Rise of Indian diaspora

Talent is the most valuable resource in the knowledge economy. Its global distribution will shape the future of global growth.

A global war for talent is on, thanks to changing demographics and the increasing importance of skilled migrants in shaping innovation and economic growth in the developed world. There are strong historical parallels between America’s dependency on China for manufacturing, and its dependency on India for IT services. This relationship made China into the global manufacturing powerhouse.

Similarly, there is a huge potential for India to become a global growth centre for the modern services sector. India will continue to benefit, thanks to its young demographics, abundance of highly-skilled technical professionals, and strong political and cultural ties with the United States.

The increasing importance of innovation for economic growth has changed the pattern of external migration from the developing world, with the share of high-skilled migrants increasing dramatically, relative to that of low-skilled migrants. Innovation has become a global activity as it has become easier for ideas and talented people to move from one country to another.

High-skilled migrants are driving the supply-side story of the innovative economy and new industry clusters like Silicon Valley. This migration pattern has a clear geographic and spatial dimension. Over 70 per cent of software engineers in Silicon Valley in the US are foreign-born. Nearly 75 per cent of all high-skilled migrants reside in the US, the UK, Canada, and Australia.

The Indian diaspora has played a significant role in the rise of Silicon Valley. Cities in the US that have attracted more highly-skilled Indian migrants have experienced higher economic growth rates. More than 1,000 Indians have founded Silicon Valley companies, which are valued at over $40 billion. Many Indian immigrants have become CEOs at major companies, including Sanjay Mehrotra (Micron Technology), Shantanu Narayen (Adobe), Jay Chaudhry (Zscaler), Arvind Krishna (IBM), and Neal Mohan (YouTube), not to mention Satya Nadella and Sundar Pichai. 

The Indian diaspora has also played a key role in making India an integral part of the global supply chain in innovation and the knowledge economy. We examined the role of diaspora networks in the rise of outsourcing from the US to India, using data from oDesk, the world’s largest online platform for outsourced contracts.

Despite oDesk minimising many of the frictions that diaspora connections have traditionally overcome, diaspora connections still matter on oDesk, with Indians substantially more likely to choose a worker in India. This higher placement is the result of a greater likelihood of choosing India for the initial contract and substantial path dependence in location choices. This improved productivity and firm performance in significant ways. 

Diasporas played a key role in influencing economic exchanges, breaking down nepotism, and spatial partitions that have traditionally existed within the labour markets. This made India an integral part of the global supply chain for the modern services sector.

India’s success with the services exports started on the back of “offshoring”, a cost-saving measure in which global companies outsourced their back-office operations to units in India. These units in India have specialised and moved up the value chain over the past decade. They have become “global capability centres,” and they support a variety of business processes, such as IT, finance, human resources, and analytics. 

The old dynamic of “brain drain” has changed into “brain circulation.” When people migrate, they do not merely leave one country and arrive at another; they bridge the two. Thanks to increased brain circulation, high-skilled immigration benefits both sides. Diaspora-based exchanges have been important for centuries, and the digital world has reduced the frictions faced by these networks.

The Future

The diaspora’s role has changed during the last two decades, with globally connected migrants promoting economic exchanges that promote trade, FDI, technology and knowledge diffusion between developed and developing countries. 

The diaspora can play a further significant role in India’s economic growth in many ways, including innovation, research and technology, and access to capital. It can help create trust with foreign investors, which can be important in attracting FDI. Remittances from the diaspora can increase the income of households in India. The diaspora also makes large purchases in India, which can help infuse money into local economies. 

The diaspora can help connect India with global networks of research and technology, which can be important for developing India’s knowledge economy. Its knowledge and experiences can also help expand the horizons of Indian researchers in areas like renewable energy, waste-to-energy, and affordable healthcare. Its deep ties to India can help support inbound travel, especially in the visiting friends and relatives (VFR) segment. 

As developed economies debate the right level of global integration to promote development, it is crucial to design policies to spread the benefits of global talent mobility and make growth more inclusive and more innovative. Talent has become the most valuable resource in the knowledge-intensive economy, and the global distribution of talent will shape the future of global economic growth. 

Policymakers have many tools to achieve these goals. Multilateral institutions, including the IMF, World Bank, WTO, International Labour Organisation, and many more, need to join hands to do a comprehensive analysis of how global talent mobility can promote global economic growth. Global-governance organisations, multilateral development banks, and civil-society groups have key roles to play in the global knowledge economy. 

Firms and universities are the frontline participants in this global talent race. Universities in developed countries can implement a reform agenda to change the size of the immigration pool through their selection of international students who receive visas, and reverse the recent trends in US policy uncertainty, which has reduced foreign student interest in the US. Although US enterprises utilise an employer-driven system for the selection of migrants for work-based purposes, with the hiring firm filing the application, a knowledge economy needs greater mobility. 

Innovation has become a global activity. Immigrants produce a significant percentage of innovations in America and make US-born individuals more inventive. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. Immigrant inventors foster the importation of foreign ideas and technologies into the US and facilitate the diffusion of global knowledge.

(The writer is Senior Fellow, Pune International Development Centre)