"I believe firm size, firm capability and innovation have a strong relationship. More needs to be done in the innovation ecosystem in India where firms continue to remain stagnant."
In developing countries, the concept of national innovation system must be expanded, said the World Bank Chief Economist for Equitable Growth, Finance and Institutions, William F Maloney.
According to the report, investments for innovation often consist of marginal improvements in process or products, rather than significant technology adoption or new product imitation.
"They very rarely involve frontier research...if a firm (or country) invests in innovation but cannot also import the necessary technology, contract or hire trained workers and engineers, or draw on new organisational techniques, the returns to that investment will be low."
Returns from investments in research and development (R&D) rise initially, but lack of complementary factors over time result in their decline, the report said.
"The policy maker's conception of the national innovation system (NIS) must go beyond the usual institutions and policies designed to offset standard innovation-related market failures. The scope of the NIS must include broader complementary factors and supporting institutions," it added.
Further, innovation cannot be supply driven, there must be demand from firms that have the capabilities to innovative.
"On this demand side, the firm and its decisions to innovate, policy makers must be concerned with the incentives for firms to accumulate the necessary physical, human and knowledge capital," Maloney said.