908,

the Tatas commissioned a technical university in Bangalore, calling it Indian Institute of

Science, on the advice of Dr. Hormusji Bhabha (grandfather of Dr. Homi Bhabha), Mysore

King’s Inspector-General of Education and the father-in-law of Dorab Tata – the eldest son of

the Tata Group founder, J.N. Tata (1839-1904). The objective was to produce scientists and

researchers, who would study, innovative and adapt new technologies for the growth of a new

India. The dynamic chief minister of the Mysore kingdom (1912-18), M Visvesvarayya,

envisioned Bangalore as a ‘science city’ with ‘contributory facilities based on information

systems’, and fostered development of iron and steel, irrigation, education and engineering

(Heitzmann, 2004: 37).

After the independence, Jawarhar Lal Nehru characterized Bangalore as the "city of

the future" and the "template of a modern India". (Heitzmann, 2004: 61) Given the technical

talent and support offered by the Indian Institute of Science, the government decided to locate

several large, public sector, high tech companies in electronics, telecom, and aeronautics at

Bangalore. In the 1950s and 1960s, Bharat Electronics Limited (BEL), Indian Telephone

Industries (ITI) Limited, and Hindustan Aeronautics Limited (HAL) were started, followed by

Hindustan Machine Tools Ltd (HMT) and Bharat Heavy Electricals Limited (BHEL) in the

24

1970s. All these public sector enterprises supported and nurtured a range of ancillary

enterprises in the medium and small scale sector.

A large number of government research labs were also set up in Bangalore, including CSIR’s

National Aerospace Laboratory (NAL), Centre for Mathematical Modeling & Computer Simulation

(CMMACS) and Central Machine Tools Institute (CMTI); Indian Space Research Organization

(ISRO)’s Satellite Centre and Telemetry Tracking and Command Network (ISTRAC); and Defense

Research and Development Organization (DRDO) ’s Centre for Artificial Intelligence & Robotics

(CAIR), and Centre for Airborne Systems Studies and Analysis, and Electronics and Radar

Development Establishment. These highly specialized high technology institutions and research

centers offered a critical mass of expertise in a range of engineering domains relevant for the

development of IT industry.

Attracted by the strength of Indian Institute of Science as an IT research center, and by the

range of ancillary units and research centers in Bangalore, a large number of corporate head offices

began leaving the left-wing militancy of Calcutta, and shifting to Bangalore. A majority of India’s

technical colleges sprung up in the four Southern States, with greatest concentration in Bangalore.

These included Indian Institute of Management at Bangalore that became source of managerial talent.

The modern educational opportunities, coupled with a professional skills-based work environment,

led to an open social environment, where women increasingly joined the industries and mentored

their daughters subsequently to become software professionals in large numbers (Heitzmann, 2004).

Many also sent their children to the US for further education, and later to help bridge Indian software

with the US.

Right from the early 1970s, Bangalore thus became India’s natural base for the export of IT

labor. And it rose to the international radar, when in 1986, an alum of Indian Institute of Science,

and a scientist at Texas Instruments, championed the creation of an offshore software development in

India, and selected Bangalore as the site. The high quality of labor, available at low costs, along

with the academic, research, and industrial base was a big attraction; besides the supportive policies

of the national and the state governments that helped overcome some of the infrastructure limitations.

Rajiv Gandhi committed to providing telecom infrastructure at Bangalore to support the

software development center of Texas Instruments (TI). Under his mandate, Department of

Electronics expeditiously set up the first Software Technology Park, with direct satellite link between

TI facilities at Bangalore and those in the United States. The entry of TI sent a big signal about the

software potential of Bangalore, and some domestic IT Firms – such as Wipro – decided to relocate

25

their headquarters from Mumbai to Bangalore. In 1988, Rajiv Gandhi also facilitated a software

outsourcing and body-shopping agreement of Bangalore-based Infosys with General Electric.

