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There's a lot of hype surrounding India. The US clearly wants to boost the country to provide a Western-oriented alternative to China. No other country has the scale comparable to China and India's demographics are much better (26 million births compared to China's 10). The Indian diaspora is very successful in the US and largely pro-American and anti-China. So what's not to like here?
To India boosters like Noah Smith, there's pretty much nothing to be skeptical of. He sees the emergence of an Indo-US alliance in all but name as a necessity.
For this alignment to make sense, India must actually become a real alternative to China. Is this plausible?
First, India's economic structure is dominated by services and elite services at that (IT exports). Its manufacturing sector has been very weak. Modi tried to change this with his 2014 "Make in India" campaign. We've now gone almost a full decade since then and there's basically been zero movement on this issue. India boosters will claim that this is simply because decoupling never really got serious until now. But the problem with this line of argument is that the rhetoric is changing. Even Raytheon's CEO is claiming decoupling is impossible; the new watchword is "de-risking" which is a tacit admission that China's integration into the world's supply chains is far greater than the Former Soviet Union ever was, which is why the analogies to the Cold War are often misleading at best.
Second, a key part of China'a ascent was built on skilled, but cheap labour. Economists often overstate the importance of labour costs. What matters is productivity. Labour costs can increase as long as productivity increases faster: this is what drives long-term growth.
Nobody is denying that India has cheap labour, but is it skilled? Moving past the rarefied IT, pharma and finance sectors that dominate India's services, we find a much bleaker landscape.
50% of Indian kids are functionally illiterate. Female literacy has actually worsened over time. Though this is partly a function of the school system taking in far more kids than before. Yet Vietnam and Indonesia did the same yet did not notice such a fall. Finally, there's no improvement over the past decade.
We can argue over whether education matters much for simple manufacturing. Economists like the heterodox Ha-Joon Chang of South Korean descent has argued that it really doesn't. Perhaps this was true when SK, JP, TW and other East Asian "tigers" took off in the 1960s. Today, everything is far more digital, even relatively simple manufacturing. Workers need to read basic instructions and should at least be able to operate basic machinery, which in turn requires them to read and operate screens. Being unable to read a simple sentence immediately disqualified half the Indian workforce.
If India were to really become a fully fledged alternative to China, then it means that it would need to scale the value-added ladder the way China has. It can't just produce toys or textiles. It would have to create a fully industrial ecosystem covering the greatest sophistication. Simply put, does India has the human capital base to pull that off? The data seems to draw us to a stark conclusion: not really.
Poverty cannot be an explanation either. Vietnam had a similar per capita GDP to what India has now in the mid-2010s. Yet it did very well in international tests and it has continued to draw in a great number of manufacturing projects in a way that India has been unable to. Some of this may be related to government: Vietnam is a one-party dictatorship like China and can bulldoze through various projects of importance. But a more important explanation is simply that Vietnam has the same combination that China had a generation ago: skilled labour but at cheap rates.
In short, if American elites are now betting big on India supplanting China - or at least becoming a real viable alternative - for manufacturing then it is very likely that they will become disappointed. By the same logic, any talk of decoupling (or "de-risking") is likely to run into the hard wall that the alternatives are either too small (Vietnam) or not up to par (India).
On a sociological note, we should acknowledge that discussions on India are colored by their diaspora in the West, primarily in Anglo countries. This group are an incredibly elite selection, particularly in the US. They come from highly privileged homes with house maids and a cultural aversion to manual labour, and by extension manufacturing. It can hardly be surprising that India was ground zero for fantasies that developing countries can "leap frog" manufacturing into prosperity, despite there being virtually no examples of this in world history (barring petrostates, financial êntrepots like Singapore etc).
I've hoped to convince you of becoming more realistic about India's prospects, even if I support a move to diversify away from China for obvious geopolitical reasons. India's own potential can be hotly debated. Certainly their smart fraction is highly capable and we know that smart fractions are important for driving prosperity. The question before us is if India's much less capable "middle" will prevent it from rapid convergence once the easy gains from growth are gone. East Asia managed to educate the broad masses to fairly decent levels whereas India clearly has not. Should we really expect them to emulate East Asia given these sharp differences? As things stand, the West's current policy completely ignores this question.
What's most remarkable about India for me is that despite the pronounced Indian presence in Western IT, there's basically nothing interesting happening in Indian IT. 90% of India's tech sector is just labor arbitrage for Western tech companies, and most of the remaining 10% is just local knockoffs of apps like Uber, Grubhub and so on. There was this recent tempest-in-a-teacup when Sam Altman was speaking at a college in India, and a partner at Sequoia's Indian branch asked him if there was a viable route for an Indian ChatGPT competitor on a $10 million budget, friendlier to Indian material conditions. Altman correctly replied that there was no point even trying to compete with OpenAI with those resource constraints, and a lot of Indian nationalists added that to the chip on their shoulder, but he was right - the fact that the question was even asked is something of a testament to how absurd Indian expectations are regarding what research and development looks like, because of course you can't do anything like ChatGPT on a $10 million budget. You wouldn't even get off the ground. There's a large, affluent, tech-savvy, internationally-mobile Indian diaspora, and still virtually no serious tech investments in India. China competes on this stuff and India doesn't even know where the venue is. You would think something would have happened by now.
