Global business has long viewed India as the world’s “back office”. Movies such as “Outsourced” (2006) and “Slumdog Millionaire” (2008) popularised the trope that you went to India to economise on simple business services like call centres. By the 2010s the rise of Indian IT giants—from Tata Consultancy Services (TCS) to Infosys—became too hard to ignore. Today, TCS’s market capitalisation of $167bn is larger even than IBM’s. But even so, Indian IT giants typically do not do the research and development or design work that fuels innovation in global firms.
But quietly, India is levelling up. As my colleague Tom Easton explains in this week’s issue, India now boasts nearly 1,600 “global capability centres” of multinational firms, up from 700 in 2010. Collectively they employ some 2m-3m of India’s best and brightest and often do mission-critical work from research to core-software development. Tom’s reporting shows how data scientists in Lululemon’s Indian office direct operations from the Middle East to New York. Mercedes-Benz’s R&D centre, which has nearly 6,000 employees, received 32 patents last year.
Pretty impressive stuff for a supposed back-office. The total value of all this is hard to measure, but a recent estimate from Wizmatic, a consultancy, suggests it could be $120bn, a third of India’s overall services exports. Two big questions, however, loom over the future of Indian services. First is the impact of AI. Recently I wrote about how some AI experts think that chatbots could eat the tech-services industry. The concern makes sense. Computer programming is the forte of large-language models and they are improving fast.
Second is the risk that India’s services heft one day proves as disruptive to the world as Chinese manufacturing has been. Massive inflows of manufacturing foreign direct investment (FDI) into China in the 2000s laid the groundwork for the rise of firms like BYD and Shein that are now dominating global markets. China received technology and its workers were trained up. As we observe in our leader, the rise of global capability centres in India today appears oddly similar. Western firms are investing heavily in Indian people. You could imagine the best designers from the 85 semiconductor firms with offices in India one day starting their own shop. That would pit Western white-collar workers against Indian ones, adding tension to global trade.
Yet there are also reasons to be cheerful. After spending some time talking to global businesses and the Indian IT firms they work with, I became a bit more sanguine about the threat from AI. Yes, it will disrupt Indian techies, but it could also be a big demand shock. Businesses are often turning to their Indian arms to incorporate AI into their operations, a process which has no end in sight. As for the possibility of an “India shock” to the West, the growth of Indian services has been consistent rather than sudden. With luck that could mean the rise of the Indian services does not arouse as much hostility as Chinese manufacturing.
Thanks for reading. Today I will join my colleagues for a webinar to discuss India’s election, economy and future. If you subscribe to The Economist you can join me here from 8.30pm IST. | 
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