The price of not owning technology

This article is authored by Athar Shahab, managing director, Zuari Industries.

Something unusual happened to India’s automobile industry recently: after two years as a net exporter of components, it slipped back into deficit. Component imports rose 13% to $25.4 billion in FY26 while exports grew just 5% to $24 billion, turning a surplus of about $500 million into a $1.4 billion deficit. China alone supplied roughly $9 billion, or more than a third of India’s auto-component imports.

GDP (Shutterstock)

This deserves attention because automobiles are hardly an infant Indian industry. India is one of the world’s largest vehicle manufacturers and its auto-component industry, now approaching $86 billion, rests on decades of accumulated capability in engines, transmissions, forgings, castings and machining. Yet the technological content of the automobile is changing faster than the geography of its factories.

As vehicles become electric, connected and increasingly software-defined, value is migrating towards battery cells and chemistry, permanent magnets, semiconductors, sensors, power electronics, control systems and advanced materials. In several of these areas, India’s technological and supply-chain capabilities remain considerably weaker than in traditional automotive engineering.

That exposes a vulnerability Indian industry has postponed for too long: we learnt to manufacture with other people’s technology, but did not invest enough in creating our own.

For an individual board allocating capital, buying technology was often entirely rational. A new factory came with capacity, project cost, commissioning schedule, projected EBITDA and an IRR. An R&D programme consumed cash today for a return that might arrive years later, or not at all. What made sense at the level of the individual enterprise, however, left the wider industrial ecosystem more dependent than it needed to be.

China took a different route. It too imported technology extensively through licences, joint ventures, acquisitions and foreign expertise. But imported technology was treated as a bridge to domestic capability rather than a permanent substitute for it. Chinese companies absorbed and adapted what they acquired, built supplier ecosystems around strategic industries and invested heavily in developing the next generation themselves.

The consequences are now apparent in batteries, permanent magnets, solar equipment, electronics and advanced materials. China increasingly controls not merely manufacturing capacity but important parts of the underlying technology, processing capability and supply chain. When those three reside in the same country, technological advantage acquires considerable commercial and geopolitical leverage.

India’s own investment in research helps explain the contrast. Gross expenditure on R&D was only 0.84% of GDP in 2023-24. Corporate India bears part of the responsibility, but this is not simply a corporate failure. India’s universities, public laboratories and companies have historically had weak linkages in applied research, while industrial policy was often more successful at encouraging investment in physical capacity than at creating incentives for sustained investment in upstream technology and intellectual property.

The consequences do not remain confined to the factory floor. Eventually, technological dependence reaches the balance of payments

The familiar explanation for India’s merchandise deficit is oil and gold, and rightly so. But strip out petroleum and gems and jewellery and a substantial imbalance remains. In the first four months of FY27, India exported about $134 billion of non-petroleum, non-gems and jewellery goods while importing roughly $192 billion. That is a deficit of approximately $58 billion in four months.

Within those imports are products essential to a modern industrial economy: Electronics, machinery, components, chemicals, capital equipment and advanced materials. India’s imports from China alone reached a record $131.6 billion in FY26.

The technology deficit and the trade deficit are not the same thing, and it would be simplistic to conflate them. Imports of capital equipment, intermediate goods and technology can raise productivity and support exports. No successful industrial economy seeks self-sufficiency in everything.

The problem is different: When imports persist because domestic industry lacks the technology to produce critical inputs competitively, technological dependence becomes structural import dependence.

The automobile industry offers an early warning. India exports engines, transmission systems and other products based on engineering capabilities accumulated over decades. But as value migrates towards batteries, electronics, software and advanced materials, the composition of what we need to import is changing. The trade balance is beginning to reflect the changing technology balance.

India’s formidable services exports provide an important foreign-exchange cushion. That is a national strength, not something to be discounted. But it should not obscure a weakness on the manufacturing side of the ledger: We earn foreign exchange through many capabilities we own while spending a significant part of it importing technologies, components and equipment we do not.

There is a capital-allocation lesson here for corporate India. We may have been calculating the return on R&D too narrowly.

The return is not merely a patent or a successful new product. It is also the royalty we stop paying, the component we stop importing, the supply chain we control and the ability to improve a product without waiting for somebody else’s permission. None of these sits particularly neatly in the conventional project IRR, but all have economic value.

This is not an argument for technological autarky. India cannot and should not attempt to invent everything. International trade, licensing, joint ventures, acquisitions and technology partnerships will remain indispensable. Indeed, acquiring technology from abroad can be the fastest route to building capability, provided acquisition is followed by absorption and eventually innovation.

The more useful question for boards is narrower and harder: Which technologies are so fundamental to our business that we cannot afford not to own them?

That question deserves a place alongside capacity, market share, EBITDA and return on capital when long-term strategy is discussed. It also requires government, universities and industry to think differently about the institutional machinery through which research becomes commercially useful technology.

For decades, the question was whether India could manufacture competitively. The question now is how much of the technology behind what we manufacture we actually own.

(The views expressed are personal)

This article is authored by Athar Shahab, managing director, Zuari Industries.