The current trend of US companies setting up Innovation Centres in India is very encouraging, says Aghi.
In its latest episode of Policy Square in association with BW Businessworld, Davinder Sandhu, Chairperson of Primus Partners, sat down in conversation with Mukesh Aghi to talk about the economic and strategic partnership between the United States and India, with a particular emphasis on the technology sector.
This year, the US emerged as India’s largest trading partner, marking a significant shift in dynamics. How do you envision this trend progressing, and what are your perspectives on it?
I believe that the US-India relationship is the most important relationship of the 21st century. This has been stated by President Obama, President Trump and President Biden. You have to look at this relationship from multiple angles. First is the geopolitical angle. We are living in an age where the current order is being challenged by China. While we all live by the guidelines or the order, China would like to dictate its own. India has border disputes with China, which is going to push India dramatically. From that perspective, India needs friends to deal with the issue and the US becomes a friend.
The second aspect is the opportunity for India. China was the manufacturing hub for the globe, but with the COVID issue and China’s assertive approach to changing the world order, every boardroom in the US and Europe is asking the question, “How do we de-risk our supply chain?” India becomes a natural place for them to explore. In fact, today we have Tim Cook in New Delhi. Apple is going to produce roughly 20 million iPhone 14s in 2024 – almost 7 per cent of their global production – and that number keeps going up.
So, I think from a geopolitical perspective, an economic perspective, and a people-to-people perspective, we have around five million Indian Americans in the US, with double the average income of an American itself. Biden has positioned 150 of those Indian Americans in his administration, and he has nominated Ajay Banga as President of the World Bank. In every aspect, the relationship is getting more and more cemented and [becoming] stronger.
There is a clear interest in utilising supply chains, given India’s significant technical capacity, efficient company management, and robust legal framework. With the recent establishment of a technology partnership between the two countries, what steps are necessary for American companies to maintain this momentum?
If we look at it from an American company’s perspective, they are looking for competitive and efficient production of their goods so that they can sell around the world. The reason they went to China was definitely due to cost and scalability, and they are also looking at India from that perspective. It’s important to sit down with some of these companies and have a dialogue about what they need, just like they did with Apple and set up a PLI scheme so they can be globally competitive and make the same margins. It’s important to make policy broader and let these companies adjust to that environment.
The second aspect is that the ease of doing business has to get better. India needs to benchmark itself not just within states, but with countries like Singapore and Finland that have a world-class environment for doing business. The third factor is infrastructure. While from a tax and wages perspective, India is the same as or better than China, when it comes to the logistics supply chain, the cost of moving goods is 20 per cent higher. India needs to keep improving its infrastructure, including ports, airports, railways, and highways, to make these companies more efficient in the global supply chain.
The third factor is giving these companies a level playing field. If India wants to be an export nation and a global economy of USD five or USD 10 trillion, it needs to bring in global competition. Things have improved in the last 10 years or five years, but for India to be a global leader in every aspect, it needs to compete globally.
I believe that India possesses a talented group of youngsters brimming with innovative ideas, which has propelled the country into being one of the leading startup nations globally, while the United States has always been at the forefront of innovation, particularly in the pharma and IT industries. India offers a pool of young talent, and the US possesses a well-developed investment system. Therefore, how can the two collaborate to push forward innovation and startups?
The startups in India are becoming global, but they need a bridge to become even more global. There are issues related to investment, access to markets and taxation. For instance, there is now an angel tax, which can harm startups. Why can’t startups go for IPOs and raise capital in Nasdaq and other markets outside of India? When we look at these issues more closely, it becomes apparent that it is essential to find ways to get cheap capital from the US into India. The private equity firms currently have roughly two trillion dollars in capital, which is not being utilized, and India could be the place to leverage that capital. Additionally, once a good startup idea is found, we need to provide access to Fortune 500 companies. These are the issues we’re trying to address. We have taken a dozen companies from India, and their valuations have shot up into the billions of dollars. It’s a win-win situation. So, for every startup we have taken to the US, for every person they hire with an average salary in the US of USD 175,000, they add eight people in India also. It’s cost-effective, and both countries benefit. Therefore, startup support is a critical area that we should explore and support.
Ecommerce has been one of the main components of startups, as it facilitates access to markets and ideas. There has been extensive dialogue around e-commerce regulations, and India acknowledges that ecommerce and logistics were instrumental in keeping it afloat during the pandemic. Therefore, with this realization, could you please provide insights into the stance of US e-commerce giants and what India could do to improve the regulatory environment to facilitate their operations?
