The India-US tech partnership decade
US support enabled China’s high-growth trajectory. But the rift between the two offers India an opportunity
Does today’s geopolitics provide India an opportunity to become a $10- trillion economy by the end of the decade? It would require an acceleration achieved once before, between 2000 and 2010 by China, when its Gross Domestic Product (GDP) went from $1.2 trillion to $6 trillion. It is not that India did badly in that decade, but compared to China, the achievement was modest. India went from being a $468 billion to $1.67 trillion economy, adding $1.1 trillion to its GDP to China’s $5 trillion.
What allowed China to take off so dramatically in those 10 years? Deng Xiaoping’s ascent in 1977 set the foundation for a later acceleration. But China’s real takeoff happened after Deng’s death in 1997. One may forget in today’s contentious superpower rhetoric that the United States (US) was an important partner aiding China’s rapid rise. The US facilitated China’s entry into the World Trade Organization and US companies re-shored plants to China and were instrumental in integrating China into global supply chains. China’s manufacturing exports went from $50 billion to $274 billion in 10 years. The Chinese were effective in welcoming US companies but never let their sights stray from the bigger prize in technology. The development of their technology prowess was initially under the radar and complaints about intellectual property theft were soft. The initial rise of China was non-threatening to the US and provided cheaper goods to American consumers. The real tensions emerged in the next decade.
Though India was the second-best performer during that decade, its performance paled in comparison to China. The reforms of 1991 opened the economy and reset India’s growth rate. Indian manufacturing became leaner, but India’s success was predicated on services with rapid growth in telecom, financial services and especially in the dramatic rise of information technology (IT) services. The combined revenues of the top five IT services companies went up from $1.3 billion to $28 billion and their market capitalisation went from $23 billion to $151 billion between 2000 and 2010. Today, their combined revenues are $70 billion and combined market capitalisation of $330 billion is 12% of India’s market capitalisation.
The current rivalry between the US and China presents India a unique opportunity. This competition will be multi-dimensional. It will involve cooperation in areas such as climate, health, space, and possibly even nuclear weapons. The disagreements in respect to factor movements — trade, capital and labour — will be sharper than before, but unlikely to be disruptive. However, the tensions in respect to technology, communications, data, and the standards around them, will be thorny and difficult to resolve. The underlying values in respect to privacy, rule of law, public good and State power are so fundamentally different that it is hard to see an easy compromise. The possibility of two, if not more, global standards emerging, is real.
This superpower tension is the great Indian opportunity. Technology, communications, and data play to our strengths. These are the areas redefining every industry and we have the technology talent; our standards will be closer to the US, and we have continental-size data. US companies want access to India’s data, talent, and consumers. Our market with Aadhaar has 1.2 billion unique identities, 700 million smartphones, 500 million internet users, consuming 13.5 GB per month of data, all rising rapidly.
Therefore, India should try and make 2021 the start of the US-India technology partnership decade. This partnership will need to include the following elements.
The first is data, including where it is stored, how it is accessed and for what uses? Second, privacy and incendiary speech — this will involve defining privacy and incendiary speech, and agreeing to levels of access of the State to private communications. Third, taxation — this entails a pact on what will govern the taxation of private players, will it be as a per cent of revenues or profits and how will it differ by jurisdiction?
Fourth, immigration — what restrictions will be imposed on people movements? Will they be symmetric to capital movements? Fifth, market access — what will be the policies with respect to market access? Will there be an agreement on standards with respect to the big tech companies? Sixth is a cyber coalition — can there be an agreement on no-first-use of State-sponsored cyberattacks on each other? Will mutual assistance and sharing of information be provided on attacks on either?
The seventh is sanctions — will the US be willing to commit to no unilateral sanctions in areas of tech, data, and cyber? And finally, standards — will the partnership be able to agree to minimum standards with respect to policies with regard to data, privacy, regulations, fines and prohibitions? To work through these issues, India should consider the creation of a Unique Identification Authority of India-type body, under the Prime Minister’s Office, to work and build a national plan and then ensure its execution. But just resolving these issues will not be enough.
The government will need to create enabling conditions for success. At the high end, investments in top academic institutions, such as the Indian Institutes of Technology (IITs), will need to be turbo-charged much above current levels to spur research in the areas of quantum computing, robotics and Artificial Intelligence.
Stanford alone has an endowment of $6 billion. This will need to be accompanied by the creation of technology clusters with good connectivity and living conditions that attract talent. At the lower end, it must ensure that all Indians have a smart phone, are on the internet with good connectivity and increased data consumption. A technology partnership can ignite rapid growth and set India up well for the future. The opportunity is ours to lose.
Janmejaya Sinha is chairman, BCG India
The views expressed are personal