For years, China has been Asia’s technology powerhouse.

It is home to what once were some of the world’s most valuable companies, from Tencent to Alibaba. It is where most of the world’s iPhones and other electronics products are produced. And it is now a serious player in electric vehicles.

But a shift appears to be underway, with other countries in Asia trying to take China’s crown.

India is one of these contenders. New Delhi has sought to woo foreign tech companies and has been increasingly successful, with giants like Apple increasing their presence in the country.

India is looking to boost areas such as high-tech electronics and semiconductor manufacturing, as well as support its burgeoning yet challenged startup scene.

At the same time, foreign firms are looking to diversify away from China amid increasing tensions between Washington and Beijing. Tough Covid-19 restrictions enacted by the Chinese government, which disrupted operations for firms like Apple, highlighted the need for companies to reduce exposure to the country.

India could stand to benefit. What was once a market that foreign firms perceived as having too much red tape and too many business hurdles is now becoming a viable alternative to China. But it will take a lot of effort for India to wrest China’s tech title.

In the latest episode of CNBC Tech’s “Beyond the Valley” podcast — which you can listen to above — Tom Chitty and I discuss whether India can challenge China as Asia’s tech powerhouse, and what the country’s advantages and disadvantages are.

If you have any thoughts on this or previous episodes, please email us on beyondthevalley@cnbc.com.

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Here is a transcript of the episode of “Beyond the Valley” released on Apr. 3, 2024. It has been edited for clarity.

Tom Chitty: For years China has been Asia’s tech powerhouse where the world’s electronics and some of the biggest companies on the planet are located. But as China’s economy continues to struggle and trade tensions between Washington and Beijing show no signs of easing, many global tech firms are looking closely at India. The country is set to become the world’s third-largest economy by 2030. And part of that plan is making a play to bring in high tech manufacturing to its shores, from Apple’s iPhones to semiconductors, as it sets itself up to challenge China as the key tech hub in Asia. How’s your week been?

Arjun Kharpal: It’s been great Tom. Had a nice long weekend. It’s a long weekend here in the U.K. So that was good. Did some gardening. I like to cook. Did you know this?

Tom Chitty: Yes I did because you sliced off your finger.

Arjun Kharpal: I did slice off my finger.

Tom Chitty: Let’s just clarify … a bit of it.

Arjun Kharpal: It’s growing back. I’m just looking at it now and it’s growing back, which is great. So I’ve just planted some herbs. Got chives in there, oregano.

Tom Chitty: Is this the time of year to plant?

Arjun Kharpal: This is the time. So they’re indoors right now. They got to go into little sort of baby herbs. And then they go outside.

Tom Chitty: I mean, how do you find the time, Arjun? You are a miracle.

Arjun Kharpal: My granddad is good gardener. So I sort of went round his and I said can you help me plant these? And he got all the compost out. Anyways, they’re good baby herbs, probably in about three to four weeks. And then I’ll put them in the garden. So by the summer, when I’m you know, really cooking it up on the barbecue and whatever else going on. I’m trying to grow lemongrass, obviously used in a lot of Thai dishes. I don’t know if we got the climate. But we’ll see.

Tom Chitty: You’ll probably need a greenhouse for that.

Arjun Kharpal: Don’t have that. But we are hoping for a nice warm summer.

Tom Chitty: If any of our listeners didn’t know, Arjun is a big barbecuer.

Arjun Kharpal: Love barbecue.

Tom Chitty: Are you a coal man or a gas?

Arjun Kharpal: I’m a coal man. Yeah. It’s just the flavor. But I’m gonna get into smoking. Not cigarettes, or vapes or anything like that. But the smoking of meats and you know other foods. So I’ll try that next. That’s my next big project. We’ll see. We’ll see.

Tom Chitty: We’re into spring. This is all we’ll talk about now for the next three four months.

Arjun Kharpal: Barbecue and herbs

Tom Chitty: Before we get into our nice story, we’ve got to obviously hear Arjun’s stat of the week. I’m on a bit of a run so let’s see how we do this week.

Arjun Kharpal: Okay, this one is a shockingly low number. Usually it’s like billions, trillions. 92, just 92. 92 people. I think that’s accurate. 

Tom Chitty: That should be the tagline for this podcast. I think that’s accurate. Just to remind our listeners that if you have any questions on what we’ve discussed this week, or past episodes, then email beyondthevalley@cnbc.com. But back to our main story. India has made a big tech push recently, Arjun, what’s been going on? 

