Its like – you smile and your mood improves. And when your mood is good – you smile more.

Similarly, you increase minimum wages a bit – and more money goes into circulation. More money into circulation = more work generated.

However, wage rates cannot be the sole way of determining the innovativeness. Because wage rates them selves are a function of demand and supply. And in this case the demand has to increase first (more work). Increasing the wages while there is still not much work around will not make sense. However, if the work available increases the wages will rise on their own.

If labour is cheap, it makes sense to solve problems with labour intensive techniques. Technical innovations may be quicker but will be more expensive comparatively. So the cost of labour has to be high.

Case in point: carpenters in India still use manual hammers. It takes 6 months on average to build a home in India – something that would take 3-4 weeks on average in western Europe or USA. But even though the time taken is more, the cost of building a home in India is a fraction of the cost of building it in Europe. Cheap labour = it doesn't make monetary sense for the carpenters to buy automation machines.

If energy is expensive, technical innovations that consume a lot of energy instead of human power will be expensive too. Hence again, cheap energy is a requirement for an innovative culture.

One of the reasons farmers in India don't use mechanized tools and tractors is because of the high energy costs.

Labour being cheap because India's population is over 1 billion is also not right. USA has a lot more people than say Pakistan. Yet, USA wages are way higher than Pakistan or Bangladesh or other such countries with lower populations. Wage rates are determined more by the amount of work than by the number of people.

In India innovation does not happen because we have cheap labour – I do not think it is the case. Labour is cheap because there are too many of us around. It is a simple demand supply equation. And people are innovative by nature, probably not very enterprising. And ofcourse there are other problems with being a large country with high population.

In India innovation does not happen because we have cheap labour – I do not think it is the case. Labour is cheap because there are too many of us around. It is a simple demand supply equation. And people are innovative by nature, probably not very enterprising. And ofcourse there are other problems with being a large country with high population.