The differing digital journeys of India, China

There is resistance against Chinese dominance. India needs to fix its domestic landscape to take advantage

Over the last two decades, India and China have become significant players in the digital ecospace with profiles that are different but convergent. India may be the world’s back office, but its presence in products — software and hardware — is relatively small. China, on the other hand, is big in both domains. On the basis of a back-of-the envelope calculation, the Compound Annual Growth Rate (CAGR) of their digital sectors over the past two decades appear roughly comparable: India’s digital sector has grown, on average, annually by around 35%, while China has recorded 50%+ growth. However, thanks to compounding of the difference in growth rates over 20 years, the final picture today is different. In 2019, China’s digital economy claimed to have crossed $5 trillion or over a third of the country’s total Gross Domestic Product (GDP). In comparison, India’s current digital economy is estimated around $300 billion, or nearly 12% of the GDP.

China’s digital surge has not only reinvented the economy, but has also bolstered the nation’s growth rate. In 2019, for instance, its digital sector’s 15.5% growth was the biggest contributor to the national GDP growth of 6.1%. Globally, China’s digital economy is second only to the United States (US). Although the US still dominates with 18 companies in top-30 digital companies by market capitalisation (2019), China has seven companies in the list, including Alibaba ($402 billion), and Tencent ($398 billion).

Recently, however, there are signs that this lopsided China-india’s digital paradigm might be correcting. China’s domestic digital economy is getting saturated and its attempt to expand globally is encountering increased resistance. Last month, India banned 59 Chinese apps. The United Kingdom (UK) reversed its decision to allow Huawei to operate 5G telecom system, and, in this, joined a number of western countries uneasy about Chinese digital exports.

In contrast, India’s digital economy seems to be getting a tailwind. Over the past three months, Jio, the largest Indian telecom operator, has managed to get Foreign Direct Investment (FDI) of over $20 billion from 13 global investors for its platforms. Google has announced its intention to invest $10 billion in India’s digital economy over the next five to seven years. Foxconn, which assembles Apple phones here, intends to ramp up mobile production by investing $1 billion in India, already the world’s secondlargest mobile manufacturer.

Despite the enormous global economic challenges, the four Indian technology majors have had healthy growth in their turnover during Q2/2020. While these may be early hopeful signs of gains in India’s digital journey, we need to acknowledge its strategic importance.

At this juncture, we need to study the Chinese strategy over the last two decades to become a digital superpower. In the late 1990s, China realised the potential of these emerging technologies and leveraged them. Foreign digital companies recieved permissions to ply their wares in China’s huge market, but these were withdrawn soon in a seemingly systematic manner, and the entire domestic digital ecospace reserved for its home-grown entities. Thus, China is the only major economy where Facebook, Amazon, Apple, Microsoft and Google (FAAMG) are either absent or remain marginal players. Their Chinese clones took full advantage of a near-monopoly to grow exponentially. Meanwhile, China invested heavily in digital hardware technologies from chip-making to telecom systems and acquired companies and start-ups abroad. Thousands of Chinese students and researchers went to western technical institutions to specialise in these domains.

While many of the pathways China took to become a digital superpower are relevant to us, replicating them has since become more difficult. Having lost China, FAAAM are determined not let go of India. They have also become more possessive about their technologies. On our side, too, the ecosystem has often rendered only tepid support to the home-grown digital companies. Indian IT companies grow despite the government. There is little point in rediscovering the wheel — we should try and leap-frog into the future.

To this end, a strategy leveraging our market size and competence to foster alliances between domestic and foreign digital companies will serve us best. The government can and should make this possible by creating a positive and forward-looking framework and adopt best global practices, particularly on Intellectual Property Rights, data security, taxation, land acquisition and employment.

A high-powered inter-ministerial entity could be created to supervise the digital sector and accelerate decision-making. Nonresident Indian (NRI) techno-entrepreneurs should be encouraged to lead this synergy, particularly in creating research and development capacity in emerging technologies, clubbed as the Industrial Revolution 4.0. We also need to develop human resources through better academia-industry interface, adopt employment-friendly syllabi and train our workforce. We also need to appreciate that unlike the brick and mortar economy, digital technologies are less beholden to lure of either geo-economics or size.

If the country’s digital economy soars, it will have comprehensive spin-offs for the Indian economy and society — from faster growth to higher employment generation to greater self-reliance in an area, both critical at present and strategic in the future. These are reasons enough for us to act — particularly in the current challenging economic times.