OB Cover Story: In the Age of Digital Empires, India Must Chase Tech Sovereignty

It was just another day in Beirut, on September 17 last year. As ordinary as days could be. The 5,000-year-old city has had a rough few decades caught in the conflicts of West Asia. But life goes on. Until it doesn’t. Just as the clock struck 3:30pm on that day, hundreds of pagers all around the city started beeping. And then exploded.

Chaos ensued. People threw their phones out in fear that those too would explode. Twelve people died, including two children. It later surfaced that the explosions were the result of an attack by Israel on operatives of Hezbollah. The attackers had hacked into the pagers and turned them into time bombs.

Two months later in Romania, elections had to be cancelled when a court found that voters had been manipulated using the short-video app TikTok, owned by the Chinese tech major ByteDance.

Halfway through the third decade of the 21st century, geopolitics has changed. As have the ways of geopolitical conflicts. The thaw in the world order that followed the Cold War has ended. And technology has transformed war. No longer does a nation need giant armies to annex territories or change regimes. Sophisticated chips and weaponised algorithms solve it all.

Meanwhile, the world is taking a protectionist turn. Advanced economies are becoming possessive about sharing critical tech. And just about three decades after the global order promised a future of shared prosperity through unhindered global trade, every nation is on its own.

In this new world, India finds itself incredibly vulnerable.

The most populous nation in the world generates reams of data every second. And much of this is stored in data centres in foreign lands. It uses a broad range of technology to improve its citizen services. And almost all of it is run on chips sourced from China. Its large technology industry either provides services or is involved only in assembly-level manufacturing.

Opportunity Lost

India wasn’t like this always. In the 1970s and 1980s, when the groundwork of much of the current technology was being laid, Indian companies were making their own tech products. Hindustan Computers (HCL) and Infosys were born. Wipro and the Tata group switched to making electronics.

Then, in the 1990s, India opened its markets to the world. Soon after, it joined the World Trade Organisation (WTO) and then signed its Information Technology Agreement (ITA–1). The signing of this agreement meant that from 2005 all information technology (IT) product imports to the country could happen zero-duty.

“Till that time India was designing, making its own products in electronics. There were at least 100 TV brands. Many computer brands. A lot of the smaller companies vanished after that,” says Ajay Chowdhry, one of the founders of HCL and its former chief executive.

Countries like China and Brazil did not sign the ITA–1 at the time. As a result, their nascent technology industry found an opportunity to mature. China signed the agreement only after its technology industry had evolved. Between 2000 and 2011, China raised its global share of the IT products market from 2% to 14%. Meanwhile, unable to compete in the global market, India started building its hardware infrastructure on foreign parts, mostly Chinese.

Our Own Devices

Back in the 2010s, a handful of domestic brands like Micromax, Karbonn and Lava had emerged in the Indian market. But none of them wanted to design the phones from scratch, says an industry expert who did not want to be named.

The expert says most of these Indian brands would go to Chinese phonemakers like Pegatron, browse through 10–15 standard models and then ask for their company’s logo to be put at a specific place. “There was nothing wrong with that. But then they could not compete once original device manufacturers like Samsung came in. You cannot buy a phone from China and hope to compete with Samsung’s offerings,” he adds.

This practice showed its impact around 2014 as these companies struggled to compete with brands such as Samsung and Xiaomi.

India had been a net importer of mobile phones since 2000, yet its net import bill in the category had stayed stable at $2–3bn a year. But as Indians got hooked on cheap data, the figure shot up to $7bn in 2014–15. Soon, India surpassed 100mn phone shipments and overtook the US to become the second-largest mobile phone market.

Worried, the Centre took prompt action and set out the red carpet for global phonemakers like Apple and Samsung to make in India. The policy proved a success. Within a few years, India became a net exporter of mobile phones. By 2022–23, the country’s net export bill rose to over $10bn.

This was no small achievement. It has helped set up IT products manufacturing infrastructure in the country and has created millions of jobs.

But assembling—the part of the value chain that has come to India—is only a small bit of the business. The manufacturing that happens in India is just screw-driving products for 5–10% of value addition, says Chowdhry. The more valuable part of the value chain, one that includes design and intellectual property rights (IPR), these companies have kept in their home countries.

Not creating products from scratch at home has consequences beyond business. With the greater part of the technological infrastructure stationed in foreign jurisdictions, India is vulnerable to malicious players. Almost every closed-circuit camera that keeps a watch on Indian cities uses chips made in China. As does almost every attendance management system, smartwatch and other gadgets.

India is already a target for malicious actors. Indian businesses face 3,201 cyberattacks a week, second only to Taiwan, according to US-based cybersecurity firm Check Point Research. Indian banks faced 23,158 cyberattacks in 2023, nearly 2,000 every month, the Union government told Parliament recently.

