How to increase public investment without giving up on fiscal consolidation

We are told early in life that we cannot both have our cake and eat it, too. Of course, this is taught to us before we take our first economics course. There, we are introduced to the "production possibility frontier", which traces the combination of goods that an economy can produce when its resources are being used with maximum efficiency. When this happens, of course, the cake aphorism makes sense. You can only get more of something by giving up a quantity of something else. But this happens only when the economy is operating on the frontier. When it is not, implying that resources are not being used efficiently, it can actually produce more of everything with the same resources.

Nobody would characterise the Indian economy - or for that matter, any economy - as operating on the frontier. Consequently, there are opportunities to get more out of existing resources. This argument could be applied to any number of policy questions, but the most critical one facing the government as it prepares to present its Budget this week is infrastructure.

The backdrop is well-known.The public-private-partnership (PPP) model for infrastructure development is dysfunctional. The record of delivery, let alone on-time and within budget, is extremely weak. Where there has been successful completion - for example, power or ports - the absence of linkages has undermined the viability of ventures. At this point, the capacity of private infrastructure development to deliver on existing commitments, let alone take on new ones, is severely constrained. They are heavily leveraged and their equity is hugely discounted. Infrastructure accounts for a significant proportion of the non-performing assets (NPAs) of banks.

What needs to be emphasised, and repeatedly so, is that no matter what the other policy stimuli to growth may be, the capacity to accelerate and sustain growth will be severely constrained if expansion in infrastructure capacity does not take place substantially and quickly. Even as the government launches several initiatives - "Make In India", the prime minister's Jan Dhan Yojana, Skilling India, Digital India - the potential impact of all of these on investment, employment and growth will be severely constrained by the stasis that now plagues infrastructure.

This concern has, unsurprisingly, led to an intense debate. The premise that there is no option other than to step up public investment in infrastructure is now virtually unanimously accepted. But how this is to be done is a contentious question. Should the commitment to fiscal consolidation be diluted? If not, where are the resources going to come from?

This is where the "having your cake and eating it, too" opportunity comes into play. We traditionally view public finances in income-expenditure terms. This is limiting. The government has a huge balance sheet, which remains completely in the background of the policy debate. The solution to the funding constraint lies in taking a balance-sheet view.

The suggestion here is to set up a national infrastructure fund (NIF). This will function like a venture capital fund, but with funds mobilised by government. Current budgetary commitments to investment in infrastructure could be channelised into the fund as equity. Further, all asset sales, whether through disinvestment, spectrum sales or mining licences, should be transferred to this entity as equity. This means that the government is prudently preserving its balance sheet by using the sale of some assets to create new ones, rather than using the proceeds to finance consumption expenditure.

The equity so provided can be leveraged three or four multiples. To do this, debt can be taken on in three tiers, in sequence.

(1) Sovereign debt (or guarantee): The initial borrowing can be made in the form of sovereign debt instruments. This will add to the debt-gross domestic product ratio, which will have negative sovereign rating implications, but if the overall plan is articulated well and the funds are clearly being used for infrastructure, these risks can be contained. Rating agency concerns are highest when the debt is being expanded to fund general revenue expenditure. They are likely to be somewhat assuaged if the debt is being credibly used to finance infrastructure investment and if repayments are expected to come from the returns on these investments.

(2) Credit enhancement: The next stage would be to provide credit enhancement to bonds issued by the NIF. This would allow insurance and pension funds, both domestic and foreign, to invest in these securities. The cost of enhancement could be borne by the Budget for some period of time.

(3) Direct market bond issuance: As the plan unfolds and builds credibility, the NIF can issue its own bonds, which will have no direct fiscal implications as long as it is clearly communicated to investors that the government is not guaranteeing these bonds.

To supplement this structure, additional pools can also be looked at. There is much talk of the large cash holdings of several public enterprises, which should be seen as investible resources. Instead of using these to fund the Budget deficit, they could be used to buy the bonds issued by the NIF.