Arjun Kharpal: It’s been an interesting, two, three years for India, I think in terms of trying to get some momentum into its tech sector. And there seems to be sort of a shift that happened about three years ago, perhaps, where India was saying, well, we want to be a technology powerhouse. And the groundwork was being laid for this, you know, few years prior in terms of trying to make regulation better these kind of different things. But effectively, India is now gunning to be a technology powerhouse in a few fronts. And just to try to break that down. You mentioned at the start, China has typically been the sort of big technology powerhouse of Asia. Now China has been very strong on manufacturing, electronics manufacturing, most of the world’s electronics are manufactured in China, but also as a result of its sort of prowess in technology, it has invested in areas like semiconductors, like financial technology, you know, ecommerce, so many EVs, so many different areas in China and it seems India is looking at these areas now as ways that it wants to sort of catch up and be known to be strong in this area and one of those is semiconductors. India is on a big semiconductor push, we can dig a bit more into that. Another one is high tech manufacturing, again, something that China has typically been strong into an India’s trying to position itself as an alternative, plus, it does have a pretty vibrant yet challenged at the moment startup scene as well. So there’s many areas now India’s trying to push, electric vehicles again, another area that it’s that it’s looking at quite closely. So right now, it’s a big almost marketing push on the world stage from India to say, hey, I know China has sort of been dominant, but China has had its issues. Why don’t you look at India now? And that is the message really from India at this point to the global tech community.

Tom Chitty: India’s Prime Minister, Narendra Modi has really pushed for this, not just in the last few years, but this is sort of a plan that’s been cooking for a while. Sorry, to bring it back to food, with his Made In India initiative to draw that foreign investment into the country. So are we now in a place where it’s sort of the perfect timing because of what else is happening in China, with its struggles, that actually this isn’t just them just taking advantage that it’s been, you know, this has been in the works for a while?

 Arjun Kharpal: I think that’s a great way to put it Tom, because Modi, and under his leadership, since he became prime minister has been quite clear that he wants a lot more manufacturing to be in India. The Made In India program, as you said, has been a key part of that to try to onshore more manufacturing of technology, but also other things too. But China has still for many years, dominated. And I think, what changed the game quite significantly, I’d like to say sort of began in, say, 2018, so sort of roughly three, four years after Modi became prime minister, Trump became president of the U.S. And what that sparked really was an increased tension with China, not only on the trade war front, but then also on this technology battle between the two countries and geopolitics started to really cast a shadow over the tech sector globally. And I think many of them began to look at China and think, I wonder what our future looks like in China. So that was one part. Then you had export restrictions, and various other things happen, and then COVID hit. And I think COVID, in particular, exposed many tech companies reliance on China. Apple was a key example of that. During COVID, the biggest iPhone factory in the world run by Foxconn, the Taiwanese firm, you know, had multiple incidents where sort of production was disrupted because of the COVID restrictions in China. And there were also unrest as well within the factory. So there were various things that happened, which I think underscored companies like Apple’s reliance on China. And I think, what happened with COVID is that really accelerated companies looking elsewhere, at where can we manufacture? Where might we be able to set up shop? And where is there also a audience for our products? And India fits all of those bills. So concurrent with that, India was doing things like wooing these American companies, inviting them over, inviting them to set up factories, set up shop set up offices in India, at the same time when they were exactly looking for a diversification play. And so all of these things came together. And I think we’re here now, where there’s been a few big movements. So one, Apple now manufactures its latest iPhones in India, not all of them, a lot of them still out of China. Micron, one of the world’s biggest memory chip makers, has got approval to set up a factory there. I’m talking semiconductors here as well.

Tom Chitty: Sorry, just to clarify Micron is an American company?

Arjun Kharpal: Tata Electronics will also partner with Taiwan’s Powerchip Semiconductor Manufacturing Corp to again set up a semiconductor fabrication plant. So you’re now seeing foreign companies begin to set up shop there. And all of those efforts, the timing, come to fruition. And that’s really what’s happening in India, sort of high tech sector when we’re talking about things like semiconductors, like electronics manufacturing at this point, versus, say, China. And it’s partly India making the business environment slightly better. It’s partly these U.S. companies and foreign companies more broadly looking for diversification away from China. And it’s broadly also about the concern for many foreign companies about relying too much on China given the geopolitics and given what they saw in COVID.

Tom Chitty: I talked at the start about the fact that there’s this abundance of labor in India. And the country did become the world’s largest population only recently. What other reasons are there for why the country is so attractive now?

