For years, China has been Asia’s expertise powerhouse.
It’s house to what as soon as had been a few of the world’s Most worthy firms, from Tencent to Alibaba. It’s the place a lot of the world’s iPhones and different electronics merchandise are produced. And it’s now a severe participant in electrical automobiles.
However a shift seems to be underway, with different nations in Asia attempting to take China’s crown.
India is one in all these contenders. New Delhi has sought to woo overseas tech firms and has been more and more profitable, with giants like Apple growing their presence within the nation.
India is seeking to increase areas equivalent to high-tech electronics and semiconductor manufacturing, in addition to help its burgeoning but challenged startup scene.
On the identical time, overseas companies wish to diversify away from China amid growing tensions between Washington and Beijing. Robust Covid-19 restrictions enacted by the Chinese language authorities, which disrupted operations for companies like Apple, highlighted the necessity for firms to cut back publicity to the nation.
India might stand to learn. What was as soon as a market that overseas companies perceived as having an excessive amount of purple tape and too many enterprise hurdles is now turning into a viable various to China. However it can take numerous effort for India to wrest China’s tech title.
Within the newest episode of CNBC Tech’s “Past the Valley” podcast — which you’ll be able to take heed to above — Tom Chitty and I focus on whether or not India can problem China as Asia’s tech powerhouse, and what the nation’s benefits and drawbacks are.
When you have any ideas on this or earlier episodes, please e mail us on beyondthevalley@cnbc.com.
You may subscribe to “Past the Valley” by clicking the hyperlinks beneath to your chosen platform:
Apple Podcast
Google Podcasts
Spotify
Here’s a transcript of the episode of “Past the Valley” launched on Apr. 3, 2024. It has been edited for readability.
Tom Chitty: For years China has been Asia’s tech powerhouse the place the world’s electronics and a few of the greatest firms on the planet are situated. However as China’s economic system continues to battle and commerce tensions between Washington and Beijing present no indicators of easing, many world tech companies are wanting carefully at India. The nation is ready to turn out to be the world’s third-largest economic system by 2030. And a part of that plan is making a play to usher in excessive tech manufacturing to its shores, from Apple’s iPhones to semiconductors, because it units itself as much as problem China as the important thing tech hub in Asia. How’s your week been?
Arjun Kharpal: It has been nice Tom. Had a pleasant lengthy weekend. It is a lengthy weekend right here within the U.Okay. In order that was good. Did some gardening. I prefer to prepare dinner. Do you know this?
Tom Chitty: Sure I did since you sliced off your finger.
Arjun Kharpal: I did slice off my finger.
Tom Chitty: Let’s simply make clear … a little bit of it.
Arjun Kharpal: It is rising again. I am simply taking a look at it now and it is rising again, which is nice. So I’ve simply planted some herbs. Acquired chives in there, oregano.
Tom Chitty: Is that this the time of yr to plant?
Arjun Kharpal: That is the time. So that they’re indoors proper now. They acquired to enter little form of child herbs. After which they go outdoors.
Tom Chitty: I imply, how do you discover the time, Arjun? You’re a miracle.
Arjun Kharpal: My granddad is nice gardener. So I form of went spherical his and I mentioned are you able to assist me plant these? And he acquired all of the compost out. In any case, they’re good child herbs, in all probability in about three to 4 weeks. After which I will put them within the backyard. So by the summer time, once I’m you already know, actually cooking it up on the barbecue and no matter else happening. I am attempting to develop lemongrass, clearly utilized in numerous Thai dishes. I do not know if we acquired the local weather. However we’ll see.
Tom Chitty: You will in all probability want a greenhouse for that.
Arjun Kharpal: Haven’t got that. However we hope for a pleasant heat summer time.
Tom Chitty: If any of our listeners did not know, Arjun is a giant barbecuer.
Arjun Kharpal: Love barbecue.
Tom Chitty: Are you a coal man or a gasoline?
Arjun Kharpal: I am a coal man. Yeah. It is simply the flavour. However I am gonna get into smoking. Not cigarettes, or vapes or something like that. However the smoking of meats and you already know different meals. So I will strive that subsequent. That is my subsequent massive challenge. We’ll see. We’ll see.
