Given the need for large amounts money to step up India’s paltry R&D effort, and the public’s appetite for risk, we could have several venture funds that invest in research-intensive start-ups
In an increasingly complex world, it is ever harder to maintain strategic autonomy.
If India wants to expand the space it has to make autonomous development choices. It needs industrial capability that cannot be disrupted by a foreign country that decides to withhold components or technology, in order to exert pressure on India.
Rules-base order
What constrains India’s autonomy in making choices in its own interests? We live in what the West calls a rules-based international order, whose basic architecture was framed by the victors of World War II, and they were generous to themselves while distributing the power to set rules.
The last time this order got a shake-up was when the Great Financial Crisis of 2007-09 struck, and the rich countries decided the growing interdependence of the globalised world warranted enlarging the high table, to make room for some members of the emerging world.
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The G20 was formed and that is about the only rule setting body in which India has a substantive part.
Here too, India’s ability to frame rules for the world is pretty much in line with the ability of Henry Ford’s customers to choose the colour of their car: you can choose any colour you like, Ford had said, so long as it is black. India can frame any rule, so long as it tallies with what the US and its close allies in the G7 want.
Rich boys' club
The International Monetary Fund (IMF), the Bank for International Settlements (BIS), the Financial Stability Board (FSB), the Financial Action Task Force (FATF), the International Organisation of Securities Commissioners (IOSCO), the International Court of Justice (ICJ), the International Criminal Court (ICC), the Security Council of the United Nations (UNSC), the messaging system for making cross-border payments, Society for Worldwide Interbank Financial Telecommunication (SWIFT), the World Meteorological Organisation, the International Civil Aviation Organisation (ICAO), World Maritime Organization, Interpol, the Intergovernmental Panel on Climate Change (IPCC), the World Federation of Insurance Associations (WFIA), ICANN, IEEE, and all the other bits of the alphabet soup that sets the rules/norms that regulate the working of the world are all dominated by the rich world.
As are the technology control regimes, the Nuclear Suppliers’ Group, the MTCR, Wassenaar Arrangement and the Australia Group.
The World Trade Organization (WTO) has a decision-making structure in which one country gets one vote. The rich world has sabotaged it, after failing to dominate it, with the US refusing to appoint people to the appellate body to the Dispute Settlement Mechanism.
The US dollar dominates world trade and finance; dollar sanctions can cripple economies, and prevent others from transacting with these economies.
Russian oil
For India, ports in Western India are closer to Iran than Delhi is to these ports. Yet, India is forced to import oil from Russia and even the United States. Its planned port at Chabahar remains hostage to US policy.
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The US does not like India buying sophisticated arms from Russia. The US administration is resisting pressure from influential lobbies to sanction India for the purchase of S400 missile systems, but a Trumpian tantrum could change that.
The Outer Space Treaty notwithstanding, the best slots in near-earth orbit are being taken up by thousands of American communications satellites, forcing newcomers to go higher up or risk collision.
Strategic autonomy is obtained by manoeuvring in the space opened up by the need for rival big powers to find allies, and India is good at doing this. But ultimately, the big powers will find India a useful partner in balancing/countervailing other big powers only if India has the heft, in absolute economic size and industrial and strategic capability, to play that role.
Self-reliace
India cannot achieve strategic autonomy by importing practically all the building blocks of modern machinery, weapons systems and communication equipment from China, a hostile power that spends close to 3 per cent of its GDP on R&D and another 1.8 per cent of its GDP on industrial subsidy that allows Chinese companies to eliminate external competition in vital sectors.
India needs to make its own electronics, the essential building blocks of larger system, and the machinery to make these. Turning screws on phones, of which all vital components have been imported, is sham progress in indigenous manufacture.
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Giving billions of dollars in subsidy to American companies to set up semiconductor foundries in India does not help strategic autonomy. US sanctions on China take the form of prohibiting the sale of American technology embodied in equipment, or the manufacture of the equipment, wherever it is manufactured.
Dutch company ASML cannot sell chip engraving machines to China, because these incorporate American tech. If for some reason, the US imposes such sanctions on India, even the chips manufactured in India by American companies could be denied to India, apart from chips manufactured elsewhere.
Appetite for R&D
The only way to achieve strategic autonomy is to do indigenous R&D to develop the entire range of the relevant tech and the kit needed to manufacture them in India.
India’s traditional industry has no appetite for R&D, and tries to palm off the expenses on market research as R&D to claim tax benefits.
India spends 0.64 per cent of its GDP on R&D; of that the private sector contribution is 37 per cent. Since the Prime Minister added Anusandhan (research) to Jawan, Kisan, and Vigyan, the trio to which we must sing Jai (victory), India’s R&D spend has come down from 0.68 per cent of GDP to 0.64 per cent of GDP.
The government has announced a corpus of Rs 1 lakh-crore to fund R&D. This is welcome. To hand this over to traditional companies with no culture of R&D would be to waste that money.
Rather, India’s new breed of startups, which has gone past the stage of trying to develop Indian iterations of western successes, and comprises companies that work on serious tech on everything from mapping the brain to space exploration, are the ones that could take on the challenge of indigenous R&D.
Multiple centres
The government corpus could be utilised to set up a number of research outfits, akin to the global capability centres (GCCs) multinational companies are setting up in India, drawing in the best talent available in India and in the diaspora.
These Indian capability centres could undertake research to solve problems specified by Indian weapons companies, the Defence Research and Development Organisation (DRDO), or startups working on specific elements of the tech ecosystem needed for strategic autonomy.
Those seeking to solve particular problems must have skin in the game, and must fund a goodly share of the research expense. For startups to do that, they must have sufficient capital, apart from ideas and ambition.
The way to create funded startups eager to solve the technological challenges that must be overcome on the path to strategic autonomy would be to set up massive venture funds.
Stock-crazy population
The Indian investing public is crazy to invest in stocks. The initial public offers of Itsy-bitsy companies with mundane businesses get oversubscribed many times over.
These investors would more than welcome an opportunity to invest in venture funds that have hitherto been the preserve of high-net-worth individuals, and contribute to India’s strategic autonomy as well. The Employees’ Provident Fund (EPF) and the National Pension System (NSP) could give its subscribers an option to allocate 5% of their savings to these venture funds.
Venture funds work on the principle that while some of the startups they fund would fail, the few that succeed would generate enough returns to give a decent return on the entire corpus. Indian investors punting on small IPOs and futures and options should welcome a chance to invest in a venture fund or two.
Need for clarity
There must be clarity on the sectors that are vital for strategic autonomy, and the products and technologies in each such sector. This clarity must inform those who manage the venture funds and the Indian capability centres, who take a call on which startups to fund and what kind of research to support.
Can India find the expertise and the integrity to take on this challenge? Does India have the engineering and scientific talent to undertake such ambition? The answer is a resounding yes. What are we waiting for?
(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the article are of the author and do not necessarily reflect the views of The Federal.)