The first priority of the new fund will be to take some critical projects that are currently on the shelf as non-performing assets on banks' loan books. All infrastructure projects are important, but some are more important than others on account of their multiple linkages with others. These "nodal" projects need to be identified and accelerated. Those that are stalled because of their NPA status need to be transferred to the new entity, as a price that balances the interests of the banks and the shareholders. In the bargain, both may have to sell at a discount, or at the very least, postpone the realisation of their gains.

The final piece of the solution is the execution component. I would argue that the PPP model seems to work, if at all, when the role of the private sector is predominantly execution of projects. In effect, incumbent promoters of projects that are already under way could restructure their contracts from the current form to become engineering-procurement-construction (EPC) service providers.

This proposal may sound like a stretch. It will certainly not materialise overnight, given the complexities involved in both the financial structure and the negotiations with banks and private sector promoters. But let it be kept in mind that there is no meaningful alternative on the table at this point.

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Muck of the River

The Supreme Court’s sharp criticism of the government for its failure to clean up the Ganga has prompted the Centre to assure the Bench that it will complete the task by 2018. The government’s commitment is indeed heartening, but the judiciary’s observation that nothing concrete has been done in the past 29 years to clean the river is a grim reminder of the stupendous task ahead. The recent discovery of nearly 100 corpses, washed up in a shallow tributary of the Ganga in Unnao district of Uttar Pradesh, has provoked environmental concerns over the “health” of the sacred river.

The Ganga occupies a unique position in the history and civilization of the subcontinent because of its geographical, historical, socio-cultural and economic factors. It has over time lost much of its pristine character as a ‘river which flows’ Ironically enough, the degradation is the result of treating the river as just another resource commodity whose water is wasted as it flows into the sea. An understanding of the gravity of the problems of the river and its impact on the biotic communities is essential to visualize the huge task ahead for ameliorating the condition.

The major threats faced by the river are i) discharge of domestic, industrial and solid wastes; ii) disruption of the river’s connectivity by dams and barrages; and iii) over-exploitation of the biological resources. Domestic and municipal wastes are the primary sources of contamination, which has been estimated at 75 per cent. The Ministry of Environment and Forests has recorded that every day nearly 2,900 million litres of sewage are discharged into the “mainstream of the river” from municipal towns located along its banks. The existing infrastructure has a capacity to treat only 1,000 million litres a day. A huge quantity of untreated sewage is thus drained into the river.

Industrial pollutants constitute around 20 per cent of the total “pollutional load”. However, its contribution to polluting the river is much greater due to the higher concentration of non-biodegradable nature of pollutants.  According to the Central Pollution Control Board, there are as many as 478 “grossly polluting units” along the Ganga and its tributaries. Of these, 335 units have ETPs operating satisfactorily and 79 units have been closed down. The problem of “instream pollution” is further aggravated by disposal of solid wastes, religious offerings, corpses and carcasses.

The second major threat to the river is posed by the multipurpose reservoirs and barrages constructed in the river basin over the past 50 years. There are 12 diversion and 10 storage projects on the mainstream of the river and its tributaries. These units generate projects that produce hydroelectricity or are used for irrigation.

The river is gradually shrinking. A study conducted by the National Centre for Atmosphere Research in Colorado, USA, concluded that there has been a significant reduction in the discharge to the ocean. In 2004, the Ganga had 20 per cent less water than it had 56 years earlier.  The river water discharge during the lean months at Farrakka has shown a decline of about 10 per cent during 1992-97 in comparison to 1948-88.

There is growing evidence that many of the glaciers that feed the river through the process of melting have retreated very rapidly in recent years due to global warming. Excessive withdrawal of groundwater has also affected the base flow of the river as the groundwater table has fallen considerably. Deforestation in the catchment areas has reduced the forest cover of the Ganga basin from 24 to 14 per cent, resulting in soil erosion in the catchment areas . Studies reveal that the Ganga mobilizes a total of 729 X 106 tons of sediment annually within its river valley. The increase in sediment load has altered the water regime of the biologically sensitive deep pools and lakes of the river which play a vital role in eco-restoration. The wetlands in the river basins store the floodwater and release it during the lean months to maintain water in the main river. But in the last few decades 38 per cent of India’s wetlands have disappeared.

