What happens when a country opens its economy to the world? Do political and economic reforms readily translate to greater economic growth and productivity? And do such reforms create an environment friendly to innovation? India provides some answers. 

After liberalizing its economy in the early 1990s, the Indian economy did away with the License Raj--the onerous and corrupt licensure system that mandated which businesses could open in India’s planned economy--and moved toward creating a more transparent economic environment. The openness has allowed a new generation of innovators to surface, and now India boasts an ever growing list of innovation success stories.

India's new innovations mirror the unique needs of an emerging economy. The Tata Nano, the world's cheapest car was recently unveiled. At only $2500, the car is expected to transform the Indian lifestyle, allowing millions to own a car that is both reliable and affordable. Then there is the $20 laptop aimed at providing distance learning across rural India. With over 60% of India's population between 15 and 64 years old and approximately 25% of the population still living below the poverty line, using technology to promote education and vocational training could prove extremely cost effective in training the next generation of youth.

The Economist recently covered innovative practices in the health care sector in India. Compared to care in developed economies, the magazine found that hospitals offer variable price structures and health information technology to offer quick and affordable service.

Economic dynamism is maturing on the subcontinent, but unfortunately the environment for innovation still lags in some areas. Here are some interesting World Bank statistics on scientific research and business innovation:

In India, there are only 115 R and D researchers for every million persons compared to 4482 in the United States and 5198 in Japan. In India, only 7,000 patents applications were filed in 2004 versus 185,000 in the U.S. and 362,00 in Japan.

Also, little or no services exist that could provide a national go to public policy for supporting innovators. Navi Radjou, a leading scholar in the field of innovation and global competitiveness proposes a National Innovation Network in India, that would allow the government to provide support to grassroots inventors by building an online knowledge base. Such a network would be delivered through online portals and allow knowledge-poor regions to learn from the strides made by knowledge-rich states.

The 1990s laid the foundation on which an innovation led economy will emerge in India. Recent economic developments confirm that: when the Indian economy opened to the world economy in the early years of the decade, Indian entrepreneurs jumped at the opportunity to expand, and have since helped generate a solid growth trajectory supported by increasing productivity and global competitiveness. (India’s labor productivity growth grew at 4.4% per year from 1995-2005, compared to 2% in the U.S. and 1% in the Euro area). 

Now political leadership only needs to capitalize on this opportunity and provide what the innovators need most: a robust and corruption free innovation policy to support the next generation of ventures.