Bay Area bullish on India’s economic growth potential: Report

‘US-India partnership can create a more prosperous and innovative future for their citizens and the world’

By Rajesh Mehta & Umesh Rathod

Synergies between the Bay Area and India’s robust innovation ecosystem suggest a wide range of opportunities for collaboration between the two, according to a new report published by Bay Area Council Economic Institute.

Key thematic areas include defense, critical and emerging technologies (enabled by iCET), standards, state-level collaboration on climate and energy, cross-national support for startups, AI and digital development, skilled immigration, trade, and supply chain integration, it says.

Read: South Asian crisis: India on a cliffhanger (August 4, 2022)

Titled, “Seismic Shift – Economic Growth and Strategic Alignment Between the Bay Area and India,” it’s the third report about India published by the Institute.

The first report published in 2009 focused on the deep ties between the two economies, the second in 2019 examined Bay Area’s contribution towards innovation, economy, and investments in India.

The current report is prepared by Sean Randolph, Senior Director of Bay Area Council after deliberations with senior leaders from Silicon Valley and India.

In his foreword, Harsh Vardhan Shringla, the former Indian Ambassador to the US writes, “The Bay Area has been seeking to strengthen economic relations with India. In January ‘20, a delegation led by Bay Area Council visited India to identify new opportunities for trade and investment. PM (Narendra) Modi’s agenda to digitalize the economy, boost renewable energy use, and implement business reforms are enabling these valuable connections.”

Years of strategic partnership & collaboration

As quoted by John Chambers, former Executive Chairman and CEO, Cisco, “The most strategic relationship between any two countries in the world is between India and the United States. India is at an inflection point of exponential growth, and implementation is the biggest challenge. To achieve it, partnership with the US, including Silicon Valley, is important.”

There is no mutual formal defense treaty between the US and India, but over the last 30 years, the collaboration between the Bay Area and India has grown significantly.

This alignment reflects in initiatives such as the Indo-Pacific Strategy, Quad, US-India Climate and Energy Agenda 2030 Partnership, US-India Trade Policy Forum, iCET, and global supply chain exchanges.

Read: Crony capitalism thrives in the pandemic era (June 3, 2021)

India exhibits a small Bay Area presence with companies like Cisco, Google, Meta, Twitter, Salesforce, LinkedIn, Apple, and Intel. Cisco has its second global HQs in Bangalore, Google has 99.6% of mobile searches in India, Meta has 487.5 million WhatsApp users, Twitter has 24.45 million active users, Salesforce has 7,500 employees in India, LinkedIn has 90 million members, Apple is expanding production of the iPhone 14, and Intel has 9 design and engineering facilities with around 14,000 employees in India.

Also, Bay Area houses a small India with leading ITC companies, Infosys, Wipro, Cognizant, and TCS to support and co-innovate with clients. Tech Mahindra, has 1,000 local employees, working with 70 regional tech companies across multiple sectors.

Covid-19 pandemic accelerated remote work and collaboration, increasing cooperation between Bay Area and Indian tech professionals and companies.

Harshul Asnani, Tech Mahindra’s Global Head of Technology Business (Bay Area) has quoted, “Tech Mahindra is pivoting to be a cloud-first/digital-first company, and Silicon Valley plays a critical role in its transformation. We are looking to grow 2x in the region in the next 5 years and will make commensurate investments as we double down and co-innovate with customers and partners on emerging technology use cases for metaverse, Web 3.0 and cybersecurity.”

In 2021, US surpassed China to become India’s number one trading partner, with services accounting for 40% of exports. The bilateral goods trade grew steadily reaching $133 billion in 2022, where exports to India were $47.3 billion & imports from India stood at $85.6 billion.

Read: Don’t let the ‘America First’ derail India-U.S. ties (April 24, 2021)

US and India plan to build resilient and diversified global supply chains in critical trade and tech sectors, in response to China-related global supply chain issues and concerns.

