India’s Climb up the Innovation Ladder: Policy Enablers and Impediments

Abstract: This paper explores the policy impediments hindering technological upgrades and innovation in Indian firms. Utilizing a complexity framework, it identifies corporations, universities, and R&D systems as key leverage points. The analysis reveals that high tax rates, uncertain policies, unfavorable bilateral investment treaties, and a lack of skilled talent hamper investments and scaling up of firms. Restrictive labor laws and limited participation in global trade further stifle innovation. The case study of India’s semiconductor ecosystem highlights the challenges faced in the chip design, fabrication, and assembly segments. To foster innovation, the paper recommends reducing corporate tax rates, improving policy certainty, attracting top talent, enhancing university-industry collaboration, and strengthening intellectual property rights. By addressing these systemic issues through targeted policy interventions, India can transition towards a more innovative and advanced industrial landscape.

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