Thereafter, a large number of prominent American firms, including Hewlett-Packard, Novell, Digital,

Oracle, Sun Microsystems, and IBM followed to set up their software development centers in

Bangalore, greatly influenced by their ethnic Indian employees – many of whom had moved from

South India to the US in the 1970s.

The Karnataka state government offered liberal support for foreign investment, facilitated

power and telecommunications connections, provided land to software developers at below-market

prices, and actively promoted Bangalore as a city of future. To address congestion and infrastructure

issues, it benchmarked Singapore, and used computerized mapping techniques to plan new suburban

corporate cities. The European Community was enlisted to establish a Software Engineering

Training Institute in Bangalore. Over the 1990s, more than 10% of the nation’s software and

computer science engineers were based in Bangalore. Metro Bengalore had a 85%+ literacy rate,

that supported a pervasive print culture, with 67 book publishers, 110 newspapers and numerous

specialized magazines. The city had high telephone connectivity, high cable and satellite

penetration, and a high internet usage. The state government adopted a more participative

governance model, seeking private sector inputs to strengthen Bangalore’s position and reduce

bureaucracy.

Currently, Bangalore is home to more than 1,200 software companies, and has experienced a

rapid growth in hardware companies. These includes foreign and large domestic firms, as well as

many SMEs. Bangalore’s software exports surged from $39 million in 1986-87, to $128 million in

1990-91; and then from $0.92 billion in 1999-2000 to $3.52 billion in 2003-04. Over 40% of

Bangalore's software exports are in the high technology areas, such as IT access networks, optical

networks, video broadcasting, and wireless applications (Government of Karnataka, 2005).

Significance of the Auto Revolution

In addition to facilitating IT growth, the national government also sought to promote

development of automobiles during the 1980s – in a policy that predated the IT liberalization by

Rajiv administration. While the focus of IT growth was primarily on B-2-B linkages, the focus of the

auto initiative – at the behest of Indira Gandhi – was on developing a mass transportation vehicle,

accessible to India’s middle class. Early successes of the auto initiatives played a significant role in

26

changing the social and policy mindset, and served to foster openness to initiatives involving

multinational corporations and the private sector.

Since independence, the auto market in India was divided mainly between Hindustan Motors

and Premier Automobiles. The market was supply driven, and few people had access to cars. In

1981, the government decided to form a joint venture, called Maruti Udyog Ltd., with 26% equity by

Suzuki Motors of Japan for developing a small mass-market car. It offered several concessions to the

venture. Maruti’s plant was set up at Gurgaon, on the outskirts of the Indian capital New Delhi.

Suzuki’s business model involved use of the top local suppliers to help acclimatize its own

technology to local conditions, (Gupta, 1998). Suzuki also introduced to India various Japanese

management and production techniques, such as quality circles, vendor collaborations, and

continuous improvement for fully exploiting the technical talent of the local workforce.

Consequently, localization of parts, subassemblies, and product design was rapidly achieved.

The first car – Maruti 800 – launched in 1983 was a runaway success; and was later followed

by an up-scale model, the Zen, and two utility vehicles; each of which became leaders in their

respective segments because of competitive pricing and appropriateness to Indian climatic and road

conditions. In the late 1980s, the government diluted its stake to allow Suzuki, increase its share first

to 40% and then to 50% in 1992. Suzuki then proposed further modernization and equity increase,

but the government decided to limit Suzuki’s equity rise to 54% in 1996, and in 2003, opted to raise

funds instead through divestment of its equity in a public offering.

Since 2000, 17 foreign firms, established manufacturing operations in India. Many local

players such as Mahindra & Mahindra (originally a tractor firm) also decided to enter the market.

During 1999-2000, the automotive sector had a turnover of $11.9 billion (up from $3.6 billion in

1993-94). It employed 0.45 million people directly, and 10 million people indirectly. The auto

industry contributed about 17% to indirect tax revenue of the nation, and 4% of the GDP, starting

from a negligible share in the early 1980s.