Based on 18 economic partnerships announced in July 2022, topics like cyber security, semiconductors, AI, 5G, 6G and next-gen communication technology will be discussed regularly.

India aims to partner with US and its allies to build a safe drug manufacturing infra. India’s startup funding surged between February 2021 and February 2023, where Sequoia Capital led with 107 deals, followed by Accel with 70, Y Combinator with 54, Matrix Partners with 52, Nexus Venture Partners with 31, and Lightspeed Venture Partners with 27.

India’s clean energy sector saw record investment levels in 2021–22, empowering startups such as ReNew Power, Log9, Avvada Energy & Skilancer Solar.

Why India means business?

India’s economic reforms surged during Modi’s first term, accelerating at the end of his second, majorly driven by matured digital infrastructure, cheap and ubiquitous data, expanding startup ecosystem, and investor confidence.

As IMF states, India is the fastest-growing major economy, growing by 6.8% in 2022 and 6.1% in 2023. Make in India & Production Linked Investment Scheme has made India the world’s second-largest mobile phone manufacturer.

Electronic goods production doubled to $75 billion in 2019-20. In 2022, India ranked #37 out of 63 countries in IMD World Competitiveness Ranking and #40 out of 132 in Global Innovation Index. It ranked #1 in lower-middle-income countries and an “innovation achiever”.

Read: Reimagining India’s R&D and start-up ecosystem (March 2, 2021)

Advanced digitalization through Digital India accelerated e-commerce and digital services. Aadhar is the world’s largest digital identity system & Unified Payments Interface (UPI) allows digital payments across countries.

In 2021, Indians made 37.9 billion digital transactions, enabling industries such as gaming, constituting $2.6 billion market with 507 million online gamers in FY2022.

In 2021, Startup India saw 50,000 active startups, over $400 billion in valuation, and venture investment reaching $38.5 billion. India’s global venture funding share rose from 3% to 5.6%, and 44 new unicorns were created.

India allows FDI through either the automatic or government route, with 100% foreign ownership permitted in most sectors and up to 100% in certain sectors. Singapore (27%), the United States (18%), and Mauritius (16%) are India’s largest overseas investors.

FDI in consumer technology, fintech, and SaaS were the leading sectors, with more than 75% investments. FDI in India by Bay Area companies was the largest in recent history for sectors like ICT & Electronics ($875.4 million).

Chiratae Ventures foresees India’s tech startup portfolio surpassing $150 billion in revenue by 2027. As S. Jaishankar, India’s External Affairs Minister quotes in the report, “The rise of India is deeply linked to the rise of Indian technology.”

Areas of concern for effective co-operation

India’s trade protection and economic nationalism are not new to the world, using anti-dumping measures and countervailing duties to increase domestic production and export capacity.

For example, Tesla is at odds with the Indian government over 100% import tariffs on electric cars. After two deliberative years on Personal Data Protection Act 2019, India withdrew it in August 2022 affecting Silicon Valley’s interests.

RBI preventing sending or storing credit card or payment processing data offshore without regulatory approval, effectively keeping it local is another concern.

Also, despite growing defense ties with the US, Russia remains India’s largest supplier of defense equipment. India initially aligned with President Joe Biden’s Indo-Pacific Economic Framework (IPEF) announced in 2022, but differences over labor, environment and digital policies led to its withdrawal from IPEF’s trade pillar. However, it will take part in IPEF’s other three pillars — fair economy, clean economy, and supply chains.

India’s 90% of tech venture investment comes from foreign investors which peaked during mid-2021, global VC investments surged 1.9x globally, propelling India’s faster momentum.

India’s FY2022 tech sector revenue was estimated $227 billion, growing 15.5% YoY. A cutback in VC funding which began in 2022 is a challenge for the Indian ecosystem.

