INTRODUCTION

Innovations are essential to raise productivity and sustain growth. Inclusion is also important to sustain growth, since it prevents possible political unrest, raises average productivity and expands the market size. Innovations using Internet and mobile communication technologies (ICT), especially, suit inclusion, and therefore, sustain inclusive growth, which is a major Indian objective. Inclusion and growth can go together if inclusion is of the type that facilitates growth. ‘Active inclusion,’ defined as creating conditions for the many to contribute to and participate in growth (Goyal, 2012), is of this type.

An inclusive innovation is one that creates products that can be accessed by all classes, improving their productivity, and are not restricted to the elite. This chapter develops a simple analytical framework that clarifies the conditions that foster inclusive innovation in Emerging and Developing Economies (EDEs). It brings out two ways of facilitating inclusion through innovation: first, to induce more technical change in products consumed by the less well off, thus, lowering costs for them and second, to make more resources available for them or reduce their transaction costs so that they can afford better products. Alternative ways of doing this are through income transfers or through better systems or public provision of the relevant infrastructure. The latter are suited to active inclusion.

The analytical framework shows that large market size stimulates innovation to profit from it, since adoption and further adaptation of technology responds to economic incentives. Increasing the market size creates broader incentives for innovation and reduces the need for direct government inputs that have been difficult to provide. Since market size strengthens private incentives for inclusive innovation, it is likely to improve outcomes.

Next, the chapter assesses India's telecommunication policy (2012) and policy changes towards mobile banking to examine the extent to which they have improved relevant infrastructure such as broadband, or taken steps to increase the market size.