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Exclusive interview with the founder of China-India Foundation (2/2)

Interview with Ashish Dhawan, Philanthropist and Indian Private Equity Legend

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{{{Kushal Prakash & Gian Marco Brizzolara}}}

On December 5, Ashish Dhawan held a fireside chat at Schwarzman College in Tsinghua University, Beijing. After the chat, the ChinaTech blog team sat with him to hear his thoughts on the cultural and economic aspects of China India collaboration, and the opportunities it presents.

We split the interview into two parts—in the first part we talk about the potential for collaboration between India and China, and how this collaboration would look like on the new technology frontier. In the second part, we ask Mr. Dhawan whether India can match up to China in the high-tech and manufacturing sectors.

Biography of Ashish Dhawan

Ashish Dhawan is the Founder and Chairman of Central Square Foundation (CSF), one of the largest philanthropic foundations in the field of education in India. He spearheaded the launch of Ashoka University, India’s first liberal arts university in 2014. In 2018, he founded the China India Foundation to foster a fruitful relationship between both the countries.
Previously, he worked for twenty years in the investment management business and ran one of India's leading private equity funds, ChrysCapital. In June 2012, he left his full-time role at ChrysCapital to start CSF. Ashish is an MBA with distinction from Harvard University and a dual bachelor's (BS/BA) holder with Magna Cum Laude honors from Yale University. He is on the India Advisory Board of Harvard and a member of Yale's Development Council.
He serves on the board of several non-profits including Akanksha Foundation, 3.2.1 Education Foundation, Teach For India, Centre for Civil Society, Janaagraha, India School Leadership Institute, and Bharti Foundation.

1. Talking about the next-gen technologies like Artificial Intelligence (AI), China is already taking the lead and India is at a very nascent stage. How does it impact the Ed-tech industry and how do you perceive the disparity?

Edtech doesn’t require sophisticated technology

I will be the first one to admit that in fundamental sciences China is way ahead of India. But when it comes to an industry like Ed-tech, if one looks at what needs to be created—an adaptive, personalized tech product—rocket science technologies are not needed. Simple and applied tech models would serve the purpose. Hence I am a little bit more pragmatic in saying that what you need at the end of the day is an excellent pedagogical understanding and the ability to iterate, which can be built with simple AI tools.

India has advantages because of its proximity to the West

The other thing to remember is, while India may not have the cutting edge technology yet, the country is at an advantageous position because we speak English and are open to the West. This enables us to access a lot of tools developed in the US and Europe—the wheel does not need to reinvented. This gives the country an edge as it eliminates the need of making a lot of investments on these fronts by itself. If we look at India’s pharmaceutical industry, the West made all the investments, while India just came up with more generic models and sold them to the West by finding a smart way of doing it through regulations.

Countries need to be plugged into the tech ecosystem, but avoid being overly open

I think you have to be smart about how you remain plugged into the global technology ecosystem, and at the same time not give everything away. A case in point is the share of Google and Facebook in the technology space. It would not surprise me if regulations to constrain companies like Amazon would soon be introduced in India. Pharmaceuticals 30 years ago in India had 75% market share owned by foreign companies. Today their share is down to 20%. India did not sign patent protection contracts, because it realized that the burden would fall on the bulk of its poor people. Today, Indian pharma companies are exporting and moving up the value chain.

India’s first 30 years post-independence saw absorption of technologies; the next 20 years saw dominance of foreign companies; that started changing with emphasis on domestic firms lately. If the domestic industry in India is to be developed without infinite money and resource, picking the right bets has to be the approach. I don't feel like India would lose out entirely in the technology space, just because the country is a little late.

2. Do you think the value that be realized from a superior technology would be lost substantially because of our inability to be the first ones to innovate?

Yes, of course! If, for instance, data is the new oil, we are already losing out. With the US and China dominating on the data front, other countries are concerned. However, for countries like India with an economy of US$ 2000 per capita, you do not always have to think high-tech—you can grow at 8% per year even by resorting to relatively simple strategies to achieve higher productivity and efficiency out of relatively mundane manufacturing and service activities. Making investments in science and technology should definitely not be avoided. But even at the present state of growth without high tech, there are so many opportunities because India is starting at a lower base.

3. Do you think a push on manufacturing is needed or should India stay with its competitive advantage of services?

Production of goods is vital in a world of trade

India needs to figure its manufacturing sector out soon. This is mainly because in a world of trade, the jobs are in manufacturing and not services. You can have 3 million people employed in IT, but you definitely cannot employ 50 million people there.

Once manufacturing sector is developed, it can also be used to go up the value chain. This will then allow the labour force to transition to higher value added services even if the manufacturing jobs disappear 30 years from now, due to factors like automation.

Manufacturing provides the jobs India needs

If you look at the Indian workforce, 500 million people work out of 1.3 billion. There is a gender problem, and a lot of young people (due to the demography of the country) have yet not joined the work-force—so this proportion will improve in future. Additionally, out of the 500 million people, half are on the farms. Just as a thought experiment, if you take 100 million people off the farm and you allow the farmers who are left behind to work on the neighboring farm on a rent basis, production will not decline one bit. This indicates that 100 million people are waiting to be employed. On top, every year about 13 million people join the workforce in India. Given the volume at hand, manufacturing sector can create the jobs that are needed, along with paying better than low-end services jobs. Also, now is the point in time when China is shedding some of these jobs, which provides Indian manufacturing sector an unparalleled opportunity.

India can learn an enormous amount from China in developing its manufacturing sector

China did a very good job with creating models around clusters for specific industries, along with building competence for labour and getting the entire value chain to move to China. That is what is needed in India. For example, the electronics assembly sector is enormous from an economic standpoint, along with being labor intensive at the downstream. Once you establish the sector, you can also get the components manufacturing bit to move to India. Even if a lot of interest does not come from China (due to industry competition), strategic collaborations with other countries can enable this. There is a need to have smart strategies like this, and identify 5 to 6 priority sectors, that can create enough jobs. A more nuanced, cluster-driven strategy, would create enabling conditions. I am hopeful and at the same time expecting that the government action in the space would result in manufacturing picking up soon in India.

4. During a recent deep-dive to Chengdu, we visited a top biotech company, which does not just develop technology but also manufactures products (unlike the biotech companies in the West). Do you think something similar would be possible in India?

Look, China has a real edge when it comes to manufacturing and there is no doubt about it. A large manufacturing base here makes companies like AliExpress work. A huge manufacturing capacity enables firms like Pinduoduo to capitalize on markets (Pinduoduo is an e-commerce platform that allows users to participate in group buying deals). It is possible to replicate Pinduoduo in India, but at the present stage, India will have to rely on the Chinese supply chain for it to be possible. We definitely don't have the manufacturing capacity to sell salsa in a cup for 1 dollar.

In a way, the Chinese story of manufacturing sector is very similar to the Indian story of software service sector—because India is good at software services, next-gen Software as a Service (SaaS) companies are coming out of India (though I agree that India will have to keep honing its competitive edge on the high tech front and move up the value chain). The same thing applies to pharma—there is a need to move into the biotech and specialty drugs space. However, adequate care needs to be taken to not ignore the spaces that are job intensive, and already have a momentum to them. Technological development cannot be ignored, but I would also worry greatly about the low tech jobs because that is where the mass employment in India is going to come from.

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