A top Indian engineer working remotely for Google from Bengaluru realises that, in purchasing power terms, her earnings are not much lower than those of her colleagues in Mountain View, and she enjoys the added advantage of being close to family. Similarly, Chinese workers also have the advantage of access to advanced manufacturing capabilities and vast consumer markets, while both watch colleagues abroad navigate increasingly complex visa policies as they build the future from home.
This scenario reflects a shifting global landscape. As the US administration imposes a $1,00,000 fee on new H-1B visas and much of the West makes immigration procedures increasingly stringent, something remarkable is unfolding in India. India’s venture capital funding jumped 43 per cent in 2024 to $13.7 billion, reinforcing its position as Asia-Pacific’s second-largest VC destination. For perhaps the first time in decades, the economic mathematics may favour building technological capabilities closer to home, creating an intriguing possibility: Could South Asia, led by its largest economies, develop a more integrated technological ecosystem?
The global AI race is reshaping technological leadership. China has accumulated approximately 70 per cent of global AI patents, including over 38,000 generative AI patents between 2014 and 2023, compared to America’s 6,276. Meanwhile, India demonstrated remarkable growth in AI investments, with generative AI funding reaching significant levels in 2023. These developments suggest that innovation centres are becoming more geographically distributed, with India’s strength in software services complementing manufacturing capabilities elsewhere, while our large consumer market provides valuable data for AI system training.
However, we must acknowledge the complexities. While patent numbers indicate research activity, they don’t automatically translate to commercial success or technological leadership. Quality, international relevance, and practical application matter as much as quantity. Even without regional cooperation, India possesses formidable technological assets — from the world’s largest digital identity system to sophisticated payment platforms.
This foundation provides India with specific policy opportunities to accelerate technological leadership. The government’s recent elimination of angel tax and simplified foreign venture capital investor registrations represent important steps, but more targeted interventions could amplify our advantages. India should consider establishing dedicated AI research zones with streamlined regulations, like Special Economic Zones, but focused on emerging technologies. These zones could offer fast-track approvals for AI startups, reduced compliance burdens, and direct government-industry collaboration on projects like autonomous vehicle testing or healthcare AI deployment. Additionally, expanding the Production Linked Incentive scheme to cover AI hardware components would reduce our dependence on imports while building domestic manufacturing capabilities.
India’s engineering talent pool remains unmatched globally, but policy interventions could maximise this advantage. Creating specialised policy for returning Indian diaspora technologists, offering tax incentives for international patents filed by Indian residents, and establishing government-backed venture funds targeting deep tech startups would strengthen our innovation ecosystem.
Current global trends present both opportunities and risks. Changes in visa policies affect talent mobility. These shifts could potentially redirect talent flows toward Asian innovation hubs. Our returning diaspora brings valuable networks and expertise, while policy changes both at home and in host countries may accelerate the trend of global companies establishing significant operations in India.
The question of broader South Asian technological cooperation, particularly with China, is economically intriguing but politically complex. Despite tensions across the region from India-China border disputes to various bilateral challenges, economic cooperation has historically found ways to proceed when mutual benefits are substantial.
A more integrated South Asian tech ecosystem could theoretically offer complementary advantages: Software expertise from India, manufacturing capabilities from China, emerging talent pools from other regional economies, and combined market access representing nearly half the world’s population. Practical cooperation with China could begin in carefully selected, non-sensitive areas. Joint research initiatives on climate modelling, traffic optimisation algorithms, or medical diagnostics could demonstrate mutual benefits while maintaining appropriate security protocols.
However, we must be realistic about the challenges. Security concerns, regulatory differences, intellectual property protection, and ongoing political tensions create substantial obstacles. Any cooperation would need to address these concerns transparently and maintain respect for national sovereignty and security interests. The key is positioning India to benefit regardless of how regional cooperation evolves. Whether through partnership or independent development, our technological capabilities must continue to strengthen.
Any regional technological cooperation would need to start modestly and build trust gradually. The European Union’s evolution from coal and steel cooperation between former adversaries offers one model, though South Asia’s path would necessarily be different given our unique circumstances.
Regardless of the prospects for regional cooperation, India must prioritise strengthening its own capabilities. With 23 Indian startups preparing for IPOs in early 2025 and sustained growth in software and SaaS funding, the country’s technological ecosystem is gaining strong momentum. By 2030, leadership in AI development will be a decisive factor shaping the global economy. India possesses the talent, increasingly supportive policies, and expanding capital markets to claim a major role.
The question is no longer whether India can build a technological future, but how swiftly it can unlock its potential. The opportunity is immense, but success will demand navigating both technological hurdles and intricate regional dynamics. In this landscape, economic pragmatism, not political rhetoric, must chart the course.
Sharma is a Fellow/Economist at the Hoover Institution, Stanford University. Regmi is an Associate Professor of Economics at the University of Wisconsin-Whitewater