Well, with a population of 1.4 billion people, the retail segment in India is fragmented and the infrastructure is limited, and the cost of real estate is extremely high. Therefore, it is important to leverage e-commerce to provide world-class services to consumers. The companies operating in this space are advocating for a level playing field, transparency in policy-making, and predictability. They are concerned that their future investments may be impacted if laws change abruptly. While India is willing to work on these issues, they are also focused on protecting small-time SMEs and maintaining their jobs. The key is to find a balance that integrates them into the supply chain, creating a win-win situation for all parties involved.
On my way here, I was wondering if I was ChatGPT, what would I ask you? So, coming to the important conversation around artificial intelligence, I think both countries have been very good in technology, information services and software. How do you think we can both collaborate better in getting the best out of AI for people in our respective countries?
That is a discussion I had the last couple of days with the leadership in Delhi because you have an opportunity that can become a threat, if not handled right. Therefore, it is critical for both countries to start having conversations from a policymaker’s perspective and establish common guidelines and barriers, to ensure that we do not move in the wrong direction with AI. India has tremendous resources to build AI, while the US has fantastic algorithms on the AI side. If we merge those algorithms with the data of 1.4 billion people, we can come up with fantastic solutions that will be a win-win. However, it is important for policymakers on both sides to sit down and discuss how they can establish certain fences around AI so that it does not become a threat to society.
As [you were] previously the President of IBM in India and still maintain connections in the industry, I would like to ask for your views on the conversations around data protection and data onshoring in India. While there is a new data protection bill, stakeholders are still discussing what more needs to be done. What is the American industry’s view on data protection and what do you believe needs to be done to encourage greater cooperation and conversation while also respecting the sensitivities involved?
Stagnant data holds no value; dynamic data drive solutions. We cannot fragment data as we live in a global world. Once we begin to fragment it, we lose the value of the data itself. Therefore, it is essential that we maintain dynamic data while also protecting the interests of the country and its citizens. As we transition to the next phase, each individual’s data becomes their own asset, and they should be able to decide how to share their data, whether for market, research, or any testing purposes. Additionally, we must consider data from a national security perspective. However, this does not mean that every piece of data is a national security issue. The bill looks at countries where data can be shared, and it is important to keep this in mind as we move forward with the bill. The government is currently undergoing extensive consultation, and the old bill has been discarded, which I believed was redundant. The new bill is more encouraging, and there will be more fine-tuning as we progress.
India has clearly produced a great global public good in terms of citizen intervention and building up a tech stack of citizen and public data. I think there is tremendous potential to scale this up for the benefit of both countries, both in terms of human and sub-commercial advantage. Look at what the pandemic [or] UIDAI has done. It’s a system that has brought together a huge number of possibilities. So how can the US and Indian industries come together to leverage this global public good that India has created over the last five or seven years, and take it forward to the whole world?
One thing I have to commend the government for is creating its own vaccine during the COVID crisis, which was affordable at around INR 150, while in the US, we were paying USD 18 even though it was provided by the government. However, what’s even more important is the ability to administer over two billion shots across territories and geographies that were previously inaccessible. To me, this demonstrates the government’s effectiveness and efficiency, sending a message that India can be a pharmacy to the world, providing scalable and affordable healthcare solutions not only to its citizens but also to the rest of the world. India spends less than two per cent of its GDP on healthcare, while the US spends 18 per cent, yet India is often more efficient than the US in many cases. Therefore, this is an area where both countries can work together.
I find the current trend of US companies coming into India to set up innovation centres and develop solutions for the rest of the world very encouraging. Pfizer, Merck, Qualcomm, and Samsung are leveraging Indian talent to drive value proposition, not just from an IP perspective, but also solutions. With over 326 space startups in India, the country is becoming a hotbed of innovation, with frugal engineering that is effective, scalable, and global. Therefore, I see a win-win value proposition between the two countries, and we should leverage this to our advantage.
Regarding the UPI stack, I think it’s a phenomenal story for India. I was in a pharmacy in Khan Market, and someone purchased medicine for Indian rupee seven by simply scanning the QR code, and the transaction was efficient, effective, and secure. If we can take this technology to the rest of the world, which we have already done in Singapore, it will be a game-changer.