Tom Chitty: We’re into spring. That is all we’ll speak about now for the subsequent three 4 months.
Arjun Kharpal: Barbecue and herbs
Tom Chitty: Earlier than we get into our good story, we have to clearly hear Arjun’s stat of the week. I am on a little bit of a run so let’s examine how we do that week.
Arjun Kharpal: Okay, this one is an incredibly low quantity. Normally it is like billions, trillions. 92, simply 92. 92 individuals. I feel that is correct.
Tom Chitty: That must be the tagline for this podcast. I feel that is correct. Simply to remind our listeners that if in case you have any questions on what we have mentioned this week, or previous episodes, then e mail beyondthevalley@cnbc.com. However again to our primary story. India has made a giant tech push lately, Arjun, what’s been happening?
Arjun Kharpal: It has been an fascinating, two, three years for India, I feel by way of attempting to get some momentum into its tech sector. And there appears to be form of a shift that occurred about three years in the past, maybe, the place India was saying, properly, we wish to be a expertise powerhouse. And the groundwork was being laid for this, you already know, few years prior by way of attempting to make regulation higher these sort of various things. However successfully, India is now gunning to be a expertise powerhouse in just a few fronts. And simply to attempt to break that down. You talked about in the beginning, China has usually been the form of massive expertise powerhouse of Asia. Now China has been very sturdy on manufacturing, electronics manufacturing, a lot of the world’s electronics are manufactured in China, but in addition on account of its form of prowess in expertise, it has invested in areas like semiconductors, like monetary expertise, you already know, ecommerce, so many EVs, so many alternative areas in China and it appears India is taking a look at these areas now as ways in which it desires to form of catch up and be recognized to be sturdy on this space and a type of is semiconductors. India is on a giant semiconductor push, we are able to dig a bit extra into that. One other one is excessive tech manufacturing, once more, one thing that China has usually been sturdy into an India’s attempting to place itself in its place, plus, it does have a reasonably vibrant but challenged for the time being startup scene as properly. So there’s many areas now India’s attempting to push, electrical automobiles once more, one other space that it is that it is taking a look at fairly carefully. So proper now, it is a massive nearly advertising and marketing push on the world stage from India to say, hey, I do know China has form of been dominant, however China has had its points. Why do not you have a look at India now? And that’s the message actually from India at this level to the worldwide tech group.
Tom Chitty: India’s Prime Minister, Narendra Modi has actually pushed for this, not simply in the previous couple of years, however that is form of a plan that is been cooking for some time. Sorry, to convey it again to meals, along with his Made In India initiative to attract that overseas funding into the nation. So are we now in a spot the place it is form of the right timing due to what else is going on in China, with its struggles, that really this is not simply them simply taking benefit that it has been, you already know, this has been within the works for some time?
Arjun Kharpal: I feel that is a good way to place it Tom, as a result of Modi, and underneath his management, since he grew to become prime minister has been fairly clear that he desires much more manufacturing to be in India. The Made In India program, as you mentioned, has been a key a part of that to attempt to onshore extra manufacturing of expertise, but in addition different issues too. However China has nonetheless for a few years, dominated. And I feel, what modified the sport fairly considerably, I might prefer to say form of started in, say, 2018, so form of roughly three, 4 years after Modi grew to become prime minister, Trump grew to become president of the U.S. And what that sparked actually was an elevated stress with China, not solely on the commerce conflict entrance, however then additionally on this expertise battle between the 2 nations and geopolitics began to essentially forged a shadow over the tech sector globally. And I feel a lot of them started to take a look at China and assume, I ponder what our future appears to be like like in China. In order that was one half. Then you definately had export restrictions, and varied different issues occur, after which COVID hit. And I feel COVID, particularly, uncovered many tech firms reliance on China. Apple was a key instance of that. Throughout COVID, the largest iPhone manufacturing unit on the earth run by Foxconn, the Taiwanese agency, you already know, had a number of incidents the place form of manufacturing was disrupted due to the COVID restrictions in China. And there have been additionally unrest as properly throughout the manufacturing unit. So there have been varied issues that occurred, which I feel underscored firms like Apple’s reliance on China. And I feel, what occurred with COVID is that actually accelerated firms wanting elsewhere, at the place can we manufacture? The place would possibly we be capable to arrange store? And the place is there additionally a viewers for our merchandise? And India matches all of these payments. So concurrent with that, India was doing issues like wooing these American firms, inviting them over, inviting them to arrange factories, arrange store arrange workplaces in India, on the identical time once they had been precisely in search of a diversification play. And so all of these items got here collectively. And I feel we’re right here now, the place there’s been just a few massive actions. So one, Apple now manufactures its newest iPhones in India, not all of them, numerous them nonetheless out of China. Micron, one of many world’s greatest reminiscence chip makers, has acquired approval to arrange a manufacturing unit there. I am speaking semiconductors right here as properly.
