India’s war on foreign technology risks backfire

An employee works at a computer terminal against a backdrop of a picture of late Apple co-founder Steve Jobs at the start-up village at Kinfra High Tech Park in the southern Indian city of Kochi October 13, 2012. Three decades after Infosys, India’s second largest software services provider, Founded by middle-class engineers, the country has failed to create a favorable environment for first-generation entrepreneurs. Startup Village aims to break the deadlock by helping engineers build 1,000 internet and mobile companies over the next 10 years. It offers its members office space, advice and the opportunity to exchange ideas with the stars of the technology industry. But critics say this may not even be the start of a turnaround unless India deals with a host of other obstacles – from bureaucracy to a lack of innovation and a lack of investors – that are blocking entrepreneurship in Asia’s third-largest economy. To match feature INDIA-TECHVILLAGE/ Picture taken October 13, 2012. REUTERS/Sivaram V

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MUMBAI, Aug 4 (Reuters Breakingviews) – India’s war on foreign tech giants is misunderstood. It’s a messy attempt at best to prevent vulnerabilities emerging from its large and growing tech sector. However, official obstinacy in resolving these potential issues could end up having the opposite effect.

Over the past few months, New Delhi has raided the offices of Chinese smartphone makers Xiaomi (1810.HK) and Vivo, and popular mobile games like Free Fire by Singapore’s Sea (SE.N) and Battlegrounds Mobile India (BGMI) from South Korea’s Krafton (259960 .KS). At the same time, officials are urging US firms like (AMZN.O) to integrate their platforms into a single open and shared network for e-commerce. Social media giants Twitter (TWTR.N) and Metas WhatsApp are also taking New Delhi to court as operating rules tighten. The latter boasts 530 million users in India, the most of any country.

Some of the animosity is genuine. When it comes to social media, the political implications of unfiltered online content mean businesses may have little choice but to do things the New Delhi way.

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Other hurdles are China specific. India has been keeping a close eye on Chinese investment since a deadly border dispute in the Himalayas in 2020. Data is of the highest sensitivity. India has banned over 300 apps, mostly Chinese ones, and some games from companies like Sea and Krafton backed by China’s Tencent (0700.HK) on national security grounds. Like the regulation of online content, cybersecurity is a growing concern for governments around the world. Beijing, for example, has tightened rules on overseas-listed Chinese companies that keep vast amounts of user data.

On the face of it, New Delhi’s crackdown on smartphone makers also appears to be motivated by tensions with its neighbor. According to Counterpoint Research, Chinese manufacturers dominate, accounting for three quarters of India’s 168 million shipments in 2021. But the dispute is more messy: New Delhi claims the companies are illegally moving money abroad under the pretense of royalties, among other things; On Wednesday, a government agency accused Vivo of $280 million in tax evasion. It’s a common complaint against foreign companies and suggests the problem goes beyond geopolitics.

All of this clouds the message that India is open for business and threatens annual foreign direct investment, which hit a record high of $84 billion by March. Xiaomi and Vivo, for example, have made major investments to answer Prime Minister Narendra Modi’s call for goods to be manufactured, or at least assembled, in India. While the market is growing at double-digit rates, Chinese manufacturers could still pull out; Xiaomi’s Indian unit reported a net profit margin of less than 1% for the year ended March 2021. An exit will hurt consumers used to highly competitive entry-level phones, leaving South Korea’s Samsung Electronics (005930.KS) as the main beneficiary. Local rivals lack size.

In e-commerce, New Delhