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The most effective approach to agricultural technology promotion and innovation is still a source of considerable debate, and nowhere more so than in the context of agricultural engineering hardware. Contemporary perspective on agricultural innovation stress the importance of institutional change and give emphasis to the need to develop innovation capacity in systems terms rather address limitations of technology transfer mechanisms. This paper illustrates using the case of manual irrigation technology - treadle pumps -- in Bangladesh and India. It identifies 5 elements of this capacity: (i) A sector coordination mechanism; (ii) a developmental rather than technical organising principle for sector development; (iii) habits and practices (institutions) of key organisations; (iv) Interaction as a learning and knowledge transmission mechanism (v) Market demand as key an incentive for innovation; and (vi) Policies and institutional innovations to ensure adequate stakeholder participation. The paper concludes by suggesting that identifying new sources of institutional innovation is the most presses task for initiatives that seek to make more effective use of knowledge and technology in development.