Global perception of India is unequal and fragmented: Claude Smadja

To become an alternative to China, India has to address a big challenge -which is that the industrial base of India is too narrow, he said

He has been following the India story for decades as the former managing director of the World Economic Forum. CLAUDE SMADJA, chairman of Smadja & Smadja Strategic Advisory, who will be in India in the first week of June to host the third India Global Innovation Connect in Bengaluru, discusses the country’s policies and challenges ahead in a video interview with Surajeet Das Gupta. Edited excerpts:

Has India done enough to leverage the China Plus One strategy, or have countries like Vietnam done far better?

To become an alternative to China, India has to address a big challenge: the industrial base of India is too narrow, with manufacturing constituting 17–18 per cent of gross domestic product, compared to China’s 35 per cent.

In addition, China is head and shoulders above India in terms of the efficiency of its supply chains. Therefore, India needs to identify specific sectors where it can be an alternative to China, but I don’t think it will happen across the board.

But how has Vietnam done it? So many companies operating in China have shifted there.

When discussing Vietnam, it’s often overlooked that many exports are components from China assembled in Vietnam for further export. The trade flow between China and Vietnam has increased astronomically in the past five to 10 years.

Essentially, Chinese exports are detouring through Vietnam to reach the US, making decoupling more of a theoretical notion than a reality. There’s a lot of hype about it.

However, for India, unless it creates a hyper-efficient supply chain and enhances its manufacturing capabilities, except in specific sectors, becoming an alternative to China is a long shot.

There is a debate led by former Reserve Bank of India governor Raghuram Rajan, who says India has missed the bus in becoming a manufacturing hub and should stick to the services sector, where we have a competitive advantage. The government argues for a Make-in-India push.

I believe that India will remain a top leader in technology services. But it’s not an either-or situation.

India should identify sectors where it can develop strong manufacturing capabilities, particularly in high-value-added manufacturing, rather than low-value products like toys. While China is too advanced in some domains, that’s not the case in everything.

Which are these sectors where we can be an alternative?

For example, industrial tool manufacturing uses emerging technologies and develops products integrating the Internet of Things and artificial intelligence (AI) capabilities. However, when India talks about becoming a global player in shipping, I have some doubts.

Do you think India should invest billions of dollars now and make a beginning with semiconductors when there are so many other areas to invest in? Is it just a matter of pride?

I think it’s more than just a matter of pride. We see today how strategic the domain of semiconductors is, and so a country with the size and aspiration of India cannot afford not to build a very strong capability.

In India, the increase in demand for chips and the interest of foreign companies to come are some accelerating factors in building this capacity. It will not happen next year or in the next three years, but I think what can be forecasted is that in the next seven years, India will have very respectable capabilities in semiconductors.

Do you think India can take a leadership position in AI? Currently, most of the action is happening in the US and China.

The troubling factor is that when you look at the amount of money spent on AI development worldwide, China and the US represent between 75 per cent and 80 per cent of it. So, it is quite clear that, at the moment, in terms of resources devoted to AI development, India is far behind.

It also means that it cannot be only government money that can fill the gap. And here we touch on one key weakness in India, which is that it is big.

Industrial houses are not spending enough money on research and development, and they consider that they can acquire technology, which costs them much less than developing technology.

I think that is a mindset that needs to change because you cannot develop AI with just government money. I agree that there is potential. But realising this potential is something that will require much more time, effort, money, and human resources than what India is devoting at the moment.

How is India looked at by the corporate world and governments across the world? Is the growth story of India getting across?

The image of India in the world is a very unequal and fragmented one. In Europe, for instance, some countries, like Germany and Switzerland, are fully aware of India’s potential. Israel also shows a mutual interest in technological connections. However, in many European countries, India’s image remains outdated.

In Asia, Singapore and Japan have a positive perception of India, but in Indonesia, the perception is less informed. There is huge potential for developing business and technological connections between India and these countries.

In Latin America, only a few countries are becoming aware of India’s potential. In Mexico, India is not leveraging the country as it should be, despite its proximity to the American and Canadian markets.

A more robust campaign is needed to highlight India’s capabilities beyond just attending events like Davos.