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US and China trade disputes are an opportunity. India could become the next tech hub

Bengaluru did not become a tech innovation hub overnight. It shows key policy changes that are required in India to foster an innovative ecosystem.

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Global efforts to combat the Covid-19 pandemic have changed the perception of where innovation can take place and have resulted in the world seeing unprecedented levels of virtual collaboration and sharing of information across borders. However, various global economies are now looking within their borders to build resilient infrastructure and reduce dependence on external sources to avoid uncertainties. This shift in approach benefits countries like India that are working towards increasing their domestic production capabilities and welcoming more people to join their workforce.

A recent KPMG report on technology innovation hubs shows that Bengaluru ranks among the cities that are the leading technology innovation hubs in the world, and India as a nation ranks highly among the countries and jurisdictions that show the most promise for developing innovative technologies. The fact that India ranks high, while only a handful of Indian cities are similarly recognised, showcases its tremendous potential and room for growth.

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Bengaluru — the Silicon Valley of India

Bengaluru did not become a technology innovation hub overnight. A variety of factors such as key policy changes and positive responses from market forces over a period of more than half a century laid the foundation for the emergence of the city’s tech innovation ecosystem.

In 1984, with the announcement of new computer and software policies in India, imports and exports of hardware and software were liberalised. This paved the way for organisations like Wipro and Infosys to be established in Bengaluru and hire Indian programmers. Ties were also built with American companies that offered advanced systems that Indian software companies hugely benefited from. In 1985, Texas Instruments Inc. became the first multinational company to set up a development centre in Bengaluru, paving the way for more MNCs in the following years and decades.

Bengaluru currently accounts for over a third of the global in-house centres (GIC) in India. This is primarily due to its heavy concentration of top talent who can build custom software and complex solutions for businesses at low costs. This is very appealing to global companies whose time-to-market pressure results in their preference for a large number of skilled developers without the excessive costs of labour.

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What’s holding India back

Despite its promising young workforce, India still has a significant skill gap when it comes to technological innovation. According to a recent India Brand Equity Foundation report, India ranks eighth in the world when it comes to the number of students graduating in Science and Engineering, but it seems that not enough is being done to educate them with the relevant skills. A recent employability report on engineers in India showed that less than 4 per cent have the technical, cognitive, and language skills necessary for technology startups and only 3 per cent have new-age skills in areas like artificial intelligence, machine learning, data science, and mobile development.

The shortage of tech-ready workers available to private sector companies also contributes to significant levels of educated youth unemployment in the country. The private sector must work with the government and the Department of Education to address this issue — one such way would be to integrate more technical skill training programmes in the course curriculum that match industry requirements.

India also desperately needs to increase investment in Research and Development (currently investing only a meager 0.6 per cent of its GDP on R&D), and in fundamental technology research and product development, on the lines of Defense Advanced Research Projects Agency of the United States, in collaboration with the private sector. If we analyse the success of tech innovation hubs in the US and various European countries, it becomes increasingly clear that the government must be the biggest consumer and the biggest investor in innovative technology. After all, technological innovation leads to the technological and economic progress of the nation.

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Path to becoming a global hub of tech

Along with significant support from the government, foreign and domestic investments can help launch India as the next global tech hub. As the US and China continue to engage in trade disputes, India has an opportunity to attract technology-led investment as an attractive alternative. Additionally, enhanced R&D investment by the government and improved quality of the skilled workforce could put India in a favourable position to compete with China for technology-driven market dominance.

While global investors in the past have been hesitant to invest in Indian companies, owing to the country being ranked as high risk, India’s rapidly growing start-up ecosystem, along with strong policy reforms, better investment facilitation, and increased ease of doing business, ​has led to foreign investment of over $80 billion in the 2020-21 financial year. Domestic investment is also on the rise, as Indian companies now have a greater understanding of the opportunities resulting from the country’s exponential digital transformation.

A recent Baker McKenzie report on business and macro trends in the Asia Pacific suggests that 83 per cent of senior executives from Indian companies believe that “policy-makers were behind the curve in terms of the laws they passed relating to technology and innovation”. Regulators could work with private sector firms to have a greater understanding of complex technological advances and formulate supportive policy solutions to encourage innovation.

This process is already underway to a certain extent: The ‘Make in India’ initiative, launched in 2014, was designed by the Indian government to promote self-reliance, encourage innovation, enhance skill development, and build a high-quality manufacturing infrastructure. In early 2016, the Narendra Modi government launched the ‘Startup India’ initiative to support entrepreneurs and build a solid foundation for the start-up ecosystem. There is also the ‘Digital India’ project by the Modi government that aims to digitally empower society and massively improve the size of India’s digital economy.

India has at its disposal the tools necessary to be a global leader in technology innovation, but it needs to overcome several hurdles to reach its potential. Encouraging increased foreign investment, offering necessary skill training programmes, increased efforts to retain home-grown talent, as well as creating a suitable and efficient regulatory infrastructure are all vital to increased technology innovation in the country.

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The New Frontiers

India’s significant progress as a digital economy and in related infrastructure, coupled with the efficient use of data, will shape its future as a technology innovation hub. With the unprecedented growth and expansion of the Internet of Things, Industry 4.0, Artificial Intelligence, and software-defined networking, India must significantly increase its focus on digital engineering if it is to be the leader in technology innovation. While the pandemic may have significantly impacted growth, it has also fast-tracked virtual work environments and has thus increased talent availability. India’s abundance of digital technology talent, coupled with a mature ecosystem of startups, will drive a new phase of technological innovation and economic growth.

By incorporating digital technologies like data analytics and AI throughout the economic value chain, companies are scaling new highs in efficiency, productivity, and customer satisfaction. This needs to be scaled and integrated nationally to ensure efficient delivery of goods and services, both in the private and public sectors of our economy. This will spur large-scale investment and will lead to technological innovation at scale.

While the Modi government has taken significant strides in this regard through programs such as ‘Make in India’, ‘Startup India’, and ‘Digital India’, it still has a long way to go when it comes to investment in support of fundamental research and technology innovation. The private sector needs to collaborate with the government and compete to secure R&D grants for technology innovation programs that benefit the nation. India certainly has the potential, but the time is ripe to convert this into a reality and become the global standard in technology innovation.

This article is part of a series examining the relationship between the global and the local, in partnership with Carnegie India, leading up to its Global Technology Summit 2021 (14-16 December 2021). Click here to register.

R.K. Misra is a nonresident scholar at Carnegie India. Nitin Michael is a program coordinator and research assistant at Carnegie India. Views are personal.

(Edited by Srinjoy Dey)

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