Sustainability innovation index for micro, small and medium enterprises and their support ecosystems based on an empirical study in India

Competitiveness of a country depends on the innovation capacity of its industries while sustainability relies upon the adoption of cleaner production processes. Hence, to promote economic development without negative environmental impact, it is imperative to have appropriate development policies and also a sound instrument to monitor the effectiveness of the supporting ecosystem. India, one of the world's largest economies with a huge base of Micro, Small, and Medium Enterprises (MSMEs), makes it a perfect sample for creating an Index to measure innovation for sustainability and adds to the empirical literature. The study identifies the determinants of innovation and the key drivers using multivariate tools on the empirical data collected from the MSMEs in 4 key sectors that have Social, Economic, and Environmental relevance. The findings suggest that "Market sources" is the most influential determinant of innovation, followed by "Institutional sources", "Market sophistication" and "Business Membership Organisations". Further, findings of the Principal Component Analysis revealed that "Productivity and Profitability" consideration is the most important driver for adoption of innovation for sustainability by MSME units. The other drivers are "Regulatory and Occupational Health and Safety Needs"; "Immediate Survival Needs"; "Raw Material and other Cost Issues"; "Developmental Support", and "Competition from Similar Units". Based on the relative importance of these factors, an index is created to measure the effectiveness of the innovation ecosystem. The paper also suggests the use of this index to assess the strength of the ecosystem at the national, sectoral, regional or state, and district or cluster level. This study offers promising avenues for future research ideas for evidence-based policy formulation.