NEW GENERATION PUBLIC SECTOR REFORMS: 1996-Present:

A new United Front Government in 1996 set up a Disinvestment Commission to consider the

case for withdrawing the government from “non-core, non-strategic areas.” However, before the

suggestions of the Commission could be implemented, a new government came to power in 1998. The

Vajapayee government formally accepted privatization as a national policy and a national priority, for

27

the first time, and created a separate Ministry of Disinvestment. The government committed to

retaining a majority holding only in “strategic areas”, identified as defense, atomic energy, and

railroads. Unviable PSEs were to be closed, while the potentially viable ones were to be restructured

and disinvested either gradually or through sale to a strategic partner.

Science and Technology Policy7

The IT sector grew at a compound annual rate of 40%, compared to less than 7% for the nation

during the second half of the 1990s. The software sector alone grew more than 55% annually, and

accounted for $3.9 billion of revenues in 1999, constituting 65% of India's total IT revenues. By 2000,

a majority of the Fortune 500 companies outsourced IT services to India. The successful outreach by

DOE in making the results of advanced R&D available, both through licensing of know-how, as well as

embodiment of know-how into equipment and technologies, to a large number of smaller and other

private enterprises resulted in a new era (Krishnan, 2003).

Until 1990s, most public sector R&D institutions had few links with industry, and were totally

dependent on government for financing (Krishnan, 2003). In mid-1990s, a major change occurred,

as these institutions applied for international patents, and sought to generate commercial funds by

licensing their know-how. The laboratories of the Council of Scientific and Industrial Research, for

instance, received 133 Indian and 38 international patents in 1998-99, against 76 Indian and none

international in 1987-88, and generated Rs. 2040 million of revenues, including Rs. 370 million from

the private firms and Rs. 150 million from the overseas firms (Krishnan, 2003). More than 90% of

the US patents of CSIR were obtained by the National Chemical Laboratory (NCL), which became

the largest Indian holder of US patents.

NCL not only licensed its technologies, but also undertook contract research for multinational

corporations. NCL created separate business planning and scientific information system divisions,

and offered medals and awards for technology development and support functions. Similarly, the

institutions of higher learning, such as Indian Institute of Technology and Indian Institute of

Management, were encouraged to do more external consulting and be more fiscally self-sufficient.

(Krishnan, 2003).

To facilitate research and development, the government introduced several programs to

support the absorption of imported technologies, develop, demonstrate, and commercialize

7 The various apex level organizations created by the government of India for supervising its science and technology initiatives over the 20th century are listed in the Appendix, along a time line. Corresponding information is detailed for Turkey in Reisman et al, (2004), and for Israel in Reisman (2004).

28

indigenous technologies, and encourage technology-based entrepreneurs. The share of private sector

in national R&D expenditures, consequently, rose to 20-25% during the late 1990s, as opposed to 15-

20% during the early 1990s, (Department of Science and Technology (2002)).

Policy for Sustaining the Reforms

In 1998, the government formed the National Task Force on Information Technology &

Software Development to identify ways to accelerate growth. The task force identified infrastructure

as the major impediment. For instance as indicated, growth in Bangalore was being impeded by

factors such as traffic congestion, pollution, and skyrocketing cost of housing.

The national policy response was to spread the growth of infrastructure into multiple cities, to

help exploitation of the varied endowments and clusters of knowledge the nation has to offer. The

software industry had initially evolved in Mumbai. In 1986, the Rajiv administration invited Texas

Instruments to set up an Earth Station in Bangalore for satellite-based communication to undertake

offshore software work. This catalyzed the rise of Bangalore into a center for software development.

As the infrastructure, such as software technology parks, grew in other cities, the greater Delhi

emerged as the third most popular cluster of software corporations. With the saturation of

Bangalore, Hyderabad and Chennai have carved their own niches in the South. These top five cities

jointly headquarter 84% of the 600 top software corporations in India. Though software technology

parks have also been situated in other cities such as Bhubaneswar, the growth of those cities was

more limited.

