Technological Innovation in Indian SMEs: Need, Status and Policy Imperatives

SMEs, due to their unique characteristics, are found to have inherent capabilities to undertake technological innovations successfully across industries and nations. While there is considerable empirical evidence to throw light on SME innovation contributions in the context of developed countries, there is hardly any evidence to reveal how innovative SMEs are in rapidly industrializing economies like India. This paper reveals the core findings of two empirical “Innovation Projects” implemented in the previous decade in Bangalore, the globally known high-tech city of India. Indian SMEs are largely incremental innovators, prompted by their customers and involved in product and/or process innovations. But majority carried out innovations with internal efforts only whereas the minority which obtained external support, had better technical strength, indulged in more frequent and both product & process innovations. Such SMEs achieved better innovation performance as well as better economic performance. Some of them internationalized themselves in the process. However such achievements are “an oasis” in the vast Indian SME sector. How to promote (i) innovations, (ii) quality of innovations and (iii) patenting culture among the SMEs is a challenge for Indian Policy Makers. The paper concludes with proposing some policy recommendations in this direction.