Every time the tech giant chooses an Indian-born tech to be its leader, there is a justifiable swell of pride in the country, but also some disappointment. Although there are many famous technologists around the world, why is India still not a major player in tech? India has the potential to occupy the upper echelons of the global technology ladder only if it identifies its flaws and acts on them urgently.

The common narrative is that India’s failures are linked to its inability to take advantage of market-driven growth opportunities. The state’s previous commitment to planning and the public sector continues to hurt its opportunities, the argument goes, even after the economic reforms of 1991. Thus, talented people left the country in droves for the US already, as of 2019, there were 2.7 million Indian immigrants in the US who are from Among the most educated and professionally accomplished societies in that country.

invisible hand

There is no doubt that the United States is a country of legendary opportunity. What is less well known, however, is that the invisible hand of government was there to support both the establishment’s victories and the purported free market. Research by Mariana Mazzucato shows that the state has been critical in introducing the new generation of technologies, including computers, the Internet, and the nanotechnology industry. Public sector funding developed the algorithm that eventually led to the success of Google and helped discover the molecular antibodies that provided the basis for biotechnology. In these successful episodes, government agencies have been proactive in identifying and supporting the more ambiguous phases of research, which the risk-averse private sector would not otherwise have entered.

The government’s role has been more prominent in shaping the economic growth of China, which is racing with the United States for supremacy in technology. Just over a decade ago, China was known for its low wage manufacturing. Even while China is being hailed as “the factory of the world”, China has been stuck in the low value-added sectors of global production networks, earning only a fraction of the price of the goods it manufactures. However, as part of the government’s 2011 plan, it has made forays into “new strategic industries” such as alternative fuel cars and renewable energy.

Chinese experience

China’s achievements did not come because it had become “capitalist”, but rather through a combination of the strengths of the public sector, markets and globalization. China’s state-owned enterprises were seen as inefficient and bureaucratic. However, instead of privatizing it or letting it dilute through neglect, the Chinese state restructured its owned companies. On the one hand, the country has retreated from light manufacturing and export-oriented sectors, leaving the field open to the private sector. On the other hand, state-owned enterprises have strengthened their presence in strategically important sectors such as petrochemicals and telecommunications as well as in technologically dynamic industries such as electronics and machinery.

When India launched planning and industrialization in the early 1950s, it was probably the most ambitious initiative in the developing world. Public sector funding of the latest technologies at the time including space and atomic research and the establishment of institutions such as the Indian Institutes of Technology (IITs) were among the hallmarks of this effort. Many of these institutions have over the years achieved global standards. The growth of IT and pharmaceutical industries was the fastest in Bengaluru and Hyderabad. However, the obstacles to progress were many, including India’s poor achievements in school education.

In 1991, when India embraced markets and globalization, it should have redoubled its efforts to enhance its technological capabilities. Instead, R&D spending as a share of India’s GDP declined from 0.85% in 1990-91 to 0.65% in 2018. In contrast, this proportion has increased over the years in China and South Korea, reaching 2.1% and 4.5%. , respectively, by 2018.

supply and demand factors

Despite the setbacks, India still has favorable supply and demand factors that can push it to the technology front lines. The number of people enrolled in higher education in India (35.2 million in 2019) is far ahead of similar numbers in all other countries except China. Furthermore, STEM (Science, Technology, Engineering and Mathematics) graduates as a proportion of all graduates were 32.2% for India in 2019, one of the highest rates among all countries (UNESCO data).

There is no doubt that India needs to sharply increase its public spending to improve the quality and access to higher education. A massive proportion of India’s tertiary students are enrolled in private institutions: 60% of those enrolled for a bachelor’s degree were in 2017, while the G20 countries average was 33%, according to the Organization for Economic Co-operation and Development.

India – which will soon have twice as many internet users as the US – is a huge market for all kinds of new technologies. While this is a huge opportunity, the local industry has not yet been able to reap the benefits. For example, the country is operating well below its potential in electronic manufacturing. Electronic goods and components are the second largest component, after oil, of India’s import bill. Also, the country’s imports are nearly five times that of its exports in this industry (based on 2020-2021 data).

The high-value electronic components needed to manufacture cell phones, for example, require technology and design intensively. Large multinational corporations control these technologies and lock in the bulk of the revenue. China has used its large market size as a bargaining chip in negotiations with foreign companies: stay in our markets only if you localize production and share technologies with local companies. Meanwhile, there have been unremitting efforts to enhance China’s technological strength through research institutions and state-owned enterprises.

The ‘Make in India’ initiative must go beyond increasing ‘business ease’ for the private sector. Indian industry needs to deepen and expand its technological capabilities. This will only happen if the universities and public institutions in the country are strengthened and encouraged to enter areas of technology development for which the private sector may not have the resources or patience.

Over the past three decades, PSUs in India have been judged mainly on the basis of the short-term financial benefits they bring. Instead, they should be valued for their potential long-term contributions to economic growth, the technologies they can create, and the strategic and knowledge assets they can build. Strengthening the public sector will create more opportunities for private companies and expand the base of entrepreneurship. Small and medium entrepreneurs will thrive when there are mechanisms to diffuse the generally created technologies, along with greater availability of bank credit and other forms of assistance. The next big story about Indian ingenuity doesn’t have to be from the US, but it could come from thousands of these entrepreneurs in remote parts of the country.

Jian Jose Thomas is Professor of Economics at the Indian Institute of Technology Delhi, and a visiting scholar on China and India at the University of Ashoka from 2020-21.