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The U.S.–India Relationship Is Key to the Future of Tech

Summary.   As the U.S. becomes more concerned about China, its relationship with India will become more important. This is particularly true in terms of technology. Both countries need to invest in creating a technology corridor between the two countries. That means removing trade barriers, but it also means a mindset shift for U.S. companies. They need to think of India not just as a source of labor arbitrage, but as a true innovation partner.

India is in a global sweet spot. It is now the world’s most populous country — home to more than 1.4 billion people—and has had robust economic growth for the past three decades, with GDP per capita having risen by 245%. And yet, it remains relatively underdeveloped on a global scale. As of 2019, more than 600 million people in India live on less than $3.65/day. Thus there remains enormous potential for economic growth, and improvements in human welfare. And as the United States’ concerns about China grow, India shines as a promising alternative in supply chains, innovation hubs, and joint-ventures. As the world’s largest democracy with an increasingly open economy and a strong technology sector, it has the potential to operate at scale.

This makes it the most important potential geo-economic partner for the United States today as it “re-globalizes” with greater concern for national security and resilience. As India considers its own leadership in the world, it must look toward becoming a stronger innovator in technology with a more comprehensive capacity to move up the value chain in software and hardware. This necessitates a much closer and deeper relationship with America, both at the governmental but also at the private-sector level.

The trends for both countries point toward the need for a deeper collaboration when it comes to technology. Policymakers and business leaders in the United States and India must develop a strategy to build a technology corridor that makes India a global technology leader, creates a secure supply chain and deep partner for the United States, and builds a positive feedback loop that benefits both countries.

Re-globalization and Technology Decoupling

We are entering a new era of economic relations, one we have previously referred to as re-globalization. With the end of American hegemony and the return of great power competition, as well as compounding global crises like climate change, Covid-19, and the 2008 financial crisis, countries have begun to seek more national resilience in their economies and reduce reliance on other countries in critical sectors like defense, energy, and manufacturing. Re-globalization is distinctive from the economic systems which preceded it: During the period before World War I, and then again over the past 30 years, global interconnection was the norm, as goods and services proliferated easily across the world thanks to open markets and favorable regulatory environments. By contrast, during the Cold War, we saw the complete uncoupling of economies due to inflamed tensions between the United States and the Soviet Union. Now, however, we’re seeing something very unusual and complex. It is neither complete interconnection nor complete decoupling, but rather a mix of the two. 

While globalization will continue as normal for certain industries — basic consumer goods where consumer surplus is high and existential risk is low, for example — other sectors are moving toward some degree of decoupling, chief among them technology. The world of technology platforms has already begun to fissure into two zones belonging to the two hegemons, the United States and China. What does this mean for India? On a systematic level, India cannot give up extensive amounts of commerce with either country. Trade relations with the United States are important at $100 billion a year but trade with neighboring China is double that. So, India will continue to trade actively with China as will the United States. But when it comes to technology, a sector in which clear decoupling has begun, India must choose which partner it wants to prioritize. 

The history of India’s technology ecosystem shows the centrality of international collaboration to its ongoing development. The growth of India’s technology sector began in earnest in the 1990s, when India emerged as a major player in the global IT outsourcing industry. Thanks to the establishment of technical education through the Indian Institutes of Technology in the 1950s and 60s, India was able to cultivate a large pool of skilled professionals. With a high supply of labor, low costs, and a shared language in English, India became an attractive location for multinational companies to outsource their IT services. The growth of the outsourcing industry encouraged a vibrant startup ecosystem in India, with many entrepreneurs leveraging the opportunities created by the IT industry to start their own companies. By the 2010s, India had a strong presence of SaaS (software-as-a-service) platforms that operated as low-cost alternatives to technology companies in other parts of the world. Now, India has moved one step further still, promoting its own home-grown unicorns to become global market leaders and innovators. If India’s technology sector wants to continue expanding and modernizing, public officials in India need to think strategically about India’s relations with international partners in this next stage. 

