It's a better option because the strengthening of India and the transformation of India into a developed country is a more important long term national security and prosperity interest than american hegemony in any particular industry
So as far as India is concerned, the overall quality of talent has only reduced. Thanks to all the regular office politics and general cultural problems we have, the quality of management is lower than ever. There is more job hopping than ever, there is lesser quantity of serious work done compared to previous times. People don't exactly train for skills the same way they do for interviews and the whole thing reduces to acing gatekeeping. The kind of leadership talent you need to build talent and skilled people on the longer run is just not there. So we just get the outsourced work done, and send it back(services). Even the Google offshore center described by the OP is that way. Most offshore centers in Bangalore don't have autonomy beyond that.
When you have this you just can't take on technically challenging projects or the kind of engineering projects which actually count for something.
This is one of the perennial problems in the Indian system. We are unable to move beyond services, and low level IT jobs. Even the product ecosystem like Flipkart etc is not comparable to innovation coming out places like Amazon. Its not really a money problem, because Flipkart actually got tons of funding. All this leads to the ultimate result. We are really a country of resellers, and service economy people. We make money by reselling or servicing things, not by making things. So even to make our metros transit systems, we need to hire German/Japanese firms. Or that our national monuments and statues are engineered and assembled in China. We don't make 747's or F1 cars here. Let alone that Maruthi Suzuki- Suzuki makes cars and we(Maruthi) do servicing.
Basically unless we have a larger culture of merit, fairness and justice- Topped by engineering and industrialized economy the bigger gains won't come.
Lots of this has got to do with culture and priorities. The only way this can be changed is politics and the current political priorities of India aren't anywhere close to this.