Kopi Time E134 - Vasuki Shastry on India’s Manufacturing Future

book has Asia lost its dynamic past turbulent future. Uh But today's podcast is focused on India Basuki and a number of other economists and analysts have lately been thinking hard about India's potential which can arguably only be realized through large scale manufacturing and uh manufacturing, lead value addition and uh employment creation. Uh I'm looking forward to this conversation because this issue is also close to my heart and some of the ideas that Basuki has put out in some of the

articles that he's published recently. They have resonated with me tremendously. Uh Vasuki Shari is a senior advisor at Gatehouse advisory partners, a Geostrategic consulting firm. He was formerly with the IMF Standard Chartered Bank and the Boundary Authority of Singapore. He serves on the advisory Council of Chatham House and the Institute of Human Rights and Business. He's the author of three books, I've already mentioned one of them as

Asia lost it. But also in 2018, he had published resurgent Indonesia from crisis to confidence that that can be another podcast another day. And also his book from last year, The Notorious ESGV Shastri. Welcome back to COVID time.

consumption and services. There was a deeply held belief in the policy community in India and this dates back many decades that, you know, we wouldn't, probably wouldn't be having this conversation if India's state owned enterprises had delivered value, had captured a greater share of GDP over a period of time, you know, they were placed in the commanding heights of the economy for many decades. Uh they faltered, many of

them failed. So there was a sense of a need for renewal even in the early 19 nineties when India embarked on its reform journey, but I think it all came into place uh in a way in 2014, uh there was a sense that, you know Indian growth had been and particularly in the 19 nineties, 8% GDP. On average, there was a sense that this growth journey would end at some stage and

you certainly needed to revive manufacturing, incentivized manufacturing. So in a very simple way, there were two concepts, uh two defining beliefs when making India was launched in September 2014 1st is of course, man drive manufacturing, increase its share of uh GDP.

You know, it's in the low teens. Uh it's increased marginally over the past uh uh decade, we can talk about uh why and, and, and when uh of this concept and the second thing really is India's, you know, on one hand, demographic speed spot a billion people under the age of 30. But at the same time, you need to create those quality jobs for the estimated 8 to 10 million young

people coming into the job market every year. And you know, at the outset that has been a failure and, and you know, the India's underemployment problem really poses social and political risks. And the fact that it has not happened is always a puzzle for me. So bringing it all together uh uh and, and to make, making India really, really attractive, the government really had to junk 5 to 6 decades of philosophy that you don't incentivize

foreign investors. But you know that any incentives that are given at the margin, give it to the domestic private sector. But absolutely hold all of those incentives for the state. And, and so, you know, really unshackling uh that thinking and, and, and putting up the uh center that we're going to provide production linked incentives for foreign investors to come and make in India and to come and make

in India in 25 sectors. Many of these are core what the government has identified as core industrial sectors, you know, advanced manufacturing, semiconductors, uh uh tele telecommunications, automobiles. So there was a great deal of ambition in these in this uh make in India project great deal of energy and enthusiasm on the part of the government to

promote this. They promoted this ceaselessly across global platforms. You know, you saw Prime Minister Modi acting as salesperson in chief uh at Davos uh for example, you know, rubbing shoulders with the fortune 100 CEO S still. And, and I think it's useful as we uh uh uh take a deep dive to differentiate between the enthusiasm and the performance of making India in the first term of Mr Modi. And I think there's a differentiated set of performance in

the second term. And the second term I think has been more problematic in terms of regulatory uh uh uh outcomes in terms of the sense that many in India have, particularly in the private sector, that this is not a level playing field. But that sense was not there in the first two or three years. And you know, you've got to remember this happened pre China us uh uh Cold War or trade tensions,

whatever you might. So this happened at the time. Uh So this pre pre dated China's own uh make in China 2025 which is really focused on advanced manufacturing and really sent a scare in Europe and the us that China was catching up fast. So India was in that sweet spot and you know, the headline that I'd like to give before we discuss this in detail is it's been a qualified failure. It's been a qualified failure for a variety