Tom Chitty: Sorry, simply to make clear Micron is an American firm?
Arjun Kharpal: Tata Electronics may also companion with Taiwan’s Powerchip Semiconductor Manufacturing Corp to once more arrange a semiconductor fabrication plant. So that you’re now seeing overseas firms start to arrange store there. And all of these efforts, the timing, come to fruition. And that is actually what’s taking place in India, form of excessive tech sector after we’re speaking about issues like semiconductors, like electronics manufacturing at this level, versus, say, China. And it is partly India making the enterprise surroundings barely higher. It is partly these U.S. firms and overseas firms extra broadly in search of diversification away from China. And it is broadly additionally concerning the concern for a lot of overseas firms about relying an excessive amount of on China given the geopolitics and given what they noticed in COVID.
Tom Chitty: I talked in the beginning about the truth that there’s this abundance of labor in India. And the nation did turn out to be the world’s largest inhabitants solely lately. What different causes are there for why the nation is so engaging now?
Arjun Kharpal: I feel there’s just a few causes. One, as you mentioned, the inhabitants dimension, proper? It is acquired a big home market of customers, similar to China had, or has even. So, you already know, should you’re an electronics producer, or establishing store in India, you already know, not solely are you able to manufacture merchandise there, however you are saying, I might promote these right here, too. There’s an enormous inhabitants. And it is a younger inhabitants, it is a tech savvy, tech ahead nation at this level, as properly. In order that’s partly one of many causes. The opposite one is there’s an enormous quantity of expert labor there. Now, that there actually must be extra. I do not assume at this level India can maintain an enormous inflow of firms eager to arrange store after which having to search out expert labor there. I do not assume there’s that a lot. However actually, it is a level the place there may be numerous expert labor, there’s engineers, that are key for electronics, key for semiconductors and different areas. They’re English talking, as properly. So should you’re a overseas firm, should you’re a U.S. firm and wish to arrange store there, you do not have to fret concerning the language limitations, as properly. In order that’s one other massive motive. And you’re seeing extra of those overseas direct funding flows, as a result of India has tried to make it somewhat bit simpler for overseas firms to arrange store. India usually had a fame of being stuffed with purple tape, very bureaucratic, a spot that was very troublesome to do enterprise. Now, I am not saying that is utterly gone in any respect. However there is definitely been strikes to attempt to scale back that view of India at this level.
Tom Chitty: And on the flipside, China has is now seen as in relation to regulation, and conducting enterprise in that nation somewhat bit more difficult than possibly it was in recent times.
Arjun Kharpal: I used to be on our Squawk Field Europe present final week speaking about this. And, you already know, Karen Tso, the anchor requested, what about overseas firms now, China’s now after their economic system is underneath stress, and so on, attempting to roll out the purple carpet to overseas companies. And, you already know, will overseas companies make investments once more in China? And I mentioned, the issue China has had now’s they’ve misplaced the belief and damaged the belief of so many overseas firms. And what I imply by that’s, over the previous few years, the COVID restrictions had been so intense, and sometimes carried out in a manner that did not have numerous certainty and planning, that many overseas companies did not know form of how you can react, and it affected their manufacturing, it affected their their operations. But in addition, there’s been numerous regulation over the previous couple of years in China, that usually has come out of nowhere. It has been introduced in a short time, carried out very, in a short time. And overseas firms not likely understanding how you can react to that as properly. Traders have misplaced belief within the Chinese language markets, and the Chinese language firms due to the quantity of regulation and this query marks of over whether or not they’ll develop. And naturally, China is having its personal financial issues as properly. And that is impacted numerous firms willingness to speculate it. After which, you already know, add on the geopolitics and the whole lot else we spoken about and it appears to be like like a really troublesome situation. On the flip aspect, India is absolutely rolling out its purple carpet, as properly to numerous these overseas companies at a time, as we mentioned, they’re in search of options. And in order that’s been a plus for them at a time when China is dealing with a ton of challenges. And I feel that is one of many greatest points proper now for China. And what’s actually benefited India loads.