While most of these attacks are attributed to non-state actors, there have also been indications of foreign governments using technology to hurt Indian interests.

Sameer Patil, a technology expert at strategic affairs think tank Observer Research Foundation (ORF), claims citing US-based cybersecurity firm Recorded Future, that on April 22, 2022, Chinese state-sponsored hackers attacked power grids in Ladakh. “The targeting of the power grids in Ladakh in the middle of the prolonged border stand-off is clearly aimed at sending a political message that Beijing can open other non-military fronts in the bilateral security competition,” he says.

Then there is the issue of data. A recent report by the American Federal Trade Commission (FTC) says social media companies collect a wide range of user data and share it with third-party entities. These entities end up determining the content that users see and often become the agents of manoeuvres that are suspected to be behind activities such as election manipulations. Armed to the teeth with data, the entities can target and customise their messaging to users based on their age, ethnicity, beliefs and biases, and end up shaping their worldviews.

And as far as shaping worldviews go, artificial intelligence (AI) chatbots wield immense power. Bots such as OpenAI’s ChatGPT and Google’s Gemini are expected to replace traditional search. When asked a question, they answer on the basis of large language models (LLMs), which have been criticised for being ideological, and even partisan at times.

“If India does not think about the risk from AI and the databases on which it is trained, there is a risk that all our default responses and narratives will be those generated by these externally controlled algorithms,” says Sanjeev Sanyal, an economist and a member of the Prime Minister’s Economic Advisory Council (PM-EAC).

Shades of Colonialism

At a gathering of cybersecurity professionals in New Delhi recently, the founder of a deep-tech start-up was waxing eloquent about the number of patents his company has filed. He was proud that an Indian regulatory authority had mandated the use of a piece of technology made by his firm. But he was stumped when an audience member asked him where his company was based.

“That’s not important. I don’t want to talk about it,” he said. A venture capital (VC) investor came to his rescue and said, “At least 50% of deep-tech start-ups are registered in the US.” As was this founder’s company.

Deep-tech or deep technology is a category of innovation that involves advanced scientific research to find solutions to specific social, economic and business problems through breakthroughs in science and engineering. As such, this is exactly the kind of research and entrepreneurial action India needs to happen locally to attain tech sovereignty.

But it is not easy to harbour a deep-tech ecosystem. Many deep-tech start-ups in India eventually flip to the US because it is both easier to obtain funds and seek customers. And thus, the intellectual property (IP) that these start-ups create also moves to the US. American VC firms and the establishment in fact encourage start-ups to move to the US in what can only be an attempt to secure IPs of cutting-edge technology.

Y Combinator (YC), the legendary American start-up incubator, for example, is known to make foreign start-ups get registered in the US as a precondition for funding. When many Indian start-ups made a beeline for YC during the pandemic, veteran technology investor Sanjeev Bikhchandani compared the push for registration with the practices of the East India Company.

“Shades of the East India Company-type situation here,” he said and pointed out that these start-ups had been built by Indian developers for Indian customers and in the Indian market but were owned by foreign investors with IP and data transferred overseas.

“The West’s objective has always been to further its own self-interest,” says Ashwani Mahajan, national co-convenor of the Swadeshi Jagran Manch, an organisation that promotes national self-reliance in economic matters. “The history of economic growth tells us that it is technology which leads to growth. Global forces don’t want us to be sovereign in technology,” he adds.

While there is evidence of neocolonial forces shaping technology, it is also true that India has not been able to provide deep-tech start-ups the funding and the ecosystem they need. Anand Anandkumar, the founder and chief executive of biotech start-up Bugworks says he would have had to shut down his company if it had not flipped to the US five years ago.

He adds that while a lot of biotech start-ups get government grants initially, they find it difficult to sustain when at later stages. “They either go bust or become a services company or figure out a way to get funding from abroad,” he says.

The median ticket size of funding that Indian deep-tech start-ups get across stages is the lowest among its peers in the US, UK, Germany, Switzerland and Canada, according to industry body Nasscom. This in turn makes them uncompetitive.

Industry experts say the government needs to not only provide more funding to deep-tech start-ups to keep them in the country but also give them business. They cite the example of SpaceX, the Elon Musk-owned space-tech company, which primarily survives on government contracts.

The People Problem

While in case of deep-tech start-ups the problem often lies in the fact that IPs get developed in India but are registered overseas, a more systemic problem is the loss of talent.

A study conducted by Ilya Strebulaev, a professor at Stanford University, found that Indians make up the largest number of immigrant founders who have gone on to build billion-dollar businesses in the US.