Table 2: Clustering of Top 600 Software Firms in India, 2000

City Company Headquarters % share Mumbai (& Pune) 154 25.66 Bangalore 122 20.33 Delhi & vicinity 111 18.50 Hyderabad 64 10.67 Chennai 55 9.16 Kolkata 25 4.16 Others 69 11.49

Source: Kumar (2001)

At the national level, the Ministry of Information Technology was set up in 1999 to coordinate

and develop a number of autonomous organizations, such as the Center for e-Governance, for

servicing different IT sectors through training; infrastructure and policy support; consulting; testing;,

29

accreditation; market support; and R&D activities. One of the first initiatives of the ministry was

enactment of the cyber law, and developing venture capital financing. In December 1999, it launched

the National Venture Fund for Software and IT industry (NFSIT), and helped several States, such as

Andhra Pradesh, Karnataka, Delhi, Kerala, Gujarat, and Tamil Nadu, to set up their own venture

funds. The amount of venture capital funding for IT sector surged from $80 million in 1997-98 to

$500 million by 1999-2000 (Singh, 2002). The Ministry also sponsored hundreds of R&D projects at

scores of enterprises, labs, and institutes, including the use of Indian languages for computers and a

stronger extension of IT to rural India. Consequently, the total estimated size of the IT economy in

India surged from 1.7 percent of GDP in 1997-98 to 3.7 percent in 2000-01 (Raipuria, 2002). The

software industry’s revenues grew from $835 million in 1994-95 to $8,300 million in 2000-01

(Raipuria, 2002). Its exports grew at 229% annually (from $485 million to $6,200 million), and

domestic revenues rose by 35% annually (from $350 million to $2100 million).

Table 3 compares India’s global competitiveness with that of Israel and Turkey. India

enjoyed a high degree of macro-economic stability; yet its credit rating was weaker than that of

Israel, possibly because of its greater reliance on the waste-prone government sector. India in fact

stood out for its low degree of transparency, i.e. high corruption, relative to both Turkey and Israel.

India also needed to further improve its contractual and legal system, if it was to achieve

competitiveness at par with Israel – which is known as one of the core technology innovation

economies of the world. India has done well to open itself to inbound technology transfer, but its

innovation effectiveness has been only marginally better than Turkey, and has lagged considerably

beyond Israel. While India has made substantial strides as a global software powerhouse, the

application of information and communication technologies within the nation remains under-

exploited, even in comparison to Turkey. Overall, India stands ahead of Turkey on the growth

competitiveness index primarily on the strengths of its stable macro economy and its more effective

contractual and legal system, which may have been the key motivators for the incoming investments.

Table 3: India’s Comparative Global Competitiveness Index and its components

(Scale of 1 to 7), 2003

India Israel Turkey

Growth competitiveness index 3.90 5.02 3.65

30

1. Macro-economic environment index 3.75 3.93 2.93

a. Macro-economic stability sub-index 4.36 3.67 3.27

b. Government waste sub-index 3.56 4.17 2.47

c. Credit rating sub-index 3.74 4.22 2.71

2. Public institutions index 4.26 5.82 4.07

a. Contracts and law sub-index 4.65 5.39 4.03

b. Corruption sub-index 3.86 6.26 4.12

3. Technology index 3.68 5.17 3.96

a. Innovation sub-index 2.06 4.80 2.01

b. Information & communication

technology sub-index

2.87 5.54 3.88

c. Inbound Technology transfer sub-index 5.31 N/A 4.72

Source: World Economic Forum (2004)

Table 4 gives India’s comparative state of development as of 2000. India is the larger economy,

and has a greater gap between purchasing power parity and market exchange rate gross domestic

product. India remains considerably less open than Israel and Turkey, part of which may be related

with the larger size of India’s economy.