These factors are affecting the “instream aquatic habitat”, the biotic organisms and dependent riparian folk of the river.  Most importantly, the river supports a rich diversity of aquatic life, notably fisheries that provide food and livelihood to over 7 million people of the Gangetic plains. A recent study conducted by Central lnland Fisheries Research Institute to assess the diversity of fish and the ecological integrity of the Ganga between 1960 and 2010 indicated a significant decline in fish production and alteration in the composition of fish species in the river. The alteration in the instream flow has also affected people who attach importance to the religious and cultural values of the river. A survey conducted in the mountain stretch of the Bhagirathi by the People’s Science Institute, Dehradun; in 2008 revealed that the river is not satisfying the devotees’ concept of the river.

The government, the scientific community and also the people have been aware of the problems of deteriorating water quality, the asthetic value, the declining fish population, and the growing scarcity of water resources for the past three decades. As early as 1974, the Water Prevention and Control of Pollution Act were introduced. It created the Central and State Pollution Control Boards (CPCB &SPCBs ). An irrigation policy was formulated in 1972; it advocated the maximum crop production per unit area of arable land and the highest possible use of river water to bring the maximum possible area of agriculture under a single irrigation scheme. The National Water Policy, 2002, recognised water as part of a larger ecological system. Realizing the importance and scarcity of freshwater, it stressed the need to treat water as an essential environment for sustaining all life forms.

The Ganga Action Plan (GAP I), launched in 1985, envisaged what it called interception and diversion of wastewater and its treatment in sewage treatment plants before discharging into the river or land in 25 class-1 towns in Uttar Pradesh, Bihar and West Bengal. To tackle the extent of pollution, GAP II was launched between 1993 and 1996 to cover 59 towns in five states ~ Uttarakhand , UP, Jharkhand, Bihar and West Bengal. Unfortunately, the quality of the Ganga water did not attain the targeted benchmark of “bathing class” (CPCB). The major constraint faced by the GAP, as acknowledged by the Centre, was that only a part of the pollutional load could be treated. The problem was addressed marginally and no attention was paid to run-off from agricultural fields which often bring non-biodegradable pesticides to the river. The pollution load from the large urban settlements, outside the purview of Class I cities, and from the rural areas was not considered. Finally one of the most essential objectives of GAP to ensure the environmental flow ~ was not addressed.
In 2009 was announced the Mission Clean Ganga and the Government created the National River Ganga Basin Authority (NRGBA). It also declared the Ganga as the ‘National River of India’ and the endangered Gangetic dolphin as the ‘national aquatic mammal’ for increasing interest in conservation efforts. Maintenance of the river’s ecological value was given utmost priority.  It was regarded as an improvement over GAP as its approach was more holistic, focusing on the entire Ganga basin. The present government also resolved to work for cleaning the Ganga and control pollution and launched the project ‘Namami Ganga’ in July 2014. It announced the preparation of a Ganga rejuvenation plan by seven IITs for eco-restoration of the river.

Amartya Sen: Academic governance in India remains deeply vulnerable

I am writing to you on a subject relating to the governance of Nalanda University in which all of us have been very deeply involved. As you know, at its last meeting on January 13-14, the board decided unanimously (in my absence - I had recused myself - leaving George Yeo to chair the meeting) that I should be asked to serve as chancellor of Nalanda University for a second term, when my present term expires in late July. The unanimity was, I was pleased to be told, firm and enthusiastic, coming from all members of the board, which - as you know - consists of representatives from different Asian countries (including China, Japan, Singapore and others), in addition of course to Indian academics and professionals.

However, the decision of the governing board becomes operational, according to the Nalanda University Act of Parliament, only after the visitor of the university (the president of India, ex-officio) gives his assent to the decision. I understand that the board's decision was conveyed to the visitor in mid-January, immediately after the meeting of the governing board, drawing his attention to the urgency of the matter, since the planning and implementation of new teaching and research arrangements are proceeding rapidly in the newly functioning university.

