The recently concluded 5G spectrum auction is viewed as a reflection of India’s determination to be a leader in the adoption of the so-called Industry 4.0. But is the Big-Tech pushed Industry 4.0 narrative blindfolding India into being a forex draining ‘digital consumer economy’ rather than a leader?

It is reckoned that production is increasingly moving into an era of automated processes and controls among connected devices, machinery and infrastructure, which are also ‘smart’ because of being aided by data-driven insights or digital intelligence. The resultant cyber-physical systems is being popularly referred to as Industry 4.0.

But the narrative of Industry 4.0 — as if we were in an era of radically new technologies with a total break from existing technologies — is dangerously misleading. All the major digital technology systems enabling these cyber-physical systems have built on the earlier technology systems under the ongoing information and communication technology (ICT) revolution.

The latter had erupted in the early 1970s around microprocessors and other semiconductors, and their early applications across various electronics sectors. It is the further advancement in microprocessors and related technology systems around computers, consumer/space/military electronics, telecom and the Internet, software, internet-based services, etc., which has led to the emergence of strongly inter-related new ICT/digital technology systems since the 2010s.

The latter include cloud computing, digital platforms, telecom and network technologies like 4G/5G, the Internet of Things (IoT), artificial intelligence (AI), etc.

The ‘cyber-physical’ or networked, automated and intelligent production systems are nothing but the transformation of production and value chains through the deployment of these new ICT/digital technology systems.

Networking is achieved through telecom and network products and other software-embedded devices/machinery connected as IoT, along with cloud-based software architecture. Automation is also enabled through software-embedded products such as computers, laptops, smart phones and other software-embedded equipment and machinery, including robots.

Intelligence is based on data analytics-driven insights derived from real-time data collected through connected entities and other domains. Once again, IT hardware and software are deployed for data analytics. However, this inalienable link between cyber-physical production systems (for digital transformation of industry) and electronics industry inclusive of ICT products, involves drastically closer intertwining between software and ‘hardware’ than in the earlier ICT/digital technology systems, especially for the generation and deployment of digital intelligence derived from data.

Data-based insights

All kinds of personal and non-personal data are increasingly being used for analytics-based product innovations. This is why digital business models focus on collecting client/consumer and public data of all kinds, and monetising the extracted data in different ways.

But revenue generation through sale of the extracted data for marketing is only one part of unfolding digital transformations. Across industries and activities, possibilities for improving performance and undertaking product innovations based on intelligence derived through data analytics have increased manifold.

Currently, without a national data regulatory framework that prescribes rights and access to data, data is largely entrapped in the IP-protected algorithms/software of foreign digital infrastructure providers of cloud, platforms, etc. These digital corporations are able to continuously improve their software by exploiting their unilateral access to data extracted over service provision for generating digital intelligence. This also enables them to offer new value added services.

Apart from the cloud layer and sectoral platforms in e-commerce/financial payments/mobility, etc., there is significant domination of global tech companies in India’s other critical digital infrastructural layers such as telecom/network equipment and other digital value chain segments of ICT devices and electronics products. There are also foreign acquisitions not only of Indian start-ups, but also of older companies across different spheres.

In the absence of a national data regulatory framework to enable data protection and more equitable data sharing, foreign firms obtain de facto control over the data in whichever activity they move into. Given that product design and development increasingly come on top of data analytics-based digital intelligence, this provides enormous first-movers’ advantages to these foreign firms in developing new goods and services with more intelligent functions.

In any value chain, those owing product design patents extract the maximum revenue share. This huge economic value to be derived from data for current and future revenue generation is why India’s policy success in regulating data will be a critical determinant of how inclusive our digital industrialisation will be. Expanding public digital infrastructure provision is a second pillar needed for inclusive digitalisation.

Data governance and public digital infrastructure provision are not sufficient to increase the national value addition share of the productivity gains expected through digital industrialisation. If India does not promote indigenous technologies in old and new smart products, the former may only serve to subsidise foreign digital corporations’ innovations and end up increasing their market power across product segments.

As digitalisation spreads across sectors, there will be increased demand not only for electronics products, but also for new smart devices and machinery in different industries; for instance, smart energy products, smart health devices, etc.

Given the increased embeddedness of software in digital devices, machinery, etc. intelligentisation will worsen the adverse consequences of India’s existing structural issue — the dichotomised existence of our software product industry from the electronics ‘hardware’ industry.

Increased risk of further waves of foreign exchange outflows from the manufacturing sector — which was already significant in the pre-intelligentised era — will not only be on account of growing import of new software-embedded smart devices, equipment and machinery, but also increased forex outflows on the services account for technology payments for embedded AI and other proprietary technologies across foreign-owned digital value chain segments.

If the benefits from catalysing accelerated digitalisation through Digital India initiatives and high shares of value addition from even ‘domestically produced’ digital devices/machinery have to accrue to the national economy, India must promote domestically owned-software-embedded products across industries.

This is a critical reason why the revenue-based incentives in the production-linked incentive (PLI) schemes for various industries must be re-oriented towards design-oriented incentives.

Equally critically, government procurement of ‘national’ products that incorporate nationally-owned designs/patents also has a foundational role within a strategic digital transformation policy needed for increasing India’s technological sovereignty.

The writer is an Economist based in Delhi