Despite Apple, India Is Not The New China

Ever heard of Hyderabad? Thought not.

Little known outside India, Hyderabad was in the spotlight last week, when Apple CEO Tim Cook announced plans to open a dedicated “Maps” office in the city. Cook noted:

India is home to one of the most vibrant and entrepreneurial iOS development communities in the world.

Cook’s remarks are timely: Apple recently revealed its first ever decline in global sales in 13 years, while its sales in India grew by a staggering 56%. Mindful of which, Cook pinpointed India as

“one of Apple’s most important growth areas for the next decade.”

But Apple is already late to the game in India; the sub-continent currently boasts the fastest growing startup base in the world and trails only the US and the UK in terms of technology-driven startups.

A Start-Up System Long Past Starting Up

Every month, 6 million Indians (out of a population of 1.25 billion) use the Internet for the first time. It’s no surprise that the sheer scale of untapped market opportunities, in a population so large, has piqued tech’s interest.

India’s ascension to the tech big leagues has been long in the making, but was given a significant boost in May 2014 when the pro-market government of Narendra Modi was elected to office. At the beginning of his tenure, India’s tech-savvy Prime Minister launched the Digital India initiative, which seeks “to transform India into a digitally empowered society and knowledge economy,” according to its website.

Prime Minister Modi met with Apple CEO Tim Cook last week. Photo credit: PIB

Within Digital India, Modi has pushed heavily the so-called ‘Startup India, Standup India’ initiative, whereby:

• The government has set aside a $1.47 billion fund to be invested over the next four years in startup developments.
• Government Incubators will seek to develop innovation programmes across a half million schools, totalling nearly $14 million in investments.
• Startups can set up just 90 days after their initial application, allowing for rapid turnaround and innovation.

Digital India is proving to be one of Modi’s major successes. Coupled with its youthful workforce—72% of its startups are founded by entrepreneurs younger than 35—India is brewing a perfect productivity storm.

For example, it’s estimated that India saw the launch of nearly 1,200 technology startups in 2015. In the first nine months of that year, investors funnelled nearly US $7.3 billion into approximately 639 deals.

And these huge numbers add up. Super-successful e-commerce start-up Flipkart (India’s largest, and founded by two former Amazon employees) recently raised another $700 million to its $11 billion valuation. Uber-equivalent Ola now boasts a $1 billion valuation after just three years in existence. Both exemplify the very real possibility for major startup success in a country that, for three decades after it gained its dependence, averaged 1%  annualised growth.

And now, with the likes of Apple (not to mention Google, GE Capital and Intel) scoping out ever larger investments, Indians would be forgiven for feeling optimistic.

Is India China 2.0? Not quite. 

Cities like Shenzhen, one of China’s many Silicon Valley hopefuls, have taken a pummelling in recent months

Much as Donald Trump might have China on the brain, the world’s second-largest economy has had a bad run lately.

Yet despite the slack growth and market meltdowns like last August’s Black Monday, the Chinese economy is still, by any measure, performing well. Sure, its 6.9 percent growth rate—the slowest in nearly a quarter of a century—might send markets into a flurry of panic, but (and this is a big but): China still created nearly three quarters of a trillion dollars worth of wealth (or the combined GDP of Thailand and the Philippines).

It’s important to see India’s productivity growth in context—or better, to read reports of a Chinese slump with a pinch (or a fistful) of salt. 

No one doubts that India’s growth potential is enormous, and it is blazing a trail in tech. Granted Mark Zuckerberg can quip the odd Chinese phrase, but with Facebook firmly shut out of China, Zuckerburg and all free-marketers stand a better chance in the free-wheeling Indian startup market (or so you would think: Zuckerberg’s lofty vision, Free Basics, was dealt a heavy blow last month, when an Indian court ruled it violates net neutrality) .

Yet, India’s framework for growth lags a long way behind China’s. Around a quarter of adult Indians cannot read (compared with just 5% in China); a 1 Mbit/s residential broadband service in India is 6-10 times more expensive than in China; Alibaba, China’s largest e-commerce company, has a market capitalisation a full 25 times larger than India’s equivalent, Flipkart. According to one commentator:

India would have to see income per capita increases of at least 20 percent in order to close this gap [the productivity gap between China and India], or at least not let it widen further in China’s favour.

India has long threatened to oust China as the world’s up-and-coming productivity engine. And yes, it may one day morph into China 2.0, but any such development is some way off. 

In an important way,  major economic entities like Apple and China are victim to the same pitfalls that come with roaring success: when either fails to maintain its groundbreaking growth, the market, its expectations dashed, is trigger-quick to conclude that their demise is imminent.

Apple and China are far, very far, from any talk of productivity throes. India’s startup tiger is indeed gathering strength, but its climb to kingship of the tech jungle will be long. For now, the Chinese Dragon lives.