More than a month has passed since then and it now seems clear that the visitor has been unable to provide his assent to the governing board's unanimous choice in the absence of the government's approval. The governing board has not been favoured with a reply to its request, either from the president's office or from the ministry of external affairs. As board members are aware, our visitor - President Pranab Mukherjee - has always taken a deep personal interest in the speedy progress of the work of Nalanda University, and given that, we have to assume that something makes it difficult - or impossible - for him to act with speed in this matter.

Non-action is a time-wasting way of reversing a board decision, when the government has, in principle, the power to act or not act. This, as you might recollect, also happened to the revised statutes that the governing board passed unanimously last year. Many of these statutes (including the one pertaining to the chancellor's term of office) also never received formal acceptance or rejection from the ministry of external affairs, which had the role of coordinating with the visitor's office.

It is hard for me not to conclude that the government wants me to cease being the chancellor of Nalanda University after this July, and technically, it has the power to do so. This delay, as well as the uncertainty involved, is leading, in effect, to a decisional gap, which is not helpful to Nalanda University's governance and its academic progress. I have, therefore, decided that in the best interest of Nalanda University, I should exclude myself from being considered for continuing as chancellor beyond this July, despite the unanimous recommendation and urging of the governing board for me to continue. I take this opportunity also to thank the governing board very warmly for its confidence in me.

As you would also remember, there was considerable disquiet among board members about the government's evident unwillingness to appreciate the international character of Nalanda University and to pay appropriate attention to the multi-country governing board of the university. In particular, the governing board was kept completely in the dark about an attempted unilateral move by the government to rapidly reconstitute the entire board, and to do this in violation of some parts of the Nalanda University Act (reflected especially in the letters that have already been sent out to foreign governments, departing from the provisions of the act as it now stands).

I write this letter with a heavy heart since re-establishing Nalanda has been a lifelong commitment for me (as it is important also to you). While classes have very successfully started, on a small scale, in two schools (the school of history and that of environment and ecology), we are, as you know, in the process of planning other schools, including a school of economics, a school of public health, and a school of Buddhist studies, philosophy and comparative religion, and also of augmenting the intake of students. I have been personally much occupied with this planning but I will, of course, pass on the work-in-progress to the vice chancellor.

I am also sad, at a more general level, that academic governance in India remains so deeply vulnerable to the opinions of the ruling government, when it chooses to make political use of the special provisions. Even though the Nalanda University Act, passed by Parliament, did not, I believe, envisage political interference in academic matters, it is formally the case - given the legal provisions (some of them surviving from colonial days) - that the government can turn an academic issue into a matter of political dispensation if it feels unrestrained about interfering.

As a proud and concerned citizen of India, I take this particular occasion to communicate my general disquiet in public, which is why I am openly sharing this letter.

Also, since I receive a great many constructive suggestions every week about teaching and research at Nalanda University for possible implementation (a number of these suggestions coming from the public have indeed been extremely useful for the academic planning of Nalanda), I am using this occasion to publicly communicate that I shall do whatever I can over the remaining time I have, though the leadership of the long-run planning of Nalanda has, obviously, to come from someone else.

I end by thanking you for the help, advice and support I have been receiving from all of you, which I will continue to treasure even when I move away from Nalanda University this July.

Lateral entry into the #civilservice is not a good idea

There has been much sound and fury about the need for induction of talent from outside into senior positions in theGovernment of India at the level of joint secretary and above. Several articles and editorials have made the case for lateral entry, without any case being made in opposition. This article seeks to restore the balance in what has been a one-sided debate.

The Indian civil services, particularly the All India Services(AIS), provide managerial leadership for government as a whole. The civil services have knit the administrative framework of a vast and diverse country into a coherent whole and provided a strong integrating element which the country can ill-afford to tamper with. They have provided an outstanding link between the cutting edge at the field level and top policymaking positions. This bridge, while crucial to all systems, has been of strategic significance in the Indian context, given the diversity and widespread poverty of the population. The width and depth of field experience which the civil services provide is simply not available with outside talent. There is no way that external talent can bridge the gap between policymaking and ground level implementation better than career civil servants.