of reasons. There have been a number of high profile foreign investors who've taken the dive, you know, micro, certainly all the contract manufacturers of apple. So the iphone uh 14 or 15 billion work are shipped out of India these days. Uh This is a tiny, tiny proportion of what is produced still in China. So bringing all of this together, I think we've got to focus a little bit on geopolitics. Uh The fact that a lot

of foreign investors are moving away from China. So there's a fundamental question that make in India has faltered has been a qualified failure. Can this government in its third um pick up the pieces and really uh benefit from this wave of investment uh coming out of China in the supply chains, much of it is going to Vietnam. Uh but can India capture this? I think that's the big philosophical question for the next three years. Let me pause here.

himself questioned the philosophical underpinning of making in India. And I think he said something like we should focus on make for India, which I interpreted that if we are going to give some performance link in investments incentive, uh we should do it for import substitution, not necessarily for export orientation

because that's a hyper competitive landscape. Uh Do you think that's my right read of what Rau was coming from and, and what was your take at that time, this import substitution versus export orientation around making India,

reason why India has consistently lost market share. But so if you take the uh uh proposition that you can make in India for India, then because of the uh uh labor intensity and because of the fact that, you know, you've got millions of people uh uh knocking at uh uh literally looking for a job every single year. So how can you match those low technical skills with low wage industries like textiles? And

India has kind of missed the bus in that. I I don't know if the current problems in Bangladesh presents a window of opportunity for India to reassert itself in, in textiles and garments. So then if you go at high value addition, the problem is you can't make in India for India, iphones are an example where it's part of a complex regional supply chain components have to flow through from Singapore, from Malaysia and other parts of East Asia into the final assembly point be China or, or India

as it happens to be the case. But India has got this very, very ambivalent approach towards imports and has always had this strong sense that of, of self reliance which Prime Minister Modi kind of renewed uh in his first term. And, and that's a problem.

I mean, it's a problem if you're going to say that you're going to make in India for India, then you kind of have to be like the Chinese manufacturing majors who are world beating, who are producing in China for China, you know, the by DS and the Catls of the world and then have resumed global market share. That seems to be a very, very difficult hurdle, I think for India, there are a couple of industries in India which are world beating,

right? So you bring it all together and then you want to increase value addition, you want to absolutely increase manufacturing employment and you want to increase GDP share. And the only way you can do it in today's globalized world. I know, I know there's a lot of debate on whether de de globalization is a reality or not. But in that reality, you've got to do it for India to be part of a regional supply chain, which is, which traditionally and historically it has stayed away from.

And I think when we review performance, we make in India, I think that's one of the biggest hurdles. I think it's a mindset challenge both on part of the policy

makers and on part of the private sector. And you know, uh uh to your point on Rur Rajan Raghu has come out more recently arguing that the absolute amount uh given out, for example, for the micro facility in India, where the, you know, the uh uh uh subsidy runs in excess of 1.81 0.9 billion on part of the government, federal and state that this exceeds in many ways uh the budget for higher education, right? So I is India making a calculated choice of putting all of its uh uh eggs

in, in the micron basket or the apple basket. And what kind of long term value addition is there gonna be? And then I think that's a, that's the right question uh uh uh to ask of a policymaker. But if you ask, you know, le let's be fair uh with the government. And I think the government's proposition has always been, they want to make this work. They don't believe there's a single approach of plis for everybody in order to uh uh uh you know, make, making

India successful. There's also a sense that we've got to improve the business environment and the regulatory environment for everyone else to do. Well. And I think that is where the bottleneck is at the moment,

gone and checked through the numbers. Uh uh it seems to be a consolidated gross number that they're quoting because there's lots of and, and I still have an open question mark of whether that includes portfolio flows uh right. So there's a lot of noise in that data, right?