Of the 1,078 immigrant founders who built unicorns in the US between 1997 and 2019, 90 were from India, the study found. Strebulaev tells Outlook Business the numbers indicate that while India does have the human capital, it is not integrated into the venture innovation ecosystem yet.

While there are those that leave the country in the hope of finding more fertile ground for their ideas, there are others who stay back but end up working for global tech companies, doing their work, while creating no new IP in India. This is done through global capability centres (GCCs)—offshore units of big tech companies.

On the face of it, GCCs serve an important function. They help generate quality employment which in turn boosts the consumer economy. But the model is built to use domestic talent, intelligence and capability to boost the coffers of global tech giants, mostly located in the Global North. All that the Indian talent creates locally is owned through IPs in home countries of the parent companies.

India has more than 1,600 GCCs right now employing more than 1.6mn people, according to recruitment-services firm TeamLease Digital. These GCCs include those run by global chip and semiconductor companies such as Nvidia, Intel and NXP. As a result, India is home to nearly 20% of the world’s chipmakers. Yet the country itself does not have a single chipmaking major.

One way to make local talent work for national needs is to bring them into an ecosystem they feel is beneficial to them. China is attempting to lure back a lot of its top scientists and engineers back to the country by providing them funding and opportunities. The Chinese conglomerate Huawei was recently found to have offered triple pay to lure staff from a key supplier of chipmaking parts.

The other, more difficult yet more rewarding way is to invest greater sums in research and development (R&D). “R&D is key to being a market leader,” Chris Miller, economic historian and author of Chip War tells Outlook Business. Miller says R&D is important for developing businesses that have strong, defensible market positions over time.

But India does not spend enough on R&D. At 0.6–0.7% of its gross domestic product (GDP), India’s R&D spend is the lowest among the top five global economies. China spends 2.41% of its GDP on R&D and has been spending more every year since 1991. The impact of that shows.

China has the highest number of patent applications per capita of GDP. It has the second-highest labour productivity growth, the highest number of PhDs per year as well as the highest share of high-tech exports. This, while remaining a middle-income economy.

India, on the other hand, lags seriously behind the US, China, South Korea and a host of other nations in international patent filings—which is core to securing IPs. For every $1bn of GDP (in purchasing power parity terms), the US and China file seven times as many global patents as India. South Korea and Japan file 25 times as many. “All developed countries have attained technological sovereignty by inventing technologies and patenting them,” says Veezhinathan Kamakoti, director, Indian Institute of Technology Madras.

The solution, according to Mohandas Pai, is to “put more money to work”. Pai, who used to be the chief financial officer of Indian tech major Infosys and is now the co-founder of VC firm Aarin Capital, says, “The government of India and the state governments spend about Rs 100 lakh crore a year. Of which they give Rs 8 lakh crore as subsidies. What’s the harm in putting Rs 1 lakh crore in R&D? It’s just 1%.”

Necessity the Mother

When the Kargil war broke out in 1999, India asked the US for access to the military version of its global positioning system (GPS). The US government, still angry with India for conducting nuclear tests the previous year, refused. The refusal spawned the creation of NavIC—a navigation system created by the Indian Space Research Organisation. “It was a blessing in disguise,” says AK Bhatt, a retired general of the Indian Army and current director general of the Indian Space Association.

The moment of necessity for India to create its own critical technologies has arrived. Wars at present no longer depend only on navigation systems, aircraft and missiles. They have already spilled into telecommunications and will soon spill into automotives, energy and health care. And in the multipolar world order we are fast approaching, every sovereign nation will need its own technology.

The Indian government recognises this. And has thus unleashed a $50bn push to build domestic technological capacities in sectors such as chips, quantum computing, electric vehicles and AI. Tech policymakers are increasingly crafting policies that support the creation of IPs. The government is also planning a $4bn subsidy programme to promote design and electronics component manufacturing in a bid to move up the value chain.

The results of these efforts may not be perfect at first but will be incremental. “There’s something we call ‘learning by doing’. This involves a three-stage process. First, you learn to do something by actually doing it; then, you refine the process by doing it more efficiently; and finally, you think about improving it further. Mistakes, wastage and inefficiencies are part of the process,” says Arvind Virmani, an economist and a member of the Niti Aayog.

India is trying to learn from this approach. It is considering reining in Big Tech using tighter antitrust rules. It has also created the world’s first open and interoperable network for ecommerce. But what matters in the end is if it can create technology that can dominate both global markets and battlefields.

India was once one of the most prosperous regions in the world. It contributed to a quarter of the world’s economic output. Centuries of colonisation later, it was reduced to a poverty-stricken land mass. It has taken herculean effort to transform India from an economy dependent on aid to one that can stand on its own two feet. In this new era of tech empires, India cannot submit.