The proposal for lateral entry at senior decision-making levels, besides increasing the disconnect between policymaking and implementation, will also result in inequitable sharing of the benefits and burdens of government service, with permanent civil servants left to bear the burden of "humble" implementation and lateral entrants getting access to "glamorous" policymaking positions, without having roughed it out in remote and rural India in the rough and tumble of Indian democracy. While there would certainly be a beeline for lateral entrants to join top policymaking positions, there would be no such great desire to serve the country at the ground level.

While there may be exceptions, the experience of inducting private-sector managers to run public-sector enterprises is not particularly satisfactory. Whiz-kids from the private sector who ran Air India, Indian Airlines and Vayudoot proved to be failures. Clearly, performance is vitally influenced by the enabling environment and the best managerial capability cannot deliver results in an adverse operating environment. A major part of the disillusionment (if any) with civil servants can be attributed to this enabling environment where innovation and risk-taking have been at a heavy discount. The oft-cited example of the Unique ID Authority of India attributes credit to a single individual, overlooking the contribution of outstanding civil servants like the director-general of the Authority.

It has generally been perceived that a secure career path has become one of the biggest shortcomings of a career-based structure. This is simply not true. There is no assurance that all civil servants will automatically reach the highest positions. In reality, there is tough competition - increased through rigorous scrutiny and weeding out of officers for empanelment at the level of joint secretary and above. In fact, the career trajectory of civil servants has become increasingly uncertain, insecure and hazardous.

The best talent can be attracted only if there is reasonable assurance of reaching top level managerial positions. This is true for government service as much as the private sector. Any dilution of the potential horizon for growth would discourage competent and motivated people. By suggesting a contract-based system for positions of joint secretary and above, the signal would be sent out that only mid-career positions would be within reach in about 15-18 years of service and there would be considerable uncertainty about career progression thereafter. Coupled with unattractive salary scales and non-entitlement to defined pension since 2004, this would become a potent trinity to deter talented persons from aspiring to civil service careers.

A good managerial system encourages and nurtures talent from within instead of seeking to induct leadership from outside. Any failure in this matter is primarily a failure of the system to identify and nurture talent at the appropriate stage. For this, the remedy lies not through lateral induction but through more rigorous performance appraisal and improved personnel management. Large-scale lateral induction would, in fact, amount to a vote of no-confidence in the government personnel management system, rather than in the highly dedicated, motivated and talented officers who have chosen to join the civil services.

It is not clear how lateral entrants would be more performance-oriented and less process-compliant than the civil service, considering that process compliance is the sine qua non for any supervisory authority. Expecting any different from lateral entrants would result in private sector lambs being led to slaughter.

The difficulty in measuring performance in government is another obstacle to be reckoned with. It is not easy to assess the performance of a secretary to the government, given the sheer complexity and amorphous nature of the job. The induction of lateral entrants would not by itself suffice for better performance orientation and enhanced accountability. It would be as difficult to measure the performance of lateral entrants as it would of career civil servants.

The real challenge before the country is the challenge of implementation. Lateral entry into top-level policymaking positions would have no impact whatsoever on field-level implementation. In that sense, the proposal for lateral entry is a red herring to the fundamental issue of weak implementation.

To sum up, while there are many shortcomings in the civil services in India, the suggestion for large-scale lateral entry into top policymaking positions is ill-considered and half-baked. Lateral entry would open the flood gates for a spoils system, drive talented people away from a civil service career, would be inequitable in terms of sharing the burdens and benefits of public service, would widen the disconnect between policymaking and implementation, and would not by itself result in improved managerial performance or enhanced accountability. Lateral entry has been an exception in the Indian civil service system and should continue to be so.

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Presidents & PMs, past and present(s)

Narendra Modi's suit, the one with his name repeated on it a thousand times along the supposed pin-stripes, was auctioned for more than 40 times the value Rahul Gandhi put on it, Rs 10 lakh. Clearly, Mr Modi has some rich admirers.

But, just to remind Mr Gandhi, his grandmother is said to have had a very rich admirer, too, in the mid-1960s. He was a physicist, poet, musician and shipping magnate called Dharma Teja.