So then you look at an outside credible source like uh T AD which is over the over a long period of time has put out FT I data and the A N A data, for example, between 2019 and 2024 suggests 200 plus billion has come in Greenfield investment commitments which are future commitments for which foreign investment uh flows have not yet come in. They again of

the order of 200 billion or so. But so it's a mixed picture and I think uh uh when we, when we say making India has been a qualified failure, there was this sense that there would be this absolute mad rush on the part of multinational corporations looking to reso looking to relocate uh manufacturing in India, you know, mainly because of the India growth story, you had the ability to cater to the domestic market in India. Geography

is very favorable. So it could also be used as an export destination. But the FD I data, right. So if you if you try and link the high numbers quoted by the American India secretariat and then you go down and see has this actually moved the needle on ma manufacturing share of GDP. So even if you assume uh uh the Indian government statistics suggest 28% is the number of manufacturing share of GDP, private sector estimates are significantly low. They're in the high teens at

the moment, right? So, so you've got to have a great deal of faith in the official data to say it's been a unqualified success. But if you look at the noise in the data, it would, it would suggest that there's been a much more modest success in making India. And there are lots of big question marks at the moment on, you know, level playing field, regulatory enforcement. And this is not just a question, I think for foreign investors as concerned, it is increasingly a question for

India's large business houses. Who again, if you look at the data coming out of uh sources like CMIE have have essentially over the last 10 years, pocketed all the profits uh uh after tax profits that they have generated, they're also benefiting from a lower corporate tax rate uh uh over the last seven years, but

at the same time, they seem to be reluctant. And, you know, the statistic that one looks at is gross uh capital formation, uh which again does not match with this over enthusiasm in the making India story as, as suggested by the government.

If increasingly you're finding that in Shenzhen and other parts of uh southern China, there's a relocation actually taking place in the Apple iphone production away from China into Vietnam uh into India, right? So that's that story. So that number of 50,000 to 100,000 clearly is unimpressive, right? So if you're looking at, you know, the uh the ambition at the start of making India was we are going

to create 100 million jobs between 2014 and 2022. And one can safely say that number has not been matched, right? So if you look at again, there's a problem with data if you put together manufacturing employment in the last decade. Uh and this extends to beyond Lake in India, you come up with a number of probably 55 60 million. Uh Then you've got the issue of how many young people are entering the job market

every year. And that really is a surge. I mean, it's like a, it's like a tsunami uh mainly because of India's rich demographics, it's a r tsunami which you know, in theory should uh uh uh should help India grow on a sustained basis for the next 2 to 3 decades, at least. But then there's a big question mark surrounding quality of education, right.

So if you're able to match these young educated and they could be the graduate engineers, they could be coming out of the vocational technical training institute. Uh Right. So there's no supply problem in theory, but on the demand side, what the employers are saying is there's a skills deficit, there's a skills deficit of a magnitude which the private sector alone cannot resolve. Therefore, there needs to be some kind of public private intervention.

You've got to figure out whether you can, you know, take people in as apprentices and train them. And this is a long term journey and it's never going to happen overnight. That is why you still see these eye popping headlines in Indian media about this vast reservoir of young people, you know,

probably stayed out of college, right. So in the 19 to 30 age group, I mean, this is the group that, you know, any aging society like Japan and Korea really, really uh be desperate uh to have at this point of their own growth story, but India's ability and the India is of course, not alone, I think in this uh but in terms of volume, certainly a big problem if you look at Indonesia and certainly look at Sub Saharan Africa, I mean, they're

likely to face similar challenges down the line. So and again, the contradiction here is, I mean, the economy is chugging along, right, chugging along at 6 to 7%. Notwithstanding challenges with uh the GDP numbers. But one can kind of feel at least in the urban centers, one can kind of feel there's a growth momentum under way. But at the same time, one can see that there are a number of people who are unemployed, right?

So manufacturing, I would argue would be the solution at all levels starting with textiles, garments, low value addition. And there hasn't been unfortunately a cohesive plan, right. So making India is almost functioning like an elite island for really top notch uh uh foreign investors and Indian investors who are in that same league. And then you've got this vast category below of mid size business, uh uh who really feel that, you know, they face all the depredations of, you know,

tough labor legislation. You've got the tax person knocking at the door of these uh uh mid size businesses. So there's regulatory harassment. So that explains, I think the gap of the fact that they have not been able to meet this 100 million number and they're well short of it and they're likely to be well short of this if making India is kind of not reconfigured and make it easier. I would say 11 easy fix would make it easy for domestic business to invest. Once again.