Read: Diaspora key to success of India’s new Science, Technology, Innovation Policy (January 17, 2021)

However, the underlying strength of India’s ecosystem remains intact, offering attractive opportunities. Sectors like manufacturing, technology, infrastructure, and agriculture need investments to sustain economic growth above 8%. Bay Area and California investors can leverage this opportunity for collaboration that India offers.

The report also mentions that India’s strategic & economic interests will continue to draw the two countries together, it is important to bear in mind that the US and India are not treaty allies and India maintains its strong relationship with Russia which has remained India’s largest supplier of defense equipment and India has declined to support UN resolutions on Ukraine invasion.

Role of the diaspora and co-creating the future

The diaspora from Bay Area and India has brought together several resources for ecosystem development. Many Bay Area companies have Indian-born CEOs or co-founders catalyzing the establishment and growth of many successful Indian tech startups, including Flipkart, Ola, and Zomato.

Indian VC’s have provided crucial funding for Bay Area startups, such as Uber, Airbnb, and Dropbox, attracting FDI for startups to fund and mentor their growth.

Festivals, cultural events, and community organizations have facilitated cultural exchange and educational initiatives between both regions.

The prominent Indian-Americans intellects made significant contributions to fields such as science, engineering, and medicine to establish and fund educational institutions and research programs, fostering learning and innovation.

Currently, CSU-Monterey Bay and San Francisco State University support joint degree programs in IT, while other Bay Area universities are engaged in technical, policy and entrepreneurial cooperation.

Read: Indian envoy highlights importance of India-Silicon valley partnership (January 6, 2021)

The UC Davis India ZEV Research Centre is working to advance research and policy in transportation, decarbonization, and electric vehicles.

The Stanford-India Biodesign program, a first-of-its-kind collaboration between Stanford University, All-India Institute of Medical Sciences (AIIMS), and Indian Institute of Technology (IIT) has transitioned into School of International Biodesign at AIIMS.

Indian global investors can invest in individual states such as Uttar Pradesh, which can act as innovation labs focused on manufacturing and specific sectors.

India Innovation Index 2021 measures the competitiveness of Indian states, city-states and federal territories based on factors enabling innovation-driven growth, especially tech companies using a series of pillars in two dimensions.

Pillars called “Enablers”, i.e., Human capital, investments, knowledge workers, R&D activities, business environment, and security and regulatory frameworks. Pillars called “Performance” i.e., Knowledge output and knowledge dissemination.

In 2021, the top five Indian states were Karnataka, Telangana, Haryana, Maharashtra, and Tamil Nadu, which also received high investments from Bay Area.

It is worth noting that the states where Bay Area investment is going are the top five states ranked in the innovation index. Silicon Valley innovations can help India meet its Smart City Mission of urban sustainability goals, which covers 100 cities across India’s states and UT’s.

India wants to collaborate with Silicon Valley firms to develop the semiconductor fab industry. Currently, Qualcomm and Samsung have design facilities in India.

iCET (US India iniative on Critical and Emerging Technologies) was launched in May 2022 for deepening bilateral technology relationships through innovation programs, research centers, joint funds, and collaboration on space and quantum computing.

It offers internships and training opportunities for young professionals and a relaxed US regulation. US encourages collaboration between Indian academia, startups, and quantum firms to enhance semiconductor workforce.

Today, private, and public companies provide more than 50% of India’s rocket and satellite systems, encouraging participation of startups and private players from Silicon Valley and the US.

The US-India relationship is based on trust, shared interests, and opportunity. While both share different strengths and weaknesses, it’s essential for the ecosystems to play a key role to build a pipeline of innovative technologies and applications through a strong innovation corridor.

This partnership can create a more prosperous and innovative future for their citizens and the world. For the Bay Area-Silicon Valley, it is time to revisit New India.

(Rajesh Mehta is a leading consultant & columnist working on Market Entry, Innovation and International Affairs & Umesh Rathod is a policy analyst at the Indian School of Business and a startup mentor)