Though I would admit in proportion to the talent the amount of truly game changing companies is fewer, I would argue that there is much happening in Indian It. The reason why there is an impression that there is not much happening is due to not much mainstream attention being paid to it.
Food delivery companies are thriving here despite the Indian market not being mature enough for that segment(Indians prefer home cooked food more). Swiggy and Zomato both have order volumes comparable to Doordash despite being limited to Tier 1 and Tier 2 cities. A lot of people in Tier 1 cities prefer ordering food online, all 3 times rather than cooking food or going out. The delivery time and price is also reasonable. The effect has been so massive that many brands have been created focusing on catering to online food delivery market, with entire buildings dedicated to cloud kitchens coming up. Both of them also made forays into the grocery delivery business promising delivery in 10-15 minutes. The reason why it is not on radar in the US is compared to doordash the revenue is significantly smaller(average order price is $5 here since food is cheaper here).
On the other side in the telecom, Jio's massive disruption of Indian market resulted in 90% decrease in price of mobile data in a year. In addition to that the number of Telecom providers from 10 to 3, which as things seems like while become a duopoly of Jio and Bharati Airtel. The reason why that is not in mainstream media may be because the story isn't sexy or appealing enough. Jio instead of being a scrappy startup was instead a pet project of the richest man in Asia, Mukesh Ambani.
But by far the biggest innovation in the Indian market is the Unified Payment Interface or UPI. UPI is a payment system which enables easy transaction directly to and from the bank account. Almost all banks support it, payment is as simple as just adding the amount and inputting a 4-6 digit code and bam its done. And oh boy has this has been adopted. From rural to urban, the rich, the poor, the startups or street hawkers, millennial, boomers you name it. Adoptions has been in every single strata. The ease of use, wide acceptance from merchants and integrations it has become defacto mode of payment. Hell, I don't even carry a wallet nowadays. Created by a government funded organization called NPCI that lended it a lot of credibility and has a lot of apps dedicated to implementing the system, though the most dominant are Google Pay and PhonePe.
There are a lot of other companies that I can go on and on about like Myntra dominating the fashion segment that has even Amazon stumped, Zerodha a robinhood like app which thrived using despite no advertising or VC funding, CRED's unique business model of targeting just the top 1% for credit.
India has its own challenges, VCs are more risk averse so getting funding for an unproved idea is significantly harder, once invested the growth at all costs mindset kills a lot of interesting startups in its infancy, even talented Indians aspire for stable jobs rather than entrepreneurship(courtesy a millennia of turbulence) though all of it is slowly changing.
UPI is a lifesaver, and I dearly missed it when I was abroad.
Frictionless transfer of money is such a glaringly obvious public good that I can only imagine the power wielded by US payment processors that keep it down.
It's about the only good thing that came out of the Modi government in my eyes.
However, I don't see most of your comment as conflicting with the parent's claims since most of the startups you mentioned are clearly copying Western innovation.
I would disagree, for an idea to be considered an innovation it has to be novel enough to be not be thought of independently by different people. For example, the idea of having to selling your goods online and getting it delivered is a clear logical conclusion of the thought process of how to make money online. It doesn't take a counter-intuitive thought process to arrive at the conclusion that the convenience of ordering at the comfort of your home is something people would find valuable and sure enough there were multiple competing companies in 90s striving to be that company. The innovation was how to pull it off, only Amazon and EBay were the only ones who could and that too with drastically different approach. In hindsight we now know that the Amazon's strategy of being the seller rather than auctioning products of ebay was the one that made a robust ecosystem of online marketplace. Even with that approach there were plenty of companies that were using the same approach yet amazon won. Amazon's bet that focusing solely on books in the start since they were non-perishable and easy to ship, was the core insight that helped it outperform the competition. This innovation was in turn copied by Flipkart in its own quest for growth in India, and that I believe is a clear example of copying Western Innovation.
The idea of food delivery is similarly not novel enough to be called an innovation. The idea that aggregating restaurants and then providing them logistical support to get their food delivered to customers willing to pay for it is not an innovation in itself. Infact all the different food delivery companies were founded in 1-2 years of each others with an unproven market model. Its the execution and the companies solutions to problems that arise with a complex logistical network to ensure speedy delivery of food is the innovation here. Doordash and Swiggy/Zomato operate in radically different environments, and at the same time their solutions to their own market specific problems are so divergent that you cannot say that Swiggy copied Doordash and vice versa. So I disagree with the proposition that these are not innovation in their own right but copying western ones.
Another good example would be Myntra. Though selling clothes online has been around since 2 decades, Myntra's approach to the complex problem of sizing issue, search-ability, options etc is an innovation that is entirely unique to it, and the fact that Amazon despite its dominance in the online retail market hasn't been able to crack the fashion segment is a testament of how innovative Myntra's value chain is. Innovation here isn't the idea that we can order clothes online but the how easy Myntra makes it for us to buy clothes by providing good estimate of the fit of any product, simple return procedure, the ability to search for clothes that someone was wearing just by uploading their pics. You cannot juyt equate an idea as innovation.
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