Why India fell behind China in tech innovation
India’s government urges the private sector to take the lead in tech innovation, while industry experts say it’s complicated.
India’s government and tech industry are concerned about lagging behind China in deep tech innovation, particularly in manufacturing and AI.
This gap is attributed to historical focus on services over manufacturing, lower investment in research and development, and a brain drain of AI talent.
India is increasing investment and policy support for AI and semiconductor development to catch up globally.
China’s DeepSeek moment has triggered unease for the Indian government and tech industry.
Earlier this month, India’s commerce minister, Piyush Goyal, rebuked the country’s entrepreneurs for their lack of innovation. “We are focused on food delivery apps, turning unemployed youth into cheap labor so that the rich can get their meals without moving out of their house. And against that, what does a Chinese startup do? Work on developing electric mobility battery technologies, and with that, they today dominate the electric mobility ecosystem,” Goyal said at an industry event.
Goyal’s comments sparked a backlash from Indian startup founders and investors, who pointed to bureaucratic red tape and import regulations on computing equipment as major barriers to innovation.
While explanations vary for why India — where startup funding is among the highest in the world — has fallen behind in advanced manufacturing and artificial intelligence, experts believe the gap dates back to the 1980s, when the two nations diverged economically: China invested heavily in manufacturing, while India leaned into services.
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Today, China commands 30% of global manufacturing output, while India lags at 3%. India’s services-led mindset and decades of underinvestment in innovation have left the country scrambling to catch up in the global tech race, according to industry analysts, government stakeholders, and academics.
“China’s ecosystem is different. They already have the manufacturing prowess, which they built over time. So, for them to make a product which can be put into the market is not that difficult,” Pranay Kotasthane, chair of the High-Tech Geopolitics Programme at Takshashila Institution, a Bengaluru-based think tank, told Rest of World. India remains a “service-focused” tech ecosystem — a space where the country beats China “hands down,” he said.
The government is counting on the private sector for high-tech innovation, Abhishek Singh, a top-ranking bureaucrat and CEO of IndiaAI Mission, a state-led initiative to drive AI adoption, told Rest of World. “The government can only enable the ecosystem. The actual work is done by the industry, startups, and researchers.”
India has not innovated like China due to “a lack of conviction at scale,” Anant Mani, founder and CEO of a Chennai-based artificial intelligence startup, Randomwalk AI, told Rest of World. “India’s AI startup ecosystem is alive, but not yet formidable. We have sparks — Sarvam AI, Niramai, Krutrim AI, etc. — but not yet a sustained fire.”
India has over 200 generative AI startups, which raised $560 million in funding in 2024.
Yet, India is a net exporter of top AI talent, while China, despite producing nearly half as many high-quality researchers, retains most of them within its domestic ecosystem, according to a global AI talent tracker by Chicago-based think tank MacroPolo.