For them, it's their upward mobility ticket of, of moving to richer parts of India and, and of, of course India, unlike China does not place any restrictions on inward mobility,

right? So you, you find that uh uh there's already some signs of domestic pressure, I mean, local pressure, people feel that all of these outsiders have come over and, and taken all of these uh and they don't necessarily spend, you know, in their language, linguistic complexity makes it all the more difficult to build this cohesiveness, right?

But one can argue that if you're building in Tamil Nadu, an automobile component uh manufacturing facility, you tend to hire either from the West or from the South, that's where most of the qualified graduate engineers and technicians and even, you know, welders and plumbers happen

to be. But if you're looking to clear land and, and build a massive uh residential or commercial complex, uh then you import labor from Uttar Pradesh or Bihar and, and, and this labor by the way has mobility opportunities, not just within India, you know, they can, they can go to Saudi Arabia, they can go, they can go to the Middle East and that's been a traditional route uh uh for many of them, and many of them actually come back with better skills uh particularly in construction.

And I would argue that quality of Indian construction office buildings has probably improved dramatically in the last two decades because many of the returned have come back with better skills. But the, but the problem uh once again is if you're an apple and you're, you know, you're trying to recruit 10,000, I mean, the Foxconn facilities in China, for example, employ 500,000 people, right. So try to imagine replicating 500,000 in a Foxconn Apple

network in Southern India or Western India. And that would be a challenge I think because there is a real skills deficit this fil where, you know, if you're a qualified engineer, you don't necessarily have to stay in India, a qualified professional as you know, I mean, India uh is is an exporter of high value talent. So I think there will be that absolute hurdle uh uh when it comes to Apple ever making a decision, OK, we are now ready to move,

right. So India will always, I think be in that sub optimal space of being able to create uh employment of technical employment of the kind that a multinational firm like Apple will need.

Uh you had mentioned earlier, the garment industry in Bangladesh there we have seen in the last 23 decades, a huge change in terms of the fact that it's largely women who work on those factories. So I I'm sure even without looking at the data, we can say that unemployment among women to those who are actually looking for, it is a more challenging phenomenon in India than it is for male and within the Making

India construct. Was there ever any sort of, you know, policy toward helping uh increasing the ratio of women's labor participation

right. So you've got two kinds of challenges in doing that. I don't think the education challenge is one of them. Surprisingly, I think you, you even if you go down to a technical institute in any part of India, uh the num number of women now studying engineering or even undertaking technical training, that number is high. But you've got these social barriers which really prevent this translation of those skills from the classroom into the manufacturing facility.

I think Indian employers have, I mean, again, one has to differentiate but in, in certainly in manufacturing, I've not done a very good job and I've seen that myself in other work that I do, they not not done a very good job in creating that welcoming environment and culture. The men and women can work in the same manufacturing place. I think it's probably improved in, in offices in white collar jobs and

that's probably always been the case. But in manufacturing, you've got simple things like distance, right? So how do you overcome distance in terms of, you know, providing transport for female workers and, and doing so in a safe and secure manner? How do you make sure that uh they work that they have the ability to work multiple shifts? I think working night shifts is still a stigma and and these are really structural barriers on a micro level

that no federal government in Delhi can sit. I mean, federal government in Delhi can create the enabling environment, but ultimately, it comes down to local government and the states and the states which have done, which are doing a better job compared with the national average, again, tend to be in the south and the west. Uh but again, it's a very, very mixed picture and, and, you know, uh uh

10 years I think is a long time to take stock. And, you know, one can argue that, you know, making India probably premature for me to say only 10 years, why, why am I staying qualified failure? But I think in terms of female labor force participation, I mean, this predates the modi government and no, no government has been able to fix this and and right and, and they can

be a powerful growth driver. And the fact that, you know, India probably can learn from the late Japanese Prime Minister Shinzo Abe uh who under international pressure and domestic pressure and the fact that Japan is aging so rapidly, Italy has made a concerted policy push uh in in this area. And India probably needs something similar to that in parallel with anything that they do would make in India in the future.