Table 4: Comparative State of India’s Development, 2000

India Israel Turkey

GDP (billion $) 547.1 97.5 195.5

GDP/capita ($) 523 16,177 2,904

GDP (billion $) – purchasing power parity 2,808.8 115.0 434.9

GDP/capita ($) – purchasing power parity 2,686 19,079 6,462

31

Trade/GDP ratio 0.2381 0.9398 0.5258

Source: IMF, 2002

DISCUSSION

During the first period (1951-65), the nation relied on foreign technology and techniques. It

reserved all basic and heavy industries to the public sector. Expansion of large-sized private

companies in other industries by way of licensing and other industrial controls were closely

restricted. Because vast tracts of territory were lost in war, while foreign nations withheld key

components and services required to productively exploit imported technologies, India became

dependent for even the basic foods.

In the second period (1966-80), the nation withdrew into a protective shell of a closed

economy, focused on self-reliance and indigenous capability building. Higher education and training

institutions in science, technology, medicine, management, and related domains established during

the first period played an important enabling role. Specialized research institutions were created and

supported by the government, and were asked to import international technologies and practices, and

to develop indigenous versions for applications, particularly in agriculture and defense. While the

public sector developed significant technical strengths during this period, the costs of using these

technologies and techniques were far higher than international levels. The limited spillovers to the

economy resulted in high levels of poverty, unemployment, growing disparities in income

distribution, and a general decline in the standard of living, except in selected states where local

conditions were more suitable to adopting foreign technologies and techniques for agriculture

revolution.

In the third period (1981-95), the nation gradually opened the economy, and invited private

sector firms to exploit the infrastructure and capabilities created in the public sector. Private firms

were able to discover innovative and creative linkages for productively exploiting the public

infrastructure. This enabled them to rapidly move on the learning curve of servicing a diverse base of

costly foreign technology; to confidently expand overseas with onsite maintenance, testing, and other

software and information technology services. After being allowed into the telecom equipment

manufacturing, the private sector became an important partner in helping government organizations

extend data communication, nation-wide networking, and Internet services to software and other

firms. Multinationals, such as Texas Instruments and Hewlett-Packard, helped catalyze the

developmental process, for instance by setting up first offshore software development units in India

32

during the mid-1980s. These became certificates endorsing India’s capability for reliable ‘offshore’

development. The multinationals also inspired a strong quality movement, for instance, Motorola’s

Indian software subsidiary became the first SEI CMM Level 5 certified facility in India. Many

SMEs began internal R&D to absorb and exploit foreign technologies, services, and capital goods.

In the fourth period (1996-2010), the nation committed itself to further liberalization and

reduction in tariff and non-tariff barriers, partly pursuant to World Trade Organization dictates.

Social development gained center stage, as the nation’s technological resources were sufficiently

augmented for the states to be able to offer affordable services to the masses. The strategy of large

private sector firms relying on imported technologies, services, and capital goods appears to lost

momentum, as gains in efficiency realized during the previous period matured. Many technology

collaborations with foreign firms fell apart. Some large private sector firms, such as Reliance, started

emphasizing internal R&D, rather than continuing to depend on imported know-how. The public

sector firms, on the other hand, shifted priorities. They made available their own internal R&D

results to private firms, not only locally but also globally. Foreign firms sought to exploit their own

know-how by encouraging their Indian subsidiaries to be first to introduce new products. This is in

stark contrast with the first period when the foreign firms offered India only old and antiquated

products with high mark-ups and high maintenance fees. Domestic firms appear to have matured in

their process capabilities. In the software sector, more Indian firms are certified at the highest level

of process capability maturity than all the overseas firms in India put together. Additionally in most

other sectors, domestic firms became able to – possibly by virtue of their matured process capability

– retain a dominant share of the market, except where they consented to be acquired by

multinationals (as in soft drinks), or where the multinationals have operated in India for a long period

in so much they are deemed to be virtually domestic (for instance, Unilever in detergents and

cosmetics).

The government shifted its role from being the nation’s primary financier and generator of

knowledge and technology, to a secondary supporter of innovations by well managed private sector

enterprises, and then to a tertiary governance and organization of the distributed knowledge in diverse

communities.

