Indian Prime Minister Narendra Modi has more on his agenda than the typical state dinner and joint session of Congress during his visit to Washington. Modi is looking to hitch India’s wagon to the trend of advanced manufacturing moving out of China, in what he calls “decoupling/derisking/friend-shoring.”
Fortunately, the Biden administration is ready to help in this endeavor, with bilateral programs like the Initiative for Emerging and Critical Technology and Semiconductor Supply Chain and Innovation Partnership. However, India has a steep climb ahead.
Since the 1990s, India has developed a globally competitive brain power center with cities like Bengaluru and Hyderabad. These locations have become knowledge hubs alongside San Jose and Shenzhen. Indian firms like Tata Consultancy Services and Infosys have become leaders in IT outsourcing, creating a new economic category. Additionally, the U.S. semiconductor industry employs tens of thousands of Indian researchers to aid in chip design.
India is ready to make a move towards advanced manufacturing, but the transition won’t be easy. Despite the challenges ahead, Modi’s ambitious goals have drawn attention from leaders around the world.
India’s High-Tech Manufacturing Woes
India has been trying to increase its market share in high-tech manufacturing. Unfortunately, the country produces less than 5% of the world’s electronics, with China producing over a third. To change this reality, Indian Prime Minister, Modi, is allocating subsidy money and political capital. “They want the back office of the world to also become the workshop of the world,” says Ravi Shankar Chaturvedi, co-founder of Tufts University’s Digital Planet program.
While high-tech manufacturing is becoming increasingly important worldwide, India’s efforts to secure new investments have not yet reached the top prize: semiconductor manufacturers. Companies in this industry have other commitments elsewhere making it difficult to choose India. Even U.S. champion Intel has chosen to invest $40 billion in new fabs in Israel, Germany, and Poland.
Despite this, Modi’s summit may still result in a small step forward. The country may get a $2.7 billion plant from U.S. memory-chip power, Micron Technology (MU), to test and package semiconductors post-production. Delhi will reportedly subsidize half the cost of the new plant. However, Gartner researcher, Gaurav Gupta warns that compared to Singapore, Malaysia, and Vietnam, who already have testing and packaging ecosystems, India still has a way to go.
India’s Advantage in the Digital Economy
India’s information technology (IT) service providers, including Tata Consultancy Services (TCS) and Infosys, may be lagging behind on the artificial intelligence (AI) trend, but they are expected to benefit from it in the future. This is according to AB Bernstein’s Singapore-based tech analyst, Rahul Malhotra. He explains that since these Indian companies cater to US banks (which are still linked to the old new economy), their stocks are currently subdued as opposed to other tech giants. Nevertheless, Malhotra expects that IT service providers will experience positive developments in two to three years as their clients start integrating AI.
What India has over Singapore, Malaysia, and Vietnam is that it has a massive scale of 1.4 billion population which can produce 2.5 million STEM-specialized graduates annually. Currently ranked fifth in the world, India’s economy is growing more than 6% annually, with the digital economy even faster. Amazon has recently announced that it will spend $13 billion to further develop cloud services in India.
Meanwhile, Modi’s manufacturing drive identifies easy-to-spot opportunities for low-hanging fruits in the tech industry. Pradeep K. Chaturvedi, an associate professor of finance and international business at Tufts University’s Fletcher School, suggests that India could have a big market demand for simple chips for vehicles and appliances that contributes to its growing affluence.
India’s Opportunity for Growth
The recent attention on India’s development has many experts wondering if it’s “India’s hour.” Hemant Taneja, CEO of General Catalyst, goes as far as to compare India’s progress to China’s explosive economic growth of the past decade. With General Catalyst investing in nine Indian companies last year alone, many are eager to see what the future holds.
However, there are no shortcuts to this growth. While the Indian government under Prime Minister Narendra Modi has made progress in implementing new policies and attracting foreign investment, it will take time and effort to fully decouple from China’s economic influence.
India has immense potential for growth and with the right investments, could become a serious player in the global market. Only time will tell if the country can fully seize this opportunity.