they've come to India over the decades. Uh Did we see some, their supply chain management spill over into domestic Indian F and B supply chain and then the over the last decade, the push to bringing global manufacturers like Foxconn and others in, are we seeing some positive spillover out of that with respect to tech transfer or, you know, skilled labor or skilled entrepreneurs getting experience in those companies and building something on their own in India.

single uh location for employment, right. So you've got this again and got these islands of excellence. And India more recently in the last two decades, has seen, you know, the Starbucks and the Tim Hortons setting up franchise operations all over the country. You've got the entry of many hotel chains, consumer goods manufacturers. There's definitely, you know, a, a skills transfer taking place.

But I guess the question is, and again, not to, not to speak poorly of uh fast food franchise chain ski,

the skills transfer that takes place. It's probably essential, I think in a country like India where you've got so many people looking for jobs in the 20 to 30 age group that, you know, I used to two decades ago, uh, really be amused at the fact that you've got these master's degrees proliferating in India and events management and, you know, so, you know, every, every second university had an events management undergrad and a and, and, and

a graduate degree. And I al I was always thinking, you know, what possible value does this create? And I was probably wrong because India now does have a vibrant events management space. They're learning a lot in putting up events from concert promoters from other parts of the world. So you've got these pockets uh where there are skills transfer taking place, people are upgrading their skills and for those who want to access online education tool

that is available in India today. But, but you've got to be proficient, you've got to, you've got to be at a certain educational level in order to tap into those uh uh online courses and upgrade your own skills. Because ultimately, you know, learning is, is also an individual journey, not just the responsibility of the state, but when you come to actual manufacturing and advanced technologies, right? So there was this this talk of semiconductors and I

think Prime Minister Modi was in Singapore last week. This collaboration on semiconductor testing, India is probably way way behind that. And that explains this controversy over what Myron is attempting to do in Gujarat where the technology on offer is seen as being slightly behind the curve. So there's a lot of hope and expectation on a single company like Apple because I think people have seen the Apple journey in China and the absolutely transformative power

that it had in really upgrading skills. Really, you know, I don't think Apple could have succeeded without the presence of Foxconn and the tremendous investment it put in, in in human skills development. And and so you need, you need that scale and Vietnam, although much smaller country is doing that because it's had the benefit of Korean

investment in the last two decades. So India in many ways is starting off behind the curve and and that skills transfer has to happen with these manufacturing companies being able to say that they're going to take people on board and actually train them on the shop floor,

Um But are we still seeing basically, you know, Chinese manufacturers, assembling cell phones in India or even like for a TV, it's really made in China TV, that is coming into India. We don't have that much of a homegrown technology stack to replicate that yet.

at this very interesting policy juncture now where I think the national security community is deeply concerned of Indian business over reliance on China, particularly in key sectors like pharmaceuticals in in and you mentioned mobile phones.

Uh and and there are any number of other industries and I think the China India trade numbers really reflect the fact that India is exporting very little beyond commodities and, and perhaps metals, but it's importing vast quantities of stuff that it should be in a position to produce itself, right? So India has kind of ceded that ground. And I think where there's a very late realization that you can't have a national security and a border dispute with your giant neighbor.

And at the same time, be so reliant on imports. And there's already pressure now building up from Indian business groups that there, there's got to be a pathway where the national security issues are discussed at a separate level and it should be business as usual.

And so perhaps this should provide some kind of an incentive I think for India to be I I hate to use the word self reliant but in areas like advanced pharmaceutical ingredients, api si mean, India is a world beater in the pharma industry, you know, producing vaccines, producing basic drugs and it's pretty astonishing that you're still relying on imports from China. And and this is not a new story by any means.