It was alleged by the socialists then that he had given Mrs Gandhi a very expensive mink coat, which of course she had denied indignantly. But no one believed her because Teja had been very 'close' to the Nehru family.

Jawaharlal Nehru had done him a few favours which helped him become very rich. His full story, which is utterly fascinating, can be found here:http://indiatoday.intoday.in/story/jayanti-dharma-teja-an-unheralded-comeback/1/371491.html

Dastur-e-jahan

Indira Gandhi and Narendra Modi may not have much in common - barring political style - but there is one quality that they do share: neither can be accused of personal avarice and corruption.

Yet, when the pages of history are turned - and regardless of the truth - the bespoke suit and the mink coat will pop up from time to time to remind everyone that it is best to beware the Greeks bearing gifts. Timeo danaos et donas ferente, as they said in old Italian, referring to the Trojan horse. You never know what time-bombs these gifts may contain.

The Africans and even the 'native' Americans discovered this to their cost. Whether it was bottles of rum accompanied by chicken, goats and glass beads or blankets infected with small pox, or something even more striking, giving gifts to heads of government, whether elected or self-imposed or hereditary, has been going on ever since government as an institution was invented.

It's a perk, but you are not supposed to avail of it fully. That's considered bad form. The rule in India is that you can take a maximum three items provided their value does not exceed a very low amount.

This provides the loophole. The trick lies in stating a very low value for whatever you fancy and then taking it home when end your stint by paying that low price. Everyone knows what's going on and everyone tips a wink.

There is another loophole, too, but only for the married. Expensive gifts can always be given to spouses who are usually under no obligation to declare them.

But some countries do insist on it. The rule, however, is observed only in the breach. Most countries think the issue is too petty to bother with - especially media editors who also have a rather good time via gifts.

Like I said, this gift business has been going for some time. Robert Clive was first surprised at the practice of Indian gifting and then delighted. He is believed to have told the British parliament which chastised him for being such a greedy sod - a mere 235 years or so ago - "I stand astonished at my own moderation."

Everyone who came to see him after he conquered Bengal, he told the jealous MPs, brought lovely presents. He said he simply could not refuse them without giving serious offence.

Poor fellow, imagine his dilemma. Maybe Modi (and, if she did receive the gift, Mrs Gandhi too) also felt similarly obligated.

Plus ça change...

One would have thought that the high moral ground that politicians have sought to occupy in the last 60 years would have ended the practice. No chance. As the French say, plus ça change,plus c'est la même chose (the more things change the more they remain the same).

The temptations are hard to resist. Tony Blair is supposed to have made off with gifts worth a small fortune, including expensive watches and guitars. But he had the bad luck to be detected and the British tabloid press had a field day. Others, one can be sure, must have helped themselves on the perfectly legitimate grounds that as long as it was not coming from your country's taxpayers, it was fine. That's certainly true.

In any case, it is not very clear what purpose the gifts serve in storage. It is not as if they are in a museum and people can view them.

Let me end by drawing attention to the link below which gives the gifts received by Manmohan Singh and Sonia Gandhi during October-December 2013. Look at the declared values.

It further confirms who the real boss was.

http://mea.gov.in/images/pdf/list_of_gifts_wef__1st_October-_to_December_new1.pdf

India Indonesia Joint Exercise Terminates

India Indonesia Joint Exercise Terminates

Exercise #GARUDASHAKTI-III, the 3rd exercise in the on going series of joint exercises between armies of India and Indonesia, was conducted at Counter Insurgency and Jungle Warfare School in Vairengte, Mizoram from 09 to 21 Feb 15. The exercise aimed at building and promoting positive military to military relations between the armies of the two nations. The scope included sharing experience in counter terrorism and conduct of joint counter insurgency training at platoon level aimed at neutralizing of terrorist threat. Indian Army was represented by troops from an Indian Infantry Battalion and Special Forces unit while personnel from 432 Battalion Kostrad Infantry (Airborne) and Gp I & Gp II of the Special Forces represented the Indonesian contingent. The joint training was aimed at enhancing the knowledge of each other’s military experience, skills and techniques and thereby enhancing the aspect of interoperability and responsiveness to a common threat in the future. The Exercise will go a long way in further strengthening the historical and diplomatic ties between both the nations.

