Facing technological prowess of China

Delhi-based Observer Research Foundation has said that today China is leading the world in a number of technologies such as in genetics, hypersonics (faster than sound), 5G internet and facial recognition though Artificial Intelligence.

In the coming days, the technologies of 5G, Artificial Intelligence, Internet of Things (self-operation of machines through internet such as self-opening of a door after recognising face of the person), 3D printing (manufacture of clone of an object such as a chocolate) and robotics will determine which country will dominate the world.

Here China is fast attaining ascendancy. Inventors file applications for the grant of patents before the World Intellectual Property Organisation (WIPO). The inventor gets the global right on the said technology after such filing. The numbers of patents filed by China exceeded those filed by the United States for the first time in 2019.

The US ad been leading in this since inception of the WIPO. China had filed merely 300 applications in 1999. This has increased to 59,000 in 2019 surpassing the 58,000 applications filed by the US.

In parallel, the Chinese Company Huawei has filed the highest number of patents filed by a Company for the third year in a row. China has already become the technology guru of the world.

A paper published in the Harvard Business Review of March 2014 has said that this technological progress of China is built upon the two legs of financial support by the Government and political determination.

Although the authors have expressed doubt that China will be able to become the world leader in technology because of political interference; the record of the last 20 years clearly shows that political interference has had a beneficial and salutary impact on China's technological advancements.

It should be obvious that the political interference will have a negative impact if that interference leads to harassment of honest researchers for not toeing their ideological line; but will have a positive impact if it leads to the removal of inefficient researchers. The question is not of the fact of political interference but of the nature of political interference.

How should we then deal with China's technological prowess? A number of Indian companies, especially startups like Ola, are riding on Chinese investments. These companies are remitting profits to China.

Tencent is a major Chinese investor in India. 47 percent of its profits come from India. We can certainly stop taking these investments. But that will not solve anything. The impact of such a move will depend on our nerves. Taking Chinese investments can be beneficial is Ola can absorb the technology and develop an indigenous clone that then threw Ola out.

On the other hand, Indian economy will suffer if we become perpetually dependent on Chinese aggregation technology. The Chinese experience illustrates the matter. The Harvard study says: "In 2002 the (Chinese) government launched an open bidding process for wind farm projects to encourage competition among turbine makers.

Foreign imports soon flooded China's fledgling market… the government then required state-owned enterprises to source 70% of their components from domestic firms... by 2009 six of the top 10 wind turbine firms were Chinese." So, the question is not whether we take Chinese investment or not. The question is how we ride upon them.

Trade is similarly placed. Our cost of production of, say, auto parts is higher than China. We can stop these imports. In that case, if we are unable to upgrade, our auto manufacturers will have to buy more expensive homemade parts.

The cost of cars in India will increase and become a burden on our consumers. We will also be thrown out of the world market. On the other hand, if we upgrade and make parts as cheap as China, then we will win. So, once again, the question is not whether to trade with China or not. The question is whether we can reduce our cost of production and compete with China.

We will have to solve the underlying issues. We must have the nerve to put Chinese investments on their head just as China did with wind turbines; and we reduce our cost of production.

Facing the technological challenge will require action both on financial and political fronts. The Economic Survey published by the Ministry of Finance noted that India's expenditure on Research and Development has remained flat at 0.7 percent of GDP while Korea and Israel are spending 4.6 percent and China 2.1 percent.

The total expenditure by China becomes 15 times that of India once we account for its GDP being about 5 times that of India. The main reason for our low investment is the consumption by our government.

Our government revenues are being used to pay hefty salaries to the government servants. The average salary of government servants in China is about 1.5 times their per capita GDP of China while it is about 4.6 times in India.

My assessment is that our Government has had little money left for research or for other necessary expenditures such as defense after the Fifth Pay Commission. I daresay that the government servants are eating away the sovereignty of the country by capturing government revenues and preventing investments in research and defense.

I am cognizant that large numbers of Government Servants, especially in the armed forces, are honest and are diligently serving the country. However, that does not obviate the collective impact of the high salaries paid to them in comparison to the GDP per capita of the country.

The second cause of our technological backwardness is the decadent state of our government-funded universities and research institutions. A few years ago, I had the occasion to ask a university professor how he spent his time after retirement.

He replied, "I have got used to not working for the last 40 years. The time just passes by." Remember that American lead in technologies is substantially supported by their universities.

Chinese universities are also playing the same role. Our universities, however, are mainly busy distributing certificates so that the students get government jobs and get used to "not working" like themselves.

India needs to wake up. This is not the time to shout about the arm-twisting and manipulations by China. That is geopolitics. We have to set our own house in order.

The government will have to stop pandering to the government servants and increase outlay in research; and enforce accountability in the government-funded universities and research institutions.

(The writer is formerly Professor of Economics at IIM, Bengaluru)