Then if you look at uh products like cement, if you look at products like uh right, if you're looking at basic chemicals, if you're looking at automobiles, I think India has got probably more resilient industrial capacity to produce stuff for the domestic market. But the wide open question mark is why can't you use uh all of that excellence in local manufacturing to be world beating? And you know, there's a tension here, there's tension here with the Indian government feeling very nervous

when Indian companies invest overseas. Uh There's a sense that you're kind of betraying your country and you know, Finance Minister Sitar Rahman actually chastised uh Indian Business uh two or three years ago that they were not that they were inadequately investing in India, right. So if you want to be world beating large Indian Business House, you kind of have to step out of your comfort zone. But they feel, you know, there is a barrier in

doing that. But at the same time, the absolute proliferation of well beating companies coming out of China. Uh I think there's a sense within the Indian business community that that train has left the station, right? So India has kind of lost that wave that it could have capitalized on. And the speed dates make in India right now, you're stuck with large manufacturers, kind of saying, OK, we're going to tap into the domestic market, then you're going to see these foreign investors come into

advanced manufacturing. So there's, there's going to be that sense of grievance and, and I don't think, I mean, un unless there's an emboldened leadership trying to shift dramatically the current policy path, it's very hard to see how India is going to get out of this. Uh I, I don't know to call this rut but certainly this challenge situation of not being able to increase manufacturing share of GDP.

uh more significantly than, than India's have. But this is not just a be competitive, this game, this is a, this is a game of being able to upgrade technological skills and be ready. You know, Apple, the iphone 16 is going to be launched in two weeks time. Can that be produced in India? Uh immediately answer is probably not. And a lot of other foreign investors I think are looking at uh the Apple experience

to figure out they'll be able to replicate it. And this is happening really because a lot of multinational companies, you're a European company or an American company, you're hearing from your policymakers probably every single day that you've got to build away from China. You've got to look at other place. You've got to reso if you can, first of all, why not create jobs at home? If your argument is you're not able to reso immediately, then you know, try to look for alternative destinations.

So India always looms large in these conversations and and so you need a critical mass of investors who are able to make the kind of technological leap and the skills leap that you're talking about, right? So you're using see 14 billion of iphone products, that number has to be 100 and 40 billion. In order to say you've created this critical mass of skilled workforce who are fungible, right? Who can literally work not only in India but anywhere else in the world.

And at the same time, kind of marrying the kind of advanced research that the IB MS of the world are carrying out and translating that into manufacturing within India because most of that research and development knowledge currently is exported away.

in China phone. Um in that area, are we beginning to see any sign of local grown technology or local grown companies becoming a bit more competitive? Uh and, and trying to give the imported brands that run for their money,

very low price. That probably is the best translation that I can think of. Good one, not bad at all. And, and so you've got an auto shop line, the streets of Mumbai, many of them at the moment are on CNG. Uh but I think they see the value in electrifying and the, and we're not talking Tesla supercharges in terms of how these two wheelers and three wheelers uh uh go into a charging station, charging station is

probably uh the local tobacconist, right? It's a local pawn shop which happens to have an electric charger where the rickshaw guy can charge his vehicle. And so there is innovation taking place, right? So let's not forget that. And in the start up space again, it's pretty vibrant, but they tend to go into uh uh social media, e-commerce services type of solution services rather than the kind of uh mobile manufacturing that you're talking about.

And I think there's this big question on whether you're able to produce everything at home or you still need to rely on China or Vietnam even to produce a low cost, you know, ₹500 phone. And I think there's vulnerability there for India, not everything is available or manufactured in India from scratch there. I think India can lead is not in trying to compete with the Xiaomi or Lenovo or or any other Chinese manufacturer. But for

domestic entrepreneurs. And again, moving away from the large business houses to innovate on a smaller scale to find and and you know, again, move away from trying to cater to the urban elite, but try to find solutions for your three wheeler driver to say that you know, by operating an electric uh three Wheler, uh you're not only benefiting from lower costs, but there's a social value attached to that anything you need to, you got to happen on that scale and you need obviously uh uh a widespread

success all over the country across a number of sectors which will really break this logjam where where India can really send these skills. You know, two wheeler three wheeler are translatable where India can really help sub Saharan Africa, for example, which face similar infrastructure challenges. There is probably slightly more advanced. The China offering for many parts of Africa in this field is probably too high tech and and too expensive.