Tom Chitty: And India has now seen, a minimum of amongst a survey of 100 funds, the preferred rising market with traders. And conversely, China, nonetheless engaging, nevertheless it’s in second place, alongside Brazil. And so the chance of dropping that capital goes to be fairly important to the Chinese language economic system.
Arjun Kharpal: China is susceptible to dropping that capital. I feel the flip aspect is once more, the market cannot be ignored. China, once more, large inhabitants, 1.4 billion individuals, customers are rising center class, and so on. All these structural issues that attracted these firms within the first place. Plus, some extent to make you possibly can’t simply decouple, you already know, Apple cannot get up tomorrow, Tim Cook dinner, CEO of Apple cannot get up tomorrow and say, you already know what? Screw it. I am transferring all my manufacturing out of China. It is not possible. It is not possible to do. However I feel the important thing level right here goes ahead, that degree of funding we have seen in China from numerous overseas firms is unlikely to be met nowadays once they’re taking a look at not solely India, however truly different elements of Asia as properly. Vietnam, Indonesia, Thailand, these locations have attracted some tech manufacturing as properly. And so, you already know, there may be extra competitors versus China now. And that is a problem. I might say, although, in addition to India’s carried out extra lately, there was this actually fascinating interview that is come out final week, from Raghuram Rajan. He is the particular person I’ve spoken to earlier than, he was once the central banker of the Reserve Financial institution of India. And he got here out and he mentioned, the best mistake India could make is to imagine the hype about their very own development and financial story. We have many extra years of onerous work to do to make sure the hype is actual. Believing the hype is one thing politicians need you to imagine as a result of they need you to imagine that we’ve got arrived. However he mentioned it will be a severe mistake for India to succumb to that perception. He mentioned, a few of the greatest challenges that India should grapple with for the time being is enhancing the schooling and abilities of the workforce. And with out fixing that India will battle to reap the advantages of its younger inhabitants. So what I used to be saying earlier is the expert employees aspect of the equation, the tech firms, notably these within the engineering aspect of issues, semiconductors, excessive tech manufacturing, they want expert employees. Now, if all of those firms arrange store, the place are they getting these employees from? Is my query. I do not assume India has the availability but of that. So the thrill actually is across the younger inhabitants, about our workforce, possibly within the greater cities, for positive, that’s educated, that’s English talking, and so on. However once more, there’s nonetheless numerous work to do within the Indian form of tech abilities aspect of issues.
Tom Chitty: That is one of many challenges, although, is not it for a democracy, proper? Modi’s working on a restricted time period. And, you already know, his targets, and his targets shall be centered in on when that time period ends, and but investing cash, time, effort into the younger era with schooling that may solely bear fruit over a course of a number of years. And that is the problem you face towards China, which as an authoritarian regime can look forward with that long run aim, and make investments, understanding that it is the CCP will nonetheless be round come 20 years when you already know, the fruits of those who an funding will present.
Arjun Kharpal: Yeah, it is a massive problem. And it is one which comes with financial development, that should proceed, in order that the inhabitants can afford issues like schooling, and so on. And so there’s loads, there’s numerous structural issues that India must do for positive, in an effort to be an actual long run viable various and a powerhouse of tech in Asia. The groundwork is beginning to be laid and also you’re beginning to see preliminary form of inexperienced shoots with a few of the investments we have spoken about. However I do not assume it is all tremendous optimistic proper now. I feel there’s nonetheless numerous work. I feel, as Raghuram Rajan alluded to, that must be carried out structurally, for India’s economic system, for India’s workforce, schooling and skilling, so as then, you already know, for there to be a inhabitants that may help this development of tech. And that is not there but.