Many actions of the New Delhi government suggest that it wants to escape China’s technological hegemony as a way to bolster India’s national security. In 2020, after a series of border disputes with China, the Indian government banned dozens of well-known Chinese apps, including TikTok, from India. Chinese investment into India is also much more tightly scrutinized and limited compared to other foreign money. By contrast, there are strong signs of positive collaboration between the United States and India, with India’s National Security Advisor, Ajit Doval, working with Biden’s national security advisor, Jake Sullivan, to launch the United States-India initiative on Critical and Emerging Technologies in January 2023. Policymakers and business leaders from the world’s two largest democracies must continue to focus on strengthening a partnership between the United States and India that connects technological development and promotes innovation and growth in both countries.  

Developing the United States/India Technology Corridor

As countries begin thinking about how to build for national resilience, particularly in the technology sector, it will become increasingly important to develop collaborations with strategic partners abroad. For the United States and India, building a bilateral system of positive technology transfer will be crucial to succeeding in this next stage. India’s ambition must be to establish its role as a global innovator in technology. With some important exceptions, Indian companies have so far focused on scaling and deploying technological innovations that were created elsewhere. But by collaborating with American companies and encouraging reciprocal cycles of innovation, more Indian companies can become genuine technological leaders, developing original intellectual property with its deep wells of talent. American companies must shift their perception of Indian companies from one of outsourcing to one of radical collaboration. This includes engaging in higher order tasks in the value chain through multinational teams and deeper legal integration. As a result, India will be able to expand local capabilities in evolving industries like artificial intelligence and health care. On the other end, as the technology world experiences decoupling, the United States will need India’s to reach its potential in it’s the technology sphere. India is poised to be an increasingly influential economic actor, and its growth can help compensate for America’s loss of trade with China under re-globalization. 

There are already blueprints emerging. As Indian companies gain more access to American-protected technologies like semiconductors, they will also begin innovating on them.  We’ve already seen this beginning to happen with software. While, at first, Indian companies were merely replicating software from other markets through IT outsourcing, Indian companies are now leading with new software innovations. Take India’s Aadhaar, for example, the world’s largest and most sophisticated biometric identification system that remarkably enables efficient and secure payments using just an ID number (compared to the near-century old American Social Security number standard). Or the Indian telecom company Jio, which disrupted the industry in 2016 with its low-cost, high-speed data services. Jio has broadly expanded digital services in India, bringing 5G access to each of India’s 18 states and allowing people to truly operate in a smartphone universe, with cell phones as their only computers at some of the most affordable prices in the world. We should expect the same degree of innovation in India with emerging critical technologies, often leapfrogging inventions made in the United States. Both India and the United States have much to learn from each other in this regard, and they should position themselves to be the primary beneficiaries of each other’s innovations. But current mindsets and policies in both countries are outdated to these ends. 

Business leaders in the United States must move beyond the mindset of doing business in India purely as a result of labor arbitrage. Instead, they should view India as being a genuine hub of innovation, and they should encourage increased collaboration with business leaders in India. They must also think in more ambitious terms, planning for massive expansions that would rival China in terms of the size and scope of their factories, fabrications, labs, and operations. Investors, including venture capital firms that have driven so much of technology investment in the United States, have to reserve larger shares of capital for investment in India and build real local knowledge. Policymakers in the United States and India should both work to reform trade policies and promote an open system of technology transfer and innovation between the two countries. The United States still has significant export controls on India (instituted after India’s violation of the Nuclear Non-Proliferation Treaty in 1998), inhibiting the free transfer of technology.

Similarly, Indian policies toward the outside world are overly protectionist, with considerable barriers to entry for foreign investment and legal codes too convoluted for foreigners to navigate. As a first step, the United States must openly communicate the path for reduced controls toward India, and India should dismantle barriers through exceptions for American technology companies to enable true partnerships to form. In a re-globalized order, protectionism is a short-term band-aid that only exacerbates the wound. The ultimate goal must be to build a dynamic economy that can compete with any in the world. The United States-India technology corridor will give India the skills, technology, markets, and confidence to become a global player. 

For the last 75 years, the United States and India have had a relationship that mixed together admiration, tension, and contestation. Both sides need to move beyond the old ways of thinking. It is profoundly in the two countries’ interests to develop a deeper relationship, share technology, expand trade, and build trust. It is a win-win scenario on several fronts – technologic, economic, political, and geopolitical. It is beneficial for the world that the two largest democracies, with open economies and free values, should find ways to partner more and set the agenda in this new and emerging world. The world will be better for it.

Source : Harvard Business Review