And I think Indian innovation can really excel at this level.

Um but nonetheless, are there lessons for India from Vietnam's experience?

And I think the Vietnam lesson uh uh for, for India is and again, uh many Vietnamese uh uh uh businesses would say they're too small a country, right? They can't be compared possibly with India. But I think Vietnam focused on and did not give up the low value edition that easily and eventually all of that migrated to Cambodia.

But at the start of the journey, right, if you really look at uh the early 19 nineties after the Paris agreement which essentially normalized Vietnam's uh integration with the rest of the world. Also normalized Cambodia's integration. Vietnam took a calculated bet at manufacturing. They looked at China and said this is exactly what we want to do, but we are not in China's place at this point

in time. So we're going to focus on, first of all, taking away all the shoe manufacturing that existed in Indonesia in the 1919 eighties and 19 nineties, all of them moved and many of them were Korean investors, all of them even sneakers, sneakers. That's right. All the sneakers that when I was, lived in Jakarta in the 19 nineties, they were all produced in, in Indonesia and they moved the following decade all to Vietnam, right? So that was

kind of. So they really learned with textiles, they learned with shoe wear, they learned with toys. And then when Samsung made the offer that they were looking. And at that time, Samsung's really wanted to manufacture television sets and, and other low end consumer electronics in Vietnam because Korea was getting too expensive and like Korean Che balls, you know, the LGS and the others followed. And it was that success, which laid the foundation for

Vietnam to be able to stay. Now, we can, we can embrace uh uh mass scale manufacturing, we can bring in a greater number of, of uh uh multinational companies to come and make in Vietnam. And that I I know Vietnam is going through its own unique structural and political challenges

at this point in time. But if you ask any foreign investor today that if you cannot make in China, what would be a logical next destination without batting an eyelid, they'll say Vietnam, they probably pause for about 10 seconds and mention India.

and, and he runs up immediately against the obstacles. Uh saying, you know, you need not only permits and clearances from Delhi, you've got to figure out which state you're going to operate in, you need permits and clearances and the state and the federal government are not necessarily working in concert. There's no coordinations,

we try to do the same in Vietnam. And uh uh the, the guy in Hanoi, uh the state official has the ability to call up the provincial official and coordinate and make that investment happen in an at a really, really amazing space including providing electricity connections. If the road needs to be built,

that's the challenge, that's the gap that India needs to overcome. And, and there isn't, I mean, India is uniquely uh political system and the way the economy is arranged does not allow for that kind of co ordination,

since the 19 fifties. Uh You have a more affluent middle class, uh you've created an economy which provides opportunity for those who wish to stay back home and, and they certainly, you know, visibly you've got this class of billionaires and millionaires. But I think the big question mark for India is how do you sustain this India group story? Right? Can you continue to be the fastest growing economy in the G 20 uh for the next 20 years without uh providing that

manufacturing story. And I would argue at some stage, India will come up against the obstacle that, you know, and, and maybe hopefully that stage is today rather than 10 years from now when it be, when it may be too late. Uh for India to catch up, there's an absolute sweet geopolitical spot where India can play in at the moment. Uh India obviously is aligned perfectly

with the US on, on security issues. And India is a member of a quad, it's a member of IP F even though it's not part of the trade chapter of the Indo Pacific economic framework. And there's a greater exchange of ideas, greater exchange of uh uh policy dialogue that happens in, in the democratic world including India today

uh than at any time in the past, right? So that, that should provide an enabling environment for foreign investors and local investors to make more in India policy obstacles by the three barriers which which, which really uh the government should address uh in the next year or so. First, in the sense, it's not a level playing field, the fact that you've got favored groups who seem to be getting all of the benefits in terms of contracts, in terms of being able to produce that scale uh

with very little barriers. And at the same time, you've got a lot of others who feel that they don't, you know that these favored groups are disproportionately benefit. So India needs to level the playing field really to enable other large scale business houses who have the ability, who have the skills and the knowledge to also invest in this Indian growth story. Second is, and this has been a prob problem. Predating make in India is lack of predictability on regulatory enforcement

