Can Modi Harness India’s High-Tech Diaspora?

Narendra Modi is on the road again. At last count, the indefatigable Indian prime minister had visited 27 foreign countries, and he’s now in the midst of a trip to the United States, his second since taking office in May 2014. On his first visit, a year ago, Modi enjoyed a rock-star reception from members of the large Indian diaspora at a sell-out event at New York’s Madison Square Garden. On Sept. 27, Modi will likely be greeted with another sell-out crowd for his address at San Jose, California’s SAP Center. Some 40,000 people have already applied for tickets for the 18,500 available seats.

Modi seems to grasp the multifaceted importance of the diaspora better than any previous Indian leader. Indian expatriates were among Modi’s staunchest supporters in the lead-up to his victory in 2014. Some Indians in the United States and elsewhere even took time off from well-paying, private-sector jobs to return home to work on his campaign. And Modi has returned the love with important, often capstone engagements with diaspora communities on his previous travels to the United States, Canada, Australia, and the United Arab Emirates.

The highlight of his current trip may well be Modi’s whistle-stop tour of Silicon Valley — the first by an Indian prime minister to the San Francisco Bay area since Morarji Desai came to Berkeley in 1978 to receive an award. Given the importance of Indians to Silicon Valley and the importance of high tech to India’s success, this neglect is astounding. But the Indian diaspora finally may be getting its due.

While in Silicon Valley, Modi will visit Facebook, Google, Tesla and meet with executives from other top high-tech companies, including Cisco and Apple. Modi hopes to entice them into supporting a key policy initiative, Digital India, which aims to upgrade India’s digital infrastructure and increase entrepreneurship and innovation in the high-tech sector. Additionally, he’s looking for support in boosting renewable energy production in the country’s energy mix. But aside from delivering speeches, Modi’s real objective may well be to highlight the diverse ways in which members of the diaspora benefit both their adopted and home-country economies and hopefully encourage them to do more back home — much as overseas Chinese contributed enormously to their country’s growth miracle.

According to official Indian government data, as of January 2015 there were 28,455,026 overseas Indians living in countries around the world. In the United States alone, there is almost 4.5 million. And these official numbers surely undershoot the actual ones, given the large numbers in the diaspora who aren’t registered with Indian authorities.

Some resident Indians appear to believe that the diaspora has abandoned its home country, but the reality is very different. Migrants’ most tangible contribution to India is the large amount of remittances sent back home, estimated to be $70 billion a year, or approximately 3.5 percent of India’s GDP. And Modi wants to make it even easier for the diaspora to give back to the mother country. In May 2015, for instance, New Delhi offered parity for overseas Indians with resident Indians when investing from domestic-currency accounts: Their investments would no longer count as foreign direct investment, but as domestic investment. This means that they will no longer be subject to the caps on foreign direct investment in certain sectors.

But Modi knows that remittances are the present; the future of the Indian diaspora resides in the tech campuses and start-up communities of Silicon Valley, where Indians have thrived.

According to pioneering research by University of California, Berkeley, professor AnnaLee Saxenian, from 1980 to 1984, 3 percent of Silicon Valley high-tech start-ups were Indian-run. By the 1995-1998 time period, it had shot up to 9 percent. Indians were thus second only to the Chinese, who accounted for 9 percent and 20 percent of start-ups, respectively, in the same intervals.

A 2012 report by the Kauffman Foundation, which studies entrepreneurship (and that was authored by Saxenian, Vivek Wadhwa, and Daniel Siciliano), confirms Indians’ increasing importance in the Silicon Valley start-up ecosystem. From 2006 to 2012, Indian prevalence in Silicon Valley surged, accounting for 32 percent of immigrant-founded companies started there during that time period, a higher percentage than immigrants from China (5.4 percent), the United Kingdom (5.4 percent), Japan (4.8 percent), and Canada (4.1 percent) combined. Overall from 2006 to 2012, 43.9 percent of Silicon Valley start-ups featured at least one foreign-born founder. This implies that approximately 14 percent of Silicon Valley start-ups had an Indian founder, a staggering statistic when compared with the fact that Indians account for less than 1 percent of the total U.S. population.

This is significant not only for the United States, but for India’s high-tech industry. A 2013 study by economists Ejaz Ghani, William Kerr, and Christopher Stanton showed that overseas Indians, including those in the United States, are much more likely to outsource contracts to firms in India than non-Indian firms. One important reason is that overseas Indians simply know more about firms in India than those elsewhere, so they are more likely to outsource back home.

The study also found that ethnic groups have a tendency to prefer their own when striking business deals. This is in keeping with existing research that ethnic, business, and other associational ties that migrants keep with people back home have important spillover effects on the home country. In other words, India’s booming high-tech industry has benefited enormously, both financially and otherwise, from the success of Indians in Silicon Valley, including those who returned to India.

All this is good news for Modi, who’ll be talking up India’s entrepreneurs and innovation when he visits Silicon Valley. In particular, he will talk about “India-U.S. Startup Konnect,” which attempts to jump-start high-tech start-ups in India by tying them to firms in Silicon Valley. Recently, U.S. venture capital firms have begun to invest in Indian start-ups. Last year, Facebook acquired Little Eye Labs, a Bangalore-based mobile development start-up.

The story of the diaspora’s economic ties to India, however, isn’t confined to Silicon Valley or large remittances. On three previous occasions — 1991, 1998, and 2000 — the Indian government released “diaspora bonds,” financial instruments available to people of Indian origin living overseas that were essentially bank deposits at the government-owned State Bank of India. Members of the diaspora responded generously, investing $1.6 billion, $4.2 billion, and $5.5 billion, respectively.

Apart from these isolated episodes, India has failed to profit from the largesse of its patriotic diaspora as much as it potentially could. At a minimum, it could follow the example of Israel, which has profited from diaspora bonds since 1951. Economists Suhas Ketkar and Dilip Ratha have argued that emerging countries like India can make much greater use of diaspora bonds than they have so far.

Given the creativity with which Modi has handled the diaspora, it’s worth considering adding sovereign government bonds pitched to the diaspora when he comes calling. These could be made even more attractive to patriotic overseas Indians by tying them to key areas of Modi’s economic agenda, such as infrastructure and clean energy. And unlike remittances, which boost the income and spending power of migrants’ families back home, well-structured diaspora bonds would directly finance key development priorities. And that would give everyone in the diaspora — not just its entrepreneurs and its financiers — the opportunity to translate their long-distance patriotism into tangible economic gain and share in India’s growth story, as Modi often encourages them to do.

Of course, all of this is predicated on Modi’s managing to jump-start the economic reform program in India, which has been stalled as of late. After all, India’s lack of economic good sense for decades is what drove this diaspora away in the first place.

Photo credit: AFP/Getty Images

Correction, Sept. 25, 2015: Narendra Modi has visited 27 foreign countries since becoming India’s prime minister. An earlier version of this article said he had visited 28 countries.