Economy India
Special Story

Inclusive Growth with A Knowledge Based Economy

Dr Anamika Choudhary
Head,
Dept of Economics, DSMNRU
Lucknow
The phrase "knowledge-based economy" emerged as a result of a deeper understanding of the
contribution of both knowledge and technology to economic development. Knowledge has
always been crucial to economic progress as it enriches the human capital and adds to the
upgradation of technology. A knowledge economy relies more on intellectual capital than
physical inputs or natural resources to create value through information-intensive activities. A
trained human resource that generates the foundational activities of knowledge economy through
research, innovation, scientific advancement, and technological advancement is the key to this
change. Since knowledge may act as a catalyst to bring dynamism in uplifting the economy, its
implication in economic development and inclusive growth cannot be ignored. It has thus
recently come to light and has been treated with increasing significance.
WHAT IS A KNOWLEDGE BASED ECONOMY?
A knowledge economy produces, shares, and uses knowledge to promote growth and progress. A
knowledge economy thus emerged as a result of globalization being fueled by the rapid
development of information and communication technology. The ability of nations and
businesses to properly capitalize on their intellectual assets (human capital) is just as important to
their competitiveness as their physical assets. Information and communication technology and
high-tech industries are not the only ones that can participate in the knowledge economy. A
knowledge-based economy that makes use of the knowledge already in existence helps to raise
productivity levels across all industries and further human progress.
A nation must invest in education, provide incentives for innovation, have a modern information
infrastructure, and an economic climate which is competitive and cooperative so as to transform
itself into a knowledge economy. These four components that make up the knowledge economy

framework are the four knowledge pillars of economy which brings simultaneous effects on the
production and consuming sectors. It guarantees long-term economic growth accompanied by
social and economic welfare.
SIGNIFICANCE OF KNOWLEDGE IN INDIAN HISTORY
According to the Indian Upanishad (Dasgupta, 2001), there are four different ways to learn: via
teachers, through self-reflection and introspection, through peer contact, and experientially
through time. The Upanishads emphasize the importance of having knowledge on multiple
levels, including knowledge for meeting one's basic requirements, knowledge for creating means
of livelihood, knowledge for mental well-being, knowledge based on logical reasoning, and
knowledge of one's purpose. Huien Tsang, Marco Polo, and Vasco Da Gama had all made their
voyages to India because of its knowledge in a variety of fields. Another group of well-known
researchers in a variety of scientific and mathematical fields emerged in the eighteenth century,
including Meghnad Saha, Chandrashekhar Venkat Raman, Jagdish Chandra Bose, and Sriniivas
Ramanujan.
As a result of the Information Technology Revolution of the 1990s and the signing of the
Intellectual Property Rights under the World Trade Organization, India is still making progress in
its assimilation into the modern knowledge economy. In the modern period, information
technology offers the fundamental framework for knowledge intake, knowledge development,
knowledge application, and knowledge dissemination for societal improvement. Human interest
in interdisciplinary fields like biotechnology, genetic engineering, neurophysics, biochemistry,
econometrics, etc. peaked in the 20th and also in the 21st centuries. The emphasis has
significantly shifted in the direction of R&D and innovation as a result of the successful
registration of numerous applications with the US Patent and Trademark Office. India
established the National Knowledge Commission (NKC) in 2005 after realizing these trends and
their importance and asking for suggestions on how to make her position in the new world. The
goal of NKC was to promote the growth of a thriving knowledge-based society.
ROLE OF KNOWLEDGE IN ECONOMIC THEORIES