Tom Chitty: I wished to speak somewhat bit extra about semiconductors for a second, as we all know, they’re in all probability crucial expertise on the earth. They’re there in just about the whole lot we use daily, is that one thing that India might feasibly turn out to be a frontrunner in by way of manufacturing?
Arjun Kharpal: Will probably be a troublesome ask, I feel, for India to be a producing chief. I feel proper now because it stands, the manufacturing innovative manufacturing remains to be Taiwan, nonetheless South Korea, with the likes of TSMC, with the likes of Samsung, I feel India has some strengths in sure areas. A kind of is round chip design, and packaging. These are form of elements of the availability chain that requires numerous labor and a talented workforce once more, so these are areas of assume the place they could possibly be sturdy. One factor you will notice is Indian firms strike partnerships with say Taiwanese companies to arrange store for manufacturing. However I doubt there will be manufacturing, essentially the most innovative nodes. There is perhaps form of older generations that may go into issues like autos, or home equipment or, or a few of these different areas as properly. However sure elements of the availability chain, they may do very, very properly in so I think you are going to see much more on the semiconductor entrance. The federal government has unlocked billions of {dollars} to attempt to help bringing in semiconductor firms to their shores. In order that’s going to be, I feel, a giant a part of the technique for India on the semi entrance going ahead.
Tom Chitty: We clearly spent a lot of the episode speaking about, you already know, exterior funding, overseas funding coming into the nation. However you already know, India itself has a really thriving startup sector. How does that match into all of this?
Arjun Kharpal: Sure, thriving, and now challenged. It isn’t a selected India drawback, however I feel it is a form of broader drawback. Final yr, funding fell to about $9.6 billion VC funding into startups. That was down from 26 billion in 2022. That is based on a report from Bain. A part of that’s the world macro headwinds. I feel VCs have tightened their belts, as a result of the tech sector has been underneath stress with increased rates of interest, and so on. However they’ve additionally had some particular person tales, which, you already know, what we’ll go into in a later episode. Now we have had particular person tales of firms simply spending an excessive amount of too quick, tales we have seen elsewhere within the U.S. and varied different markets as properly, that has led to difficulties. And there is nonetheless hurdles, I feel, to overseas capital influx into that. However that is not to remove from the actual fact that there’s a there’s a vibrant scene there. And numerous that’s in Bangalore, someplace you’ve got been? You went there just a few years in the past, proper?
Tom Chitty: Yeah, I did. Yeah, we had been doing a journey collection. We went, we went by way of Goa, Bangalore, Kolkata, Delhi and Mumbai, loopy, unbelievable place vibrant, chaotic at instances. However you already know, that is the tapestry of what’s a magical nation. However I discovered Bangalore to be truly barely completely different. It was somewhat bit extra calmer. A bit of bit, possibly too cool for varsity somewhat bit. It was somewhat bit extra European. There was European influences there. I feel numerous the startup scene, you already know, had been to Europe, the U.S. educated there and introduced again a few of these influences into Bangalore. I would not in all probability say it was my favourite metropolis, simply because I really like for chaos. I imply, individuals have mentioned, oh, it is India’s Silicon Valley, which I feel is doing a disservice, I feel it is truly probably far more fascinating, you already know, by way of its influences from all world wide, and it is clearly a disgrace to you already know, that they are clearly a sufferer to what we have seen throughout all startups with the shortage of funding and, you already know, a struggling world economic system. However I think about that they are additionally a part of Modi’s plans, or a minimum of I hope they’re a part of Modi’s plans inside this complete turning into a tech hub or Asia’s de facto tech hub. Do you that may ever occur? And if it does occur, when do you assume that might be?