The emerging role for the developmental state in the globalized economy is the networking role or support of government to enterprises...... to penetrate the linkages of deep integration..... The final results will depend much less on specific policies than on the policy implementation capability of governments and the kind of social organization and governance mechanisms that they build for an economy increasingly dependent on foreign markets, finance, production and technology networks. (Radosovic, 1999)

33

In the first phase, the government sought foreign aid and international assistance for advanced

and modern technology. In the second phase, the public sector and government funded institutions

more or less independently developed technologies for defense, strategic, and high priority social

areas, as identified by national planning. In the third phase, mounting costs of new technologies

precipitated a shift in the state’s technology development, paralleling similar trends in the US and

elsewhere in the world as the nation suffered huge fiscal deficits and rising national debts. In the

earlier paradigm, the government led basic innovations for the defense and other strategic sectors,

and the spin offs for commercial applications, if any, were found later. In this paradigm, the costs of

the technologies were huge, and initially technology-rich products were marketed to the corporate

sector and targeted at customers with higher incomes and technological savvy. In the new paradigm,

which evolved over the 1980s and the 1990s, the government began sourcing a number of defense

systems from regular commercial channels. The quality of the commercial systems improved so

dramatically that new products became accessible more widely to end users, not just to the

businesses. The government began seeking private sector’s cooperation for developing dual use

technologies, (Rajan, 2001). In the fourth phase, a yet another paradigm is in the making. The

academic, research, and the development sector (community groups, non-government organizations)

are discovering diverse know how of the local communities, and the commercial value of this know-

how is being recognized. The government is seeking to promote awareness of this local knowledge,

and to build capacities for national and international exploitation of this knowledge. Thus, over the

four phases, there has been a 180 degrees turn in the targeted source of knowledge and innovation.

An integrated approach needs to emerge. There is scope to forge international and multi-

national strategic alliances in technological growth, in a way that strengthens the ability to be

independent as well as the ability to pursue greater inter-dependence demanded by sophisticated and

complex futuristic technology systems. The private sector can help speed up the action, while the

meso development organizations can help broaden and deepen the technological base for such

exploitation.

Technology innovations may be classified into three major categories: radical breakthroughs

(organizational innovations), incremental innovation (business process innovations), and the system

innovation (innovative organizations). These innovations occur primarily in formal organizations.

In the first phase, through foreign alliances, India sought to bring radical breakthroughs to the nation.

Denial of critical technology, parts and components to India, then encouraged a policy that promoted

34

incremental innovations through business process manipulations in the second phase. In the third

phase, the thrust was on nurturing innovative organizations in the private sector, through public

sector cooperation and guidance. In the fourth phase, however, there is a growing awareness about a

new category of innovation – grass-roots or micro innovations, which involve artisans, farmers,

women in households, slum dwellers, tribals, and other unsung heroes who never obtained credit for

their creativity. Micro innovations are shared largely through informal networks, though

increasingly non-government organizations are seeking to scout, document and commercialize these

innovations.

Guided by the successful experiences in the software sector, increasing attention must also be

placed on securing a place for India in international research, through participation in the various

international research value chains. It is believed that India offers a range of human resources for the

increasingly complex multinational operations, and therefore should gain a special place for global

contract research. It would then be able to graduate from participation in part of the system. This will

help Indian firms participate in the sophisticated value-adding chains to build up their internal core

technological capabilities rapidly and thus to catch up with countries such as Israel, (Rajan, 2001).

CONCLUSIONS

In this paper, we sought to examine the effectiveness of India’s developmental model based

on institutional technology transfer, and to juxtapose its policies and practices with those of Israel and

Turkey. Our analysis suggests that the public sector is not an effective absorber of overseas

technology transfers, partly because foreign governments tend to be wary of transferring strategic

technologies to institutions controlled by the emerging market’s government. For geopolitical

reasons governments of developed countries may withhold or embargo such transfers. The vagaries

of such embargoes depend mostly on political vagaries of the moment. Consequently, the public

sector may be forced to be self-reliant, if it wishes to reach commanding heights, or relative security.

