A strong public sector will create more opportunities for private businesses
Every time a tech giant chooses an India-born techie as its leader, there is a fair swell of pride in the country, but there is also some disappointment. Why is India still not a major player in technology, despite having such a world-renowned technologist? India has the potential to occupy the upper levels of the global technology ladder if it only identifies its shortcomings and takes immediate action on them.
The popular narrative is that India’s failures stem from its inability to access market-driven growth opportunities. The country’s earlier commitment to planning and the public sector is hurting its opportunities, so the argument continues after the 1991 economic reforms. And so, talented people left the country for the US. In fact, as of 2019, there were 2.7 million Indian immigrants in the US, making them among the most educated and professionally affluent communities in that country.
an invisible hand
Undoubtedly, America is a country with imaginary opportunities. What is less known, however, is that the government has an invisible hand to support each of the so-called conquests of enterprise and the free market. Research by Mariana Mazukato shows that the state has been instrumental in the introduction of new generation technologies, including the computer, Internet and nanotech industries. Public sector funding developed the algorithm that eventually led to the success of Google and helped in the discovery of molecular antibodies that provided the foundation of biotechnology. In these successful episodes, government agencies were proactive in identifying and supporting more uncertain stages of research that a risk-averse private sector could not enter.
Even more prominent has been the government’s role in shaping the economic growth of China, which is racing with the US for supremacy in technology. A little more than a decade ago, China was known for its low-wage manufacturing. Even hailed as the ‘factory of the world’, China was trapped in low value-added areas of the global production network, earning only a fraction of the price of the goods it manufactured. However, as part of the 2011 government plan, it has made successful forays into ‘new strategic industries’ such as alternative fuel cars and renewable energy.
chinese experience
China’s achievements did not come because it became ‘capitalist’, but because of the power of the public sector, markets and globalization. China’s state-owned enterprises (SOEs) were seen as inefficient and bureaucratic. However, instead of privatizing them or allowing them to be weakened by neglect, the Chinese state restructured the SOE. On the one hand, the state retreated from the light manufacturing and export-oriented sectors, leaving the sector open to the private sector. On the other hand, SOEs consolidated 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 inaugurated planning and industrialization in the early 1950s, it was perhaps the most ambitious of such initiatives in the developing world. Public sector funding for the latest technologies of the time, including space and nuclear research and the establishment of institutions such as the Indian Institute of Technology (IIT), were among the hallmarks of that effort. Many of these institutions have achieved world-class standards over the years. The growth of information technology and pharmaceutical industries has been fastest in Bengaluru and Hyderabad. However, there are many obstacles to progress, including India’s poor achievements in school education.
In 1991, when India embraced markets and globalization, it should have redoubled efforts to strengthen its technological capabilities. Instead, spending on research and development as a proportion of GDP in India declined from 0.85% in 1990-91 to 0.65% in 2018. In contrast, in China and South Korea the ratio has risen to 2.1% and 4.5% over the years. , respectively, as of 2018.
supply and demand factors
Despite setbacks, India still has favorable supply and demand factors that could propel it on the technology front. The number of persons enrolled for tertiary education in India (35.2 million in 2019) is well ahead of the same number in all other countries except China. Furthermore, the graduate as a proportion of all graduates from STEM (Science, Technology, Engineering and Mathematics) programs stood at 32.2% for India in 2019, the highest among all countries (UNESCO data).
Undoubtedly, India needs to rapidly increase its public spending to improve the quality and accessibility of higher education. According to the OECD, a large proportion of tertiary students in India are enrolled in private institutions: in 2017 it was 60% for those enrolled for a bachelor’s degree, compared to an average of 33% for G20 countries.
India – which will soon have twice as many internet users as the US – is a huge market for all kinds of new technologies. Though this presents a huge opportunity, the domestic industry is yet to make a profit. For example, the country is operating well below its potential in electronics manufacturing. Electronic goods and components are the second largest item in India’s import bill after oil. Also, the country’s imports into this industry are nearly five times its exports (based on 2020-21 data).
The high-value electronic components required in the manufacture of mobile phones are technology- and design-intensive. Large multinationals control these technologies and take a large chunk of the revenue. China has used its large market size as a bargaining chip in negotiations with foreign firms: stay in our markets only if you localize production and share technologies with local firms. Meanwhile, China has made aggressive efforts to increase its technical strength through its research institutes and SOEs.
The ‘Make in India’ initiative will have to go beyond ‘ease of doing business’ for the private industry. Indian industry needs to deepen and broaden its technological capabilities. This will happen only when universities and public institutions in the country are strengthened and encouraged to enter areas of technology development, for which the private sector may have neither the resources nor the patience.
Over the past three decades, PSUs in India have been judged primarily on the short-term fiscal benefits they bring. Instead, they should be valued for their potential long-term contribution to economic growth, the technology they can create, and the strategic and knowledge assets they can create. A strong public sector will create more opportunities for private businesses and increase the entrepreneurial base. Small and medium entrepreneurs will flourish only when there are mechanisms for dissemination of publicly produced technologies, as well as greater availability of bank credit and other forms of assistance. The next big story about Indian skills may not come from America, but from thousands of such entrepreneurs in the far flung corners of the country.
Jayan Jose Thomas is Professor of Economics at the Indian Institute of Technology Delhi and Ashoka University’s China India Visiting Scholar for 2020-21.
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