The New Classical Growth models such as Solow -Swan model is considered as a path breaker
which argued that technological change significantly influences the overall functioning of an
economy and stated that technology augments labor productivity, increasing the total output
through increased efficiency of labor unlike the classical model of growth which considered
economic growth to be led by productivity and ignored the role that the efficient technical
progress could play for the smooth running of an economy. Then further the Endogenous growth
theory claimed that external factors such as technological progress, etc. are the main sources of
economic growth. The policy implications of the Endogenous Growth theory stated that there are
increasing returns to scale from capital investment in the “knowledge industries” of education,
health, and telecommunications. The Innovation theory of Profit by Schumpeter also adds to the
significant role of various forms of innovations that help to enhance the profit of the entrepreneur
and thus bring economic development. Conclusively, it can be stated that different economic
models laid emphasis on the role of knowledge in bringing sustainable long term economic
development. The global economies recognized the contribution of knowledge in enhancing total
factor productivity. The present paper delves into the issues that arise in making India a
knowledge-based economy to move to its path of inclusive growth.
VARIOUS METHODS TO ANALYZE NATION'S PERFORMANCE IN TERMS OF
KNOWLEDGE READINESS
The performance of nations in terms of knowledge readiness can be analyzed using a variety of
techniques. Knowledge Assessment Methodology (KAM) was created by the World Bank in
2012 to gauge the position of nations in relation to one another in the global knowledge
economy. The indicators under this methodology —explained below—were used to analyze
India's place in the world knowledge economy.
Knowledge Index (KI):
The World Bank Institute created the Knowledge Index, or KI, as an economic indicator to assess
a nation's capacity for knowledge creation, adoption, and dissemination. The Knowledge Index is
calculated methodologically as the simple average of a country's or region's normalized
performance ratings on the critical indicators in the three pillars of the Knowledge Economy:

1) education and human resources,
2) the innovation system,
3) and information and communication technology
Knowledge economy index (KEI):
The Knowledge Economy Index considers whether the climate is favourable for the successful
use of knowledge to economic development. It is an overall measure that gauges how far along
a nation or region is in developing its knowledge economy. The KEI is determined by taking the
average of a nation's or region's normalized performance scores across the four knowledge
economy pillars (World Bank 1 ): –
1) Economic Incentive and Institutional Regime
2) Innovation and Technological Adoption
3) Education and Training
4) Information and Communications Technologies

Countr
y
KE
I KI

Economi
c
Incentive
Regime

Innovatio
n

Educatio
n

IC
T
2015
Ran
k
Denmark 9.58 9.55 9.66 9.57 9.80 9.28 1
Sweden 9.52 9.63 9.18 9.79 9.40 9.69 2
China 8.20 7.73 9.60 8.64 5.30 9.26 26
Brazil 5.57 6.00 4.30 6.07 5.84 6.08 55
India 3.12 2.94 3.67 3.97 2.26 2.59 100
Source: World Bank,2015
India’s Knowledge Economy scorecard:
1 https://documents1.worldbank.org/curated/en/695211468153873436/pdf/358670WBI0The11dge1Economy01P
UBLIC1.pdf

As one of the biggest and fastest-growing economies (GDP growth rate: 7.7% in 2022-23), it is
crucial to track India's progress towards becoming a knowledge economy.
India has the lowest coefficient index in education, placing at 100th rank globally in the KEI in
2015. It only performed well when compared to the continent of Africa and the South Asian
region, thus a great deal more remains to be done before knowledge can be fully harnessed for its
development. Contrary to its main rival China, which has marked its place at position 26 at the
global level in information infrastructure, India's overall KEI score slightly shifts in back
position due to non-appreciable performance in the education pillar and in the information
infrastructure pillar.
If India's performance was compared to that of Brazil and China, its closest rivals, it would not
be considered impressive. India only managed to distinguish itself from other countries in terms
of indicators relating to the institutional and economic regime (quality of regulation and rule of
law), but it still trails China and Brazil in terms of indicators relating to the information
infrastructure, researchers, and education pillar of the knowledge economy.
Low per capita income, inequalities in wealth, inequality in income, abysmal life expectancy, a
lack of training for skills, very low internet and computer use, and other socio-economic indices
all inhibit India's capacity to move forward to the stage of a knowledge economy.
We score poorly on metrics that assess how well a country can use its knowledge resources or po
tential, or how strong its supportive environment is. For instance,
1) Our judicial system falls short in enforcing strict penalties for any intellectual
property infringement and in protecting copyrights and patents.
2)

Our financial system still lacks the maturity to finance venture capital projects or establis
h regulatory framework that encourage investment in telecommunications and other
knowledge-based infrastructure.
India’s position in the Global knowledge economy:

There is no doubt that a country's economic performance is significantly influenced by its
knowledge economy or knowledge society. India was in the bottom third of the world knowledge
economy, according to a World Bank report titled India and the Knowledge Economy:
Leveraging Strengths and Opportunities and as per UNDP's Global Knowledge Index 2021
which quantifies the knowledge and development conditions of countries, it ranked a lowly 97
out of 154 countries. Over the previous 15 years, India's situation has only slightly changed and
yet more needs to done. Canada has nearly the same number of people working in research and
development as India, although having a population that is less than 3% that of India, and ten
times as many patents. China has nine times as many people working in research and
development as India has. China spends close to 1.5% of its GDP on research and development,
compared to India's 0.7% (2022-23).
As seen by the World Bank's extensive work in this area, we must fight on two fronts. India's
demographic advantage—its youthful population—and the fast growth of the service sector have
profited from one another, as evidenced by the nation's recent economic boom. The knowledge-
based service sectors, such as information technology, science, engineering, biotechnology,
research and development, etc., are particularly affected by this. A big pool of inexpensive
knowledge workers, including scientists, engineers, and researchers, is a boon for India. India is
placed 40th out of 132 countries in the World Intellectual Property Organization's (WIPO) 2022
Global Innovation Index (GII) rankings. Between 2004 and 2020, the Global Competitiveness
Report, a yearly report published by the World Economic Forum ranked countries based on the
Global Competitiveness Index wherein ability to harness existing technology and innovation
were among the 12 indicators. India ranked at 64 among 141 countries with a score of 61.4.
ISSUES AND SOLUTIONS:
It is crucial to think about whether the flow of knowledge has led to inclusive progress. In fact,
the economic development based on knowledge creates, disseminates, and uses this knowledge
to bring an advancement in the economy however, researchers have not paid as much attention to
how this process ultimately affects innovation and technological advancement. Nor have they
marketed the value-added product in a way that supports the economy's long-term growth. The
expanding use of information in social and economic development demands an accurate

assessment of the structural soundness of the economy. The underlying defects can then be
resolved so as to take advantage of the real potential.
Three main issues include inadequate planning, a lack of efficient project management
techniques, and a lack of technical knowledge. Some of the other issues which come in the way
of India to transform itself into any knowledge economy are discussed below:
1) The efficient use of public resources is necessary to increase the effectiveness and quality
of the educational system, and the system must be developed in a way that it fully
satisfies the demands of the both local and international labour markets.
2) More attention should be paid to the quality of primary and secondary education. Besides
concentrating on a few, like IIT, encouragement and support should be given for all
higher education to raise the quality of all higher education.
3) An effort to persuade the business sector to invest in research and development. India
needed to incorporate market demand into the educational system in order to make a
transition towards a knowledge economy.
4) There is a need for modern patent laws and a strong IPR environment to make the nation
secure its place in the growing global innovation market.
5) The realm of innovation should not be constrained to a few industries or sectors. For
example, R&D is always meant to be connected to science-related fields like medicine,
and so on, which is why research in these domains typically receive greater support and
backing, and ultimately deters investment in R&D related to other streams or fields.
6) Since the commodities used in intra-industry trade are just as profitable as those used in
interindustry trade, innovation in products is required.
Less than 3% of schoolchildren actually intend to pursue a career in science, according to an
NCAER research. At the classroom level, we must foster a culture that fosters a love of science
by prioritizing practice-based learning and laboratory instruction. The New Education Policy
2020 has been implemented to encourage skills of research among the students. India needs to
understand how important the knowledge economy is to her and should create world-class
scientific and technological institutions. It must focus on initiatives

1) to develop, use, and use intellectual property in order to address our own problems and
develop a knowledge economy that is competitive on a global scale.
2) to modernize educational facilities including educational institutions, universities, and
S&T organizations quickly.
3) to establish a strong legislative framework that protects IP creators, pays them fairly, and
encourages investment and competition.
In order to tackle down above shows, following steps and strategy are required to be
adopted
1) Creating budgets and defining priorities
2) Adopting comprehensive, integrated strategies for the many policy pillars at all
governmental levels
3) Mobilizing state legislatures, which are essential to the development and
modernization of the Indian economy
4) Expanding trials and making known specific projects that amply demonstrate the shift
to a knowledge-based economy.
Even though India has managed to establish itself as one of the world's emerging powers, the
country still faces challenges in changing its economy to one based on knowledge in the
rapidly evolving technological world. This necessitates both a major improvement in current
knowledge systems and the development of new pathways for the production of new
information. It will be advantageous for India to fully utilize its human resources by
investing in and concentrating on increasing its productivity, in order to produce spread
effects similar to those achieved by China.

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