Additionally, the public sector is not an efficient absorber of overseas technology transfers, partly

because operations of different public sector enterprises are difficult to coordinate. No matter how

developed a country, its public sector is inefficient and bureaucracy prone.

The alternative where technology flows from overseas to the private sector is perhaps more

viable for larger firms. This is especially so for those firms willing to do supplementary research and

development for adapting the foreign know-how and capital goods to the local climate, culture, and

market conditions. The firms that conduct internal R&D, often generate and accumulate their own

35

internal knowledge and become able to compete with foreign firms. The province of foreign

technology based SME’s is often confined to manufacturing but more likely then not to the

marketing, sales, and servicing of such technology8.

A more critical factor appears to be collaboration and strategic alliances, between foreign

firms and the private sector, as well as between the public sector and the private sector. This helps

firms gain an overall strategic awareness of international technological, organizational, and servicing

parameters, and of the national technological, organizational, and servicing capabilities. Such

strategic awareness allows the firms to leverage and develop indigenous capacity for world-class

applications, and exchange in the international markets.

Turkey has been shown to have acquired and used foreign technology from a limited number

of suppliers (Reisman et al, 2004). These were overwhelmingly the US in the defense sector and

predominantly France and Japan in the private manufacturing sector. Manufacturing is done under

license or through joint ventures for import substitution and for export by a small group of

established oligarchs predominantly the Sabanci and Koc (family) holding companies. Major

telecommunication services are provided under the same conditions. After the banking and currency

reforms of the 1980s, a number of multinational corporations established wholly owned

manufacturing and distribution divisions in Turkey. This is especially the case in pharmaceuticals.

These operations serve the emerging local, middle-east, Russian, and Central Asia markets.

However, due to this mode of transferring technology, Turkey restricts “the set of technologies that

the individual production units can use.” This affects “total factor productivity at the aggregate

level.” It exists on “account of monopoly rights that industry insiders with vested interests tied to

current production processes have.” And, “with the government’s protection, these insiders

impose[d] restrictions on wor8k practices and provide[d] strong barriers to the adoption of better

technologies” 9 (Parente and Prescott, 2002).

Turkey’s support of SMEs as matter of public policy however, was not even considered until

the 1990s10. Although formally in place, infrastructure for implementing such policies in Turkey has

8 To date, the only hi-tech (liberally defined) SMEs that have matured sufficiently to be listed on the Istanbul Stock exchange are marketers of foreign technology, Reisman (2005). 9 Until the onset of its IT revolution such restriction on “the set of technologies that the individual production units can use” was also true in India. “[W]ith the government’s protection, these insiders impose[d] restrictions on work practices and provide[d] strong barriers to the adoption of better technologies.” Israeli agriculture was never affected by such restrictions – quite the contrary. To the extent that Israeli industry was so affected, that changed in the early 1970s along with the policy of privatization. 10 “Turkish republican history has traditionally been marked by the indifference, not to say the overt distaste, of economic policy makers vis-a-vis such enterprises which do not resemble modern, large-scale production units long associated with the

36

yet to bear fruit. Overall and over time, through its policies and its practices the country has become

technology dependent. Such is the case in all spheres and in all sectors. It is as true in defense as it is

in the private sector (Reisman, 2005).

India reverse-engineered both Soviet and western technology; incrementally improved upon

it, adopted it to local or similar conditions, and produced for import substitution and for export by

state-owned enterprises and a small group of established oligarchs, such as the Tata Group, Birla

Group, Thapars, Kirloskars, among others. India no longer is technology dependent in many

spheres of manufacturing and agriculture. Moreover, during the last decade or so, India instituted

policies and practices which encouraged and supported R&D in information technologies.