Arjun Kharpal: I feel India’s had an excellent advertising and marketing push, let’s put it that manner over the previous couple of years. Specifically Modi, he is a daring character. And he likes to be seen on the world stage. And he is clearly been in a position to exert some affect to be sure that individuals like Apple CEO, Tim Cook dinner, and the CEO of U.S. chip firms are coming over, manufacturing, and so on. And he is clearly tried to make India appear protected for enterprise. As a result of as we have mentioned, numerous these companies are scarred from the geopolitics between U.S. and China. To turn out to be a real powerhouse, by way of a tech hub of Asia takes years to construct up. And I feel India is within the very early phases, to place it fairly bluntly, of attempting to do this. There’s political will, which often helps causes. There’s a few of the structural benefits we have spoken about. And naturally, a few of the disadvantages we have spoken about as properly. I feel India shall be a giant participant in tech, no doubt, within the coming years. I feel it can take a few of the share away from China in sure areas. And I feel that it’s going to thrive in actually plenty of areas as properly. When a few of the greatest firms like Apple say, you already know, we wish to make 25% of our iPhones in India, it is a massive sign to others within the electronics group, within the tech group, that you’ve one of many largest firms on the earth, one of many greatest electronics producers or designers on the earth, saying that they wish to ramp up manufacturing that a lot into India. That is an indication that others might observe? I feel the massive danger for India is that if the political scenario adjustments anyway, India’s political scenario, I imply, like politics everywhere in the world may be risky. You recognize, is there any change in in geopolitics between India and nations just like the U.S. and others, which implies U.S. firms are somewhat bit extra standoffish about investing in there? There’s so many causes and dangers to the India story. Do a few of the guarantees and the hype not play out?
Tom Chitty: India have gotten an election this yr as properly, which goes to be fascinating to see what occurs there. And I additionally imagined that the connection between China and India, which has by no means been nice, might probably get somewhat bit extra frosty.
Arjun Kharpal: Yeah, it is fairly unhealthy for the time being. I imply, on the tech entrance, India’s banned a ton of apps from China. You recognize, India has aligned itself barely extra to the nations which can be presently a bit extra anti-China, let’s consider? That geopolitics with China might get much more frosty, which, to some extent, advantages. India, if it is attempting to get in additional overseas companies from locations just like the U.S., for instance. So there’s loads at stake this yr. As you mentioned it is an election yr, massive, massive yr for India. And you already know, we’ll see who the brand new authorities is and what they’ll prioritize as properly, by way of the tech entrance, nevertheless it feels like several authorities that comes into India now has to have tech on the forefront of their thoughts, given I feel how necessary expertise may be to a rustic’s economic system, I feel going ahead and all the massive adjustments that we’re seeing by way of AI, semiconductors, and so on, and so on, as properly.
Tom Chitty: Good stuff. However earlier than we end, we’ve got in fact, acquired to do stat of the week.
Arjun Kharpal: 92 individuals, Tom.
Tom Chitty: The quantity of individuals it takes to fabricate one microchip.
Arjun Kharpal: Oh, wow, you’re to date off. It is acquired nothing to do with chips. All it was I noticed this actually fascinating story on cnbc.com. It was one of many prime learn tales. And it is the variety of billionaires in Mumbai. And it is the primary time Mumbai has taken the highest spot in Asia for the variety of billionaires within the metropolis. It is overtaken Beijing now, for the primary time, which has 91 billionaires. It is simply behind London on 97 and simply behind New York on 119. I do not know does that talk to India’s development story in a roundabout way?
Tom Chitty: Nicely, the expansion of the pockets.
Arjun Kharpal: The pockets of the ultra-rich. Yeah, however I simply thought was a really fascinating stat. China as a rustic nonetheless has essentially the most variety of billionaires, 814, forward of the U.S. on 800 and a distant third, India, 271. The U.Okay. 146. Germany 140.
Tom Chitty: Simply what our listeners wish to hear about is the extremely rich, getting wealthier.
Arjun Kharpal: Are you not on that record? You have to be shut.
Tom Chitty: I am getting there.
Arjun Kharpal: All of the BTV episodes.
Tom Chitty: I imply, all these these episodes, simply cash, simply pouring straight into my pocket. Have you could have you not seen any of that motion?
Arjun Kharpal: No. All I’ve acquired is a mug with the branding on it. That was my reward.
Tom Chitty: Okay, that is it for this episode. Earlier than we go, please observe and subscribe to the present. And you may even fee us. Thanks, Arjun.
Arjun Kharpal: Thanks, Tom.
Tom Chitty: We’ll be again subsequent week for one more episode of Past the Valley.