The buzz around innovation

As write my twenty first Innocolumn, I find that I am reflective. Is innovation really increasing in the world? Is it too much of a buzz word? If so, is that good or bad? When plain Joe thinks of innovation, Apple, Google and the like come to mind. Why none from India or its mighty corporations?

George Mason University economist, Tyler Cowen, opines that no matter what the hype may be, the forward march of technological progress in the world has hit a dry spell since 1970. "Look at the period from 1870 to 1940 and think about how unbelievably creative and powerful that was," he argues. He goes on to wonder whether a great ability to manipulate information has been practised by a few people who keep talking about innovation. I get curious about its history and etymology.

In Indian languages, there is no colloquial word for innovation, emphasise colloquial - I know this because I speak Tamil, Hindi, and Bengali fluently. There are words but you have to resort to a Sanskritised artifice. Is that so in English as well? How and when did it come into English?

Emma Green's denouement of the history of the word 'innovation' (The Atlantic) provides a clue. Canadian historian Benoit Godin states that the word 'innovation' first appeared in the texts on law to mean renewing contracts. It had no connection with creativity, it merely meant renewal. During the seventeenth century, when Europe was far more conservative, every attempt to interpret religious matters was anathema. English puritan, Henry Burton, published pamphlets against 'church innovators' to suggest that such people were upstarts and imitators, not very complimentary. 'Innovation' in the early years carried a retrograde tonal quality.

With the industrial revolution, 'invention' became a highly desired activity and by 1800, the word came into common English usage. Soon, this previously pejorative word started to get applied to science, and the innovation word entered the lexicon through a mental association with technical invention; perhaps that explains why to this date, innovation is linked in many peoples' minds to R&D rather than to business models.

This is quite unlike in emerging markets, where the term jugaad has many contextual usages. An equivalent of jugaad exists in Brazil (gambiarra), in China (zizhu chuangxin) and in software (kluge).

Google's useful Ngram database of word use suggests that in 1800, the word invention was used four times as frequently as innovation; after a century and a half, invention and innovation became equally used; since 1970, innovation has overtaken invention and the innovation word has been used more frequently. The distance between the usages of innovation over invention is increasing. So what caused the pattern of word usage to change?

For the first time, in 1939, Schumpeter differentiated between the two words by stating that innovation involved commercialisation, not just a new idea. From 1950 onwards, the American economy brimmed with growth and ideas. Innovation began to be thought of and funded as a packaged, predictable research product. Some experts like Tyler Cowen feel that innovation peaked around 1970.

On January 1, 1969, a Bell Labs researcher, Jack Morton, and two scientifically trained journalists, William Maass and Robert Colborn, abandoned their traditional professions. They formed a company called Technology Communication, and this company placed advertisements in Scientific Americanand The Wall Street Journal inviting readers to become members of a new and elite group called Innovation Group. The company also began to publish a magazine, Innovation.

One year later in January 1970, 200 technology managers assembled for a workshop at Glen Cove, Long Island, to learn what it takes to be an innovator. They wove parables about how their lives were changed by 'the accelerating rush of innovation' and attendees were encouraged to 'seize the chance' that was offered to them. This weekend workshop, for which participants paid the modern equivalent of $3,000 each, captured a club-like exclusivity, expert insight and collective self-help.

In hindsight, Technology Communications Company, Innovation magazine and the exclusive Innovation Group created the fillip and buzz around innovation. As an aside, after the Long Island workshop, two tragedies occurred - Robert Colborn died of cancer and Jack Morton was set ablaze in a gruesome murder. What an end to enthusiastic purveyors of innovation!

This brief history demonstrates the value of creating buzz: writing about and celebrating innovation in a journalistic way. Whatever cynics might say, buzz has a value. It changes language and culture, and that is hugely important in social transformations.
R Gopalakrishnan