Consequently, India created many SMEs that grew to become worldwide (including the US and

Israel) outsourcing destinations. The above evolutionary process created an expanding demand for

its scientists and engineers. This slowed India’s braindrain.

Starting by “scrounging the world’s scrap yards” (Reisman 2004) Israel acquired foreign

technology from many sources including the battlefield. Israel used it, learned from it and from the

field – mostly defense. Additionally, its own university and the public sector laboratories produced

break-through innovations for use, and for export, in a great diversity of technologies by a large

number of SMEs growing to significance in the global marketplace. Many of these SMEs grew to be

listed on stock exchanges worldwide. Some were started by an individual with an idea for a

marketable product. Many of those ideas emanated from service in the military. Other ideas like drip

irrigation came from individual farmers. Israel is now an acknowledged high tech industry leader in

many sectors. These include defense, security, aerospace, biomedical, agricultural, IT (both hardware

and software), chemicals, and pharmaceuticals, among others. Israel initiated its infrastructure for

efficient and effective commercialization of university laboratory innovations back in the 1950s by

launching the YEDA organization at the Weizmann Institute of Science (Reisman (2004).

Like many developing nations using the socialist model India’s public sector was created to

help the nation reach the ‘commanding heights’ of the economy, and to conduct activities that would

not be performed in the private sector, because of high risks, high investment requirements, or

unwillingness to assume the developmental obligations.

ideals of industrial development. In contrast to this traditional approach, Turkish politicians, especially since the beginning of the 1990's, have begun to emphasize the significance of SME development, not only in relation to the employment opportunities they provide, but also in relation to their contribution to industrial progress and export growth.” Bugra (2005).

37

In India the DOE demonstrated that a government policy implementing a model of public

sector-private sector partnership, can catapult a nation’s development to great heights. In this model,

the public sector assumed a development and supportive role so the risk and investment requirements

reaped beneficial results that were spread over a large number of private sector enterprises who were

able to and willing to respond to the developmental climate, education and training, infrastructure,

know-how, and technology offered by the public sector.

Beatty (2004, pg. 168) suggested two scenarios for classifying a developing country’s adoption

and diffusion of foreign technology11. The totality of facts and statistics documented earlier in this

paper leaves no doubt that the case of Israel and India falls squarely on his "technology imports helped

to promote domestic technological capacity" while the case of Turkey, up to the last decade and

arguably to this day, falls squarely on the "foreign technology yielded technological dependence."

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APPENDIX

Apex Level science and technology organizations in India over the 20th century

Year of Establishment Name of the Organization

1909 Indian Institute of Science - Bangalore

1911 Indian Council of Medical Research

1929 Indian Council of Agricultural Research

1931 Indian Statistical Institute

1942 Council of Indian Scientific and Industrial Research

1947 Indian Standards Institution

1951 Ministry of Scientific Research and Natural Resources

1953 University Grants Commission

1954 Department of Atomic Energy

1958 Defense and R & D Organization

1970 Department of Electronics

1971 Department of Science and Technology

1972 Department of Space

1984 Department of Scientific and Industrial Research

1986 Department of Bio Technology

1988 Department of Industrial Development

2000 Ministry of Information Technology

42

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

1958-59

1965-66

1970-71

1975-76

1980-81

1985-86

1989-90

1994-95

1998-99

India’s science and technology expenditures as a % of GNP

0%

5%

10%

15%

20%

25%

30%

1958-59

1965-66

1970-71

1975-76

1980-81

1985-86

1989-90

1994-95

1998-99

India’s private sector science and technology expenditures as a % of total science and technology

expenditures

Source: From Department of Science and Technology (2002).

Figure 1: India’s Science and technology expenditures over time

43

Figure 2: India’s GDP and Per Capita Income, 1993-94 Constant Prices

0

2000

4000

6000

8000

10000

12000

14000

1950-51

1960-61

1970-71

1980-81

1990-91

2000-01

GDP in Rs. Billion

Per Capita Income inRs.

Source: From Government of India (2005)