Arjun Kharpal: I think there’s a few reasons. One, as you said, the population size, right? It’s got a large domestic market of consumers, just like China had, or has even. So, you know, if you’re an electronics manufacturer, or setting up shop in India, you know, not only can you manufacture products there, but you’re saying, I could sell these here, too. There’s a huge population. And it’s a young population, it’s a tech savvy, tech forward nation at this point, as well. So that’s partly one of the reasons. The other one is there’s a huge amount of skilled labor there. Now, that there certainly needs to be more. I don’t think at this point India can sustain a huge influx of companies wanting to set up shop and then having to find skilled labor there. I don’t think there’s that much. But certainly, it’s a point where there is a lot of skilled labor, there’s engineers, which are key for electronics, key for semiconductors and other areas. They’re English speaking, as well. So if you’re a foreign company, if you’re a U.S. company and want to set up shop there, you don’t have to worry about the language barriers, as well. So that’s another big reason. And you are seeing more of these foreign direct investment flows, because India has tried to make it a little bit easier for foreign companies to set up shop. India typically had a reputation of being full of red tape, very bureaucratic, a place that was very difficult to do business. Now, I’m not saying that’s completely gone at all. But there’s certainly been moves to try to reduce that view of India at this point.

Tom Chitty: And on the flipside, China has is now seen as when it comes to regulation, and conducting business in that country a little bit more challenging than maybe it was in recent years.

Arjun Kharpal: I was on our Squawk Box Europe show last week talking about this. And, you know, Karen Tso, the anchor asked, what about foreign companies now, China’s now after their economy is under pressure, etc, trying to roll out the red carpet to foreign businesses. And, you know, will foreign businesses invest again in China? And I said, the problem China has had now is they have lost the trust and broken the trust of so many foreign companies. And what I mean by that is, over the past few years, the COVID restrictions were so intense, and often implemented in a way that didn’t have a lot of certainty and planning, that many foreign businesses didn’t know sort of how to react, and it affected their production, it affected their their operations. But also, there’s been a lot of regulation over the last few years in China, that often has come out of nowhere. It’s been announced very quickly, implemented very, very quickly. And foreign companies not really knowing how to react to that as well. Investors have lost trust in the Chinese markets, and the Chinese companies because of the amount of regulation and this question marks of over whether they will grow. And of course, China is having its own economic problems as well. And that’s impacted a lot of companies willingness to invest it. And then, you know, add on the geopolitics and everything else we spoken about and it looks like a very difficult scenario. On the flip side, India is really rolling out its red carpet, as well to a lot of these foreign businesses at a time, as we said, they’re looking for alternatives. And so that’s been a plus for them at a time when China is facing a ton of challenges. And I think that’s one of the biggest issues right now for China. And what’s really benefited India a lot. 

Tom Chitty: And India has now seen, at least amongst a survey of 100 funds, the most popular emerging market with investors. And conversely, China, still attractive, but it’s in second place, alongside Brazil. And so the risk of losing that capital is going to be quite significant to the Chinese economy.

Arjun Kharpal: China is at risk of losing that capital. I think the flip side is again, the market can’t be ignored. China, again, huge population, 1.4 billion people, consumers are growing middle class, etc. All these structural things that attracted these companies in the first place. Plus, a point to make you can’t just decouple, you know, Apple can’t wake up tomorrow, Tim Cook, CEO of Apple can’t wake up tomorrow and say, you know what? Screw it. I’m moving all my manufacturing out of China. It’s impossible. It’s impossible to do. But I think the key point here is going forward, that level of investment we’ve seen in China from a lot of foreign companies is unlikely to be met in this day and age when they’re looking at not only India, but actually other parts of Asia as well. Vietnam, Indonesia, Thailand, these places have attracted some tech manufacturing as well. And so, you know, there is more competition versus China now. And that’s an issue. I would say, though, as well as India’s done more recently, there was this really fascinating interview that’s come out last week, from Raghuram Rajan. He’s the person I’ve spoken to before, he used to be the central banker of the Reserve Bank of India. And he came out and he said, the greatest mistake India can make is to believe the hype about their own growth and economic story. We’ve got many more years of hard work to do to ensure the hype is real. Believing the hype is something politicians want you to believe because they want you to believe that we have arrived. But he said it would be a serious mistake for India to succumb to that belief. He said, some of the biggest challenges that India must grapple with at the moment is improving the education and skills of the workforce. And without fixing that India will struggle to reap the benefits of its young population. So what I was saying earlier is the skilled workers side of the equation, the tech companies, particularly those in the engineering side of things, semiconductors, high tech manufacturing, they need skilled workers. Now, if all of these companies set up shop, where are they getting these workers from? Is my question. I don’t think India has the supply yet of that. So the excitement certainly is around the young population, about our workforce, maybe in the bigger cities, for sure, that is educated, that is English speaking, etc. But again, there’s still a lot of work to do in the Indian sort of tech skills side of things.

