MANILA, PHILIPPINES – India, with its youthful population and thriving information and communication technology (ICT) industry, can become a leading knowledge-driven economy as long as regulatory, education, and infrastructure barriers are overcome, says a new report from the Asian Development Bank (ADB).

“By leveraging its strengths in human capital and ICT services, India can become a major global knowledge-based economy,” said Bindu N. Lohani, ADB Vice-President for Knowledge Management and Sustainable Development. “But making this a reality will require many steps like putting in place supportive laws, improving infrastructure, dismantling barriers to trade and investment, upskilling the labor force, boosting research and development spending, and providing innovative financing options for small businesses and entrepreneurs.”

Promising areas for India include developing technologies for poorer or price-sensitive customers—where it has already made advances— and stepping up investment and support for its booming ICT sector, says Innovative Asia: Advancing the Knowledge-Based Economy released today. As the world’s largest film-producing country and third largest television market, it also has a natural advantage in audiovisual services where it has emerged as an important outsourcing hub for animation and other skills-intensive industries.

The report uses the World Bank’s Knowledge Economy Index to rate economies based on four indicators, with India ranked 109th out of 145 countries covered in 2012.

Knowledge economies use ICT, innovation and research, and higher education and specialized skills to create, disseminate, and apply knowledge for growth. Currently, developing Asia ranks well below the OECD average in the World Bank’s Knowledge Economy Index.

Advanced economies of Asia such as Japan; the Republic of Korea; Singapore; and Taipei,China have successfully shifted from agriculture to manufacturing to knowledge-based industries. Others, such as the People’s Republic of China and India, have built pockets of knowledge-based growth, but have not yet translated this into a broader economic model. Countries such as Bangladesh, Myanmar, and Lao PDR have yet to really embark upon knowledge-based growth.

Swift technological advances mean developing Asia is unburdened by older generations of technology, allowing it to quickly embrace new technologies. The International Telecommunication Union estimates that in 2013 there were nearly seven mobile subscribers for every fixed line in Asia. With the right policies and investments, Asia could therefore move to on-demand cloud-based services and wireless internet and mobile applications faster than more developed economies.

Actions to promote knowledge-based economies will differ by country. But they will require strong, coordinated government policies coupled with investment in ICT including universal, affordable and high-speed broadband connectivity, better education notably tertiary and skills-focused training, and a culture of research and innovation with strong intellectual property rights. Flexible capital and labor markets are also crucial.

This shift to knowledge-based growth is critical since the region’s comparative advantages in labor and capital-intensive manufacturing are fading. New technologies like robotics, and increasing stress on resources like energy and water, are emerging as threats to Asia’s competitive edge. A shift to innovation-based growth would help countries avoid the middle-income trap and also address rising income inequalities.

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