India is ready to take stock of tech trade with US

VIVAN SHARAN and AJAI GARG: Indian Prime Minister Narendra Modi’s landmark State visit to the US is a good opportunity to take stock of bilateral trade and investment in technology – a most critical vector of modern-day geopolitics. The US is India’s biggest trading partner, and one with which it enjoys a healthy surplus on account of technology services exports. The two countries achieved $128.55 billion in bilateral trade in 2022-23, compared to approximately $114 billion between China and India.

Modi is expected to announce a few big-ticket commercial deals that will naturally grab the lion’s share of headlines. This includes a Rs 6700 crore investment by the US semiconductor company Micron, in an ‘Assembly, Testing, Marking and Packaging’ (AMTP) plant. While AMTP is at the lowest end of the value chain, even this part of the semiconductor production process requires significant capital and technology. The approval for an AMTP facility marks a welcome departure from India’s previous obsession with very expensive semiconductor foundries, for which there is little commercial appetite in the US.

Additionally, Modi is expected to discuss ways to advance the US-India Initiative on Critical and Emerging Technology (iCET) with American President Joe Biden. The iCET is a new lever to revitalise the technology relationship between the two countries, especially after the inevitable loss of momentum in the Defence Technology and Trade Initiative (DTTI), which couldn’t instil any successful habits of technology cooperation.

Strategic cooperation, practical action
Therefore, both countries desperately need to operationalise their strategic convergence on technology matters to demonstrate that they are serious about shaping the 21stcentury. They must show a unity of purpose in economic coupling that runs contrary to prevailing de-globalisation, and secure their information societies and digital markets. To that end, taking the following steps might be useful.

First, India and the US must de-jargonise the notion of ‘trust’ in technology, which features prominently in the iCET, in the Quad and in other strategic initiatives. Both countries often talk of building trusted technological supply chains to decouple from overdependence on China. India imports approximately $30.26 billion worth of electronic equipment from China annually. American private enterprises remain similarly reliant on offshoring electronics manufacturing to China – which overtook the US in manufacturing in value terms in 2010. Therefore, mere proclamations of mutual trust do not cut ice.

It is axiomatic that the US must accelerate the transfer of finance and technology to India to operationalise ‘trust’ in the relationship. So far, most tech transfer deals are limited to sporadic defence cooperation and financing piecemeal efforts in clean energy. However, the US must broad-base both to support India’s rise. Although India is not an ally in the traditional sense, the US must act like a generous larger partner to enable a definitive swing in the global balance of power. The post-war US-Japan relationship offers a framework to think about the ambition required to make this a reality.

The US absorbed more than 30 per cent of Japanese exports between 1960-70. This was the result of deliberate American efforts to intertwine and build trust with Japan. Exports to the US resulted in increased profits for Japanese companies and improved the nation’s precarious balance of payments. Similarly, the US today must not erect artificial barriers to Indian information technology exports, such as by limiting the movement of human capital.

Additionally, the US enabled Japanese companies to access competitive loans from its export-import bank as well as other commercial banks. Access to this capital spurred a dramatic rise in Japanese investments in manufacturing. Now, the US must think of new ways to achieve equivalent outcomes with India, particularly when access to capital is becoming tougher for the private sector.

What India must do
India must also deliver on its end of the bargain and abandon failed attempts to balance protecting and promoting its economic interests. New Delhi impulsively depends on import substitution rather than export growth in response to economic reliance on Beijing. As a result, it is still focused on building non-tariff barriers to stymie Chinese imports. India, thus, manages to throttle even otherwise trusted suppliers as an unintended consequence. The bluntness of trade barriers was most visible in the aftermath of the Doklam clash, when goods had piled up at Indian ports – an inevitable outcome due to low State-capacity for enforcement.

Similarly, India must demonstrate greater agility in policymaking to grow tech supply chains – possible only if trust is made a core part of economic decision-making. It still takes an inordinate amount of time to provide cabinet approvals to incentivise large-scale industrial endeavours. For example, the last overhaul of the Performance Linked Incentives (PLI) scheme for electronics hardware took an entire year, at a time when most global majors were re-evaluating their investments in China.

Any changes to accommodate new commercial interest in Indian manufacturing inevitably go through a bureaucratic maze. Such red-tapism is antithetical to the national interest in cornering a larger share of global tech supply chains led by American brands. India must inject trust into laws and processes, as it is attempting to now do with a new data protection bill that will allow freer cross-border data flows to trusted jurisdictions.

Finally, India and the US should pick low-hanging fruits to unbundle trust in the digital market. These include joint standard-setting in areas such as artificial intelligence and telecom, collaborations around quantum computing and cybersecurity, adoption of private-sector friendly digital public infrastructures (such as the Unified Payments Interface, or UPI), and localisation of intellectual property via Global Capability Centres – research and development hubs established by American companies in India. The road toward true strategic convergence is long and sometimes winding, but it is one that India and the US are destined to walk together.

The authors are technology policy experts at Koan Advisory Group, New Delhi. Dr Garg previously led several international cooperation initiatives at the Ministry of Electronics and Information Technology. Their views are personal.

This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here. (ThePrint)