India needs the US in order to realise its tech ambitions

India is adamant about building up its technological independence, with $10 billion earmarked to develop semiconductor and display manufacturing. It’s also keen to assert its foreign-policy independence by leaning toward Moscow to the consternation of Washington. New Delhi would do well to see the connection between these two issues and consider its next course of action. 
 

Some of the decisions made by China and India over Russia’s invasion of Ukraine have caused disappointment, Brian Deese, the director of the White House National Economic Council, said Wednesday. India has been told that the consequences of a clearer alignment with Moscow could be “significant and long-term,” he said.

India’s decision to abstain from a United Nations vote condemning Russian President Vladimir Putin’s invasion of Ukraine doesn’t sit well with the U.S. or its many allies. And while that vote was purely symbolic, so was New Delhi’s abstention. That kind of signaling is likely to be remembered not just in the White House and State Department, but among members of Congress.

There may be good reasons for siding with Moscow. India relies on Russia for weapons support at a time when it faces borders skirmishes with China and ongoing tensions with Pakistan. Its energy needs also cannot be ignored. Russia reportedly offered India a $35 per barrel discount on oil, a fabulous deal given the spike in crude that followed the invasion. In a democracy, leaders like Prime Minister Narendra Modi are at great risk if they ignore basic needs of the people, such as affordable food and energy. Meanwhile, embracing Russia’s financial communication channel, SPFS, an alternative to the widely used SWIFT system, could aid trade between the two nations. But doing so would further annoy the U.S. and its allies that want to use SWIFT to monitor sanctions compliance.

It may be tempting, almost laudable, for India to shrug off these concerns and chart its own path in foreign affairs. Nationalistic leaders don’t want to seem beholden to great powers.

But the U.S. holds the key to India’s technology future. China’s ZTE Corp. and Huawei Technologies Inc. can attest to the havoc that stiff policies in Washington can wreak on their business. Having been caught for various sanctions-related infractions, both companies were cut off from being able to buy not only U.S. chips, but components made using American technology. The result was a 29% drop in Huawei’s revenue last year, including a plunge in domestic sales.

If India wants to have an industry built around chips and electronics, it cannot afford to be frozen out, notes Sana Hashmi, Visiting Fellow at the Taiwan-Asia Exchange Foundation in Taipei. “India's plans are definitely ambitious but difficult to achieve without external engagement,” she said. “While India is advanced in terms of IT services and software, it is in need of greater collaboration on the hardware part.”

To be clear, we’re a long way from the U.S. cutting off access.

Washington wants India to succeed for numerous geopolitical and economic reasons. The world’s second-largest country is seen as a good buffer against Beijing’s expanding influence, while industrial leaders hope it can become a new center of global production to supplement or replace China. Last week's visit by Intel Corp. chief executive officer Pat Gelsinger highlights its growing stature in the technology industry.

Taiwanese companies like Foxconn Technology Group and Pegatron Corp., important contractors for U.S. giants like Apple Inc. and Tesla Inc., are keen to expand in the country and are signing up for New Delhi’s Make in India campaign. Taiwan is also the most likely conduit through which the country can get a start in semiconductors.

But the U.S. holds the cards. The most important technologies, and the companies that make them, are American. Contracts to supply Apple iPhones or Qualcomm Inc. chips won’t flow to factories in India — even those that are foreign owned — if the original client doesn’t sign off on them.

And right now, the trend is in the other direction — back toward the U.S., where Congress has earmarked a $52 billion package to develop its semiconductor sector, with Europe planning similar measures. Final assembly, from computers to cars, are also likely to be re-shored amid heightened political sensitivities over having so much of its technology and supply chain in far-off lands.

While India and China are rivals, the average American doesn’t appreciate the nuance and legislators reflect that reality. Any sense that New Delhi isn’t on board with U.S. goals — such as promoting democracy and rule of law — risks creating an impression that India can’t be trusted. Siding with an autocratic power that’s invaded a peaceful neighbor is a small step in building that sentiment.

It would not serve India well to find itself in the crosshairs of a nationalistic U.S. politician seeking to target America’s next enemy. This may be unfair, and even inaccurate, but Indian politicians know that truth and fairness aren’t the currency of power. 

India has every chance of becoming a successful and prosperous player in the global technology industry. But its leaders should remember that it’s important to choose your friends wisely.