or on tax claims. I mean, the GST is and has become a very blunt instrument. I mean, the Indian company enforces which as you know, is an it services company was today was recently placed with a absolute staggering GST came uh which seems to have come out of nowhere. So there's a lack of predictability and regulation on enforcement and on taxation that is due from

companies either to state or, or, or the center. And that absolutely plays a chilling role, I think in uh in, in, in businesses not being able to plan and, and they're absolutely scared that there's going to be a knock on the door which is going to take away management time and attention. I would say the third problem and, and, and this has got a lot to do with politics which has kind of been, I think uh uh has been a feature much more dramatic in the last 10 years

than in previous governments. There's a real sense of polarization and I don't mean societal polarization alone, there's political polarization that if you're a non ruling party government running a state. There is the co ordination that was possible in the past with the ruling party in power in New Delhi. That is a challenge and that absolutely is a problem

for investors. Uh Because you, if you're a foreign investor, putting a significant amount of money, you are either come through the fast track, right, where everything is made easy for you. It's arguable whether that the number of those investors will be 1020 30 it certainly can't be 300 because that will absolutely overwhelm uh uh the government's capacity to deliver, right. So you need to create the fast

track should be available for everyone to participate in. And there's got to be that greater level of co ordination and sense of national purpose and cohesion. Uh The political environment is charged, it's very difficult. I know, but from a foreign investor perspective, uh that's an absolute challenge. And, and if India is not able to overcome this, you're always going to find successes. I don't mean to say

that all foreign investors are going to turn away. I think the share size and attractiveness of Indian market uh will remain, will keep India in the trail for a long period of time. Uh But you know, time is money and businesses will, I mean, there are other destinations which are knocking on the door and businesses will simply turn away

advanced manufacturing kind of, right. So you, you get a joint venture partner and, and you know, you, you outsource the regulatory tax issues to your joint venture partner, you take a smaller stake and India is now allowing majority stake in many sectors so they can still retain some level of uh majority control. That's an easy proposition. And that has happened, I think

since the India opened up 30 years ago. But you know, the central part of our conversation today that is still not delivering the kind of employment levels and value added. Uh uh compared with the others. The second set of questions that the manufacturer of semiconductors uh right. Can I create a fab? Can I build a fab fab lab in India using NVIDIA GP us? Can I can I build a network of data centers?

Uh because I want to train, I want to train my large language models in India because of uh uh availability of land availability of technical skills, at least at that high level. That is where the complexity is, that is the problem that make in India has been attempting to solve in creating this fast track. But the fact that for me, the worrying thing is the take up rate. But it's one thing to say that you've put $28

billion on the table in plis production incentives. But the take up rate on the part of foreign investors has been very, very low and 10 years is a long time to say that you've barely touched 2 billion or 3 billion, which happens to be the number,

right. So the advice to the foreign investor in the second category is how compelling is your business model at the moment that you do need to move from China perhaps at a slower trajectory than what one reads in the newspapers where you know the feeling in Washington DC is you simply click off the switch exit China and there beckons India and Vietnam that's not

going to happen that way. I think China is going to be a significant manufacturing destination for a long period of time, much longer than what political leaders seem to seem to believe. But if you place India on that slower track, so India is able to sort out its regulatory problems, the co ordination problem that I pointed out, but it's more drip that gradually India is going to scale up, then it's probably an attractive destination. But as you well know, foreign investors are impatient

if we were talking. For example, I think uh 20 years ago, I, I think 20 years ago, we have fixated too much on growth in India growth at all costs. And I think the conversation is appropriately now turned to what is the quality of that growth? What are the growth drivers? Are we are, should we be satisfied with consumption and services and the fact that the the greater sense of urgency, those questions are being asked within India?

I think lends me to believe that there'll be some change uh whether the change is going to be to everyone's satisfaction, of course, remains to be seen. But I think making India is an honorable aspiration uh for the country's policymakers to regain.

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