India vs. China: The race to produce high-tech industry

By Robert D Atkinson & Pradeep S Mehta

A quarter of a century ago, the question was open as to which nation – India or China – would take the lead in advanced industrial production. China won. Between 1995 and 2018, Chinese production of high-tech industries grew six times faster than that of India. Nevertheless, India has key strengths on which it can build.

To assess India’s performance, the Information Technology and Innovation Foundation (ITIF) reviewed OECD data on seven key sectors: pharmaceuticals, electrical equipment, machinery and equipment , motor vehicles, other transport equipment, computers, electronics and computer and information services. As the Indian economy has grown, many of them have gained global market share. India is a major supplier of Active Pharmaceutical Ingredients and the United States is the largest market for Indian IT service providers such as TCS, Infosys, Wipro, etc., which have collectively achieved a turnover of around $50 billion in 2020.

There is another way to look at the strengths of India’s high-tech industry – by looking at their share of the Indian economy relative to the global economy; what regional economists call a location quotient (LQ). If India had the same share of advanced industries as the world economy, its QL would be 1. In 1995, India’s QL for advanced industries was 0.66, which means that the production of its advanced industries as a share of its economy was one-third smaller than the rest of the country. world. But by 2018, his QL had risen to 1.14. In fact, the Indian economy is now more specialized in high-tech industry than that of the United States (QL 0.94), but less than that of China (1.3) and Germany (1. 6). India had 44% more pharmaceutical production as a percentage of its economy than the world average in 2018, and 89% more in IT and other information services. Performance and prospects are much better than ten years ago. From 1995 to 2014, high-tech industry output in China grew more than nine times faster than in India.

However, from 2014 to 2018, Chinese production grew only 50% faster than its Indian counterpart. But when it comes to percentage growth, the picture was completely different: output in all seven industries grew faster in India than in China, with overall output in high-tech industries growing 43% faster in India. Given the Trump administration’s efforts to limit China’s predatory economic and technological practices, with the current slowdown in the Chinese economy, it is likely that these trends have continued and perhaps even increased to date. .

So what can India do to take advantage of this favorable trend? First, India’s R&D tax credit should be increased. India ranks 26th out of 34 major countries in terms of R&D tax generosity. If it wants to overtake China’s credit generosity and move up to 7th place, it would need to triple its R&D credit rate. For that, it could start by encouraging R&D in its $27 billion PLI program. Second, India will need to strengthen its intellectual property system, including patents, and build entrepreneurial and institutional capacity to take advantage of it. Third, the world is moving away from the post-Cold War utopian model of global free trade. China has helped destroy this with its aggressive mercantilist actions in innovation and its threats to world order. As such, there will likely be continued decoupling from China by democratic nations. India is well positioned to take advantage of this trend and build its advanced economy in part on production leaving China. He has already begun to engage with the rest of the world on these lines. Another key step is to engage deeply with the Indo-Pacific economic framework proposed by the Biden administration in a mutually beneficial way. The main thing is to make it easier for multinationals and national companies to do business in India. This will require a relentless focus on improving India’s competitiveness through convergence between both horizontal and vertical policies and improving implementation.

India has made significant progress in high-tech industries, especially over the past decade. He has the potential to make even more progress over the next decade, but only if he takes the necessary steps to succeed.

(Atkinson is President, Information Technology and Innovation Foundation, Washington DC, USA. Mehta is Secretary General, CUTS International, India)

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