Tom Chitty: That’s one of the challenges, though, isn’t it for a democracy, right? Modi’s running on a limited term. And, you know, his goals, and his targets will be focused in on when that term ends, and yet investing money, time, effort into the young generation with education that will only bear fruit over a course of several years. And that’s the challenge you face against China, which as an authoritarian regime can look ahead with that long term goal, and invest, knowing that it’s the CCP will still be around come 20 years when you know, the fruits of those that an investment will show.

Arjun Kharpal: Yeah, it’s a big challenge. And it’s one that comes with economic growth, that needs to continue, so that the population can afford things like education, etc. And so there’s a lot, there’s a lot of structural things that India needs to do for sure, in order to be a real long term viable alternative and a powerhouse of tech in Asia. The groundwork is starting to be laid and you’re starting to see initial sort of green shoots with some of the investments we’ve spoken about. But I don’t think it’s all super positive right now. I think there’s still a lot of work. I think, as Raghuram Rajan alluded to, that needs to be done structurally, for India’s economy, for India’s workforce, education and skilling, in order then, you know, for there to be a population that can support this growth of tech. And that’s not there yet.

Tom Chitty: I wanted to talk a little bit more about semiconductors for a second, as we know, they are probably the most important technology in the world. They are there in pretty much everything we use day to day, is that something that India could feasibly become a leader in in terms of manufacturing?

Arjun Kharpal: It will be a tough ask, I think, for India to be a manufacturing leader. I think right now as it stands, the manufacturing cutting edge manufacturing is still Taiwan, still South Korea, with the likes of TSMC, with the likes of Samsung, I think India has some strengths in certain areas. One of those is around chip design, and packaging. These are sort of parts of the supply chain that requires a lot of labor and a skilled workforce again, so these are areas of think where they could be strong. One thing you will see is Indian companies strike partnerships with say Taiwanese firms to set up shop for manufacturing. But I doubt there’ll be manufacturing, the most cutting edge nodes. There might be sort of older generations that can go into things like autos, or appliances or, or some of these other areas as well. But certain parts of the supply chain, they could do very, very well in so I suspect you’re going to see a lot more on the semiconductor front. The government has unlocked billions of dollars to try to support bringing in semiconductor companies to their shores. So that’s going to be, I think, a big part of the strategy for India on the semi front going forward. 

Tom Chitty: We obviously spent most of the episode talking about, you know, external investment, foreign investment coming into the country. But you know, India itself has a very thriving startup sector. How does that fit into all of this?

Arjun Kharpal: Yes, thriving, and now challenged. It’s not a specific India problem, but I think it’s a sort of broader problem. Last year, funding fell to about $9.6 billion VC funding into startups. That was down from 26 billion in 2022. That’s according to a report from Bain. Part of that is the global macro headwinds. I think VCs have tightened their belts, because the tech sector has been under pressure with higher interest rates, etc. But they have also had some individual stories, which, you know, what we’ll go into in a later episode. We have had individual stories of companies just spending too much too fast, stories we’ve seen elsewhere in the U.S. and various other markets as well, that has led to difficulties. And there’s still hurdles, I think, to foreign capital inflow into that. But that’s not to take away from the fact that there is a there is a vibrant scene there. And a lot of that is in Bangalore, somewhere you’ve been? You went there a few years ago, right? 

Tom Chitty: Yeah, I did. Yeah, we were doing a travel series. We went, we went through Goa, Bangalore, Kolkata, Delhi and Mumbai, crazy, incredible place vibrant, chaotic at times. But you know, that’s the tapestry of what is a magical country. But I found Bangalore to be actually slightly different. It was a little bit more calmer. A little bit, maybe too cool for school a little bit. It was a little bit more European. There was European influences there. I think a lot of the startup scene, you know, had been to Europe, the U.S. educated there and brought back some of those influences into Bangalore. I wouldn’t probably say it was my favorite city, just because I love for chaos. I mean, people have said, oh, it’s India’s Silicon Valley, which I think is doing a disservice, I think it’s actually potentially much more interesting, you know, in terms of its influences from all around the world, and it’s obviously a shame to you know, that they’re obviously a victim to what we’ve seen across all startups with the lack of investment and, you know, a struggling world economy. But I imagine that they’re also part of Modi’s plans, or at least I hope they are part of Modi’s plans within this whole becoming a tech hub or Asia’s de facto tech hub. Do you that will ever happen? And if it does happen, when do you think that would be?

Arjun Kharpal: I think India’s had a great marketing push, let’s put it that way over the past couple of years. In particular Modi, he’s a bold character. And he likes to be seen on the world stage. And he’s clearly been able to exert some influence to make sure that people like Apple CEO, Tim Cook, and the CEO of U.S. chip companies are coming over, manufacturing, etc. And he’s clearly tried to make India seem safe for business. Because as we’ve said, a lot of these businesses are scarred from the geopolitics between U.S. and China. To become a true powerhouse, in terms of a tech hub of Asia takes years to build up. And I think India is in the very early stages, to put it quite bluntly, of trying to do that. There’s political will, which usually helps causes. There’s some of the structural advantages we’ve spoken about. And of course, some of the disadvantages we’ve spoken about as well. I think India will be a big player in tech, without doubt, in the coming years. I think it will take some of the share away from China in certain areas. And I think that it will thrive in certainly a number of areas as well. When some of the biggest companies like Apple say, you know, we want to make 25% of our iPhones in India, it’s a big signal to others in the electronics community, in the tech community, that you’ve got one of the largest companies in the world, one of the biggest electronics manufacturers or designers in the world, saying that they want to ramp up production that much into India. That’s a sign that others could follow? I think the big risk for India is if the political situation changes anyway, India’s political situation, I mean, like politics all over the world can be volatile. You know, is there any change in in geopolitics between India and countries like the U.S. and others, which means U.S. companies are a little bit more standoffish about investing in there? There’s so many reasons and risks to the India story. Do some of the promises and the hype not play out?

Tom Chitty: India have got an election this year as well, which is going to be interesting to see what happens there. And I also imagined that the relationship between China and India, which has never been great, could potentially get a little bit more frosty.

Arjun Kharpal: Yeah, it’s pretty bad at the moment. I mean, on the tech front, India’s banned a ton of apps from China. You know, India has aligned itself slightly more to the countries that are currently a bit more anti-China, shall we say? That geopolitics with China could get a lot more frosty, which, to some extent, benefits. India, if it’s trying to get in more foreign firms from places like the U.S., for example. So there’s a lot at stake this year. As you said it’s an election year, big, big year for India. And you know, we’ll see who the new government is and what they are going to prioritize as well, in terms of the tech front, but it feels like any government that comes into India now has to have tech at the forefront of their mind, given I think how important technology can be to a country’s economy, I think going forward and all the big changes that we’re seeing in terms of AI, semiconductors, etc, etc, as well.

Tom Chitty: Brilliant stuff. But before we finish, we have of course, got to do stat of the week.

Arjun Kharpal: 92 people, Tom.

Tom Chitty: The amount of people it takes to manufacture one microchip.

Arjun Kharpal: Oh, wow, you are so far off. It’s got nothing to do with chips. All it was I saw this really interesting story on cnbc.com. It was one of the top read stories. And it’s the number of billionaires in Mumbai. And it’s the first time Mumbai has taken the top spot in Asia for the number of billionaires in the city. It’s overtaken Beijing now, for the first time, which has 91 billionaires. It’s just behind London on 97 and just behind New York on 119. I don’t know does that speak to India’s growth story in some way?

Tom Chitty: Well, the growth of the pockets.

Arjun Kharpal: The pockets of the ultra-rich. Yeah, but I just thought was a very interesting stat. China as a country still has the most number of billionaires, 814, ahead of the U.S. on 800 and a distant third, India, 271. The U.K. 146. Germany 140.

Tom Chitty: Just what our listeners want to hear about is the ultra wealthy, getting wealthier.

Arjun Kharpal: Are you not on that list? You must be close.

Tom Chitty: I’m getting there.

Arjun Kharpal: All the BTV episodes.

Tom Chitty: I mean, all those those episodes, just money, just pouring straight into my pocket. Have you have you not seen any of that action?

Arjun Kharpal: No. All I’ve got is a mug with the branding on it. That was my reward. 

Tom Chitty: Okay, that’s it for this episode. Before we go, please follow and subscribe to the show. And you can even rate us. Thank you, Arjun.

Arjun Kharpal: Thank you, Tom.

Tom Chitty: We’ll be back next week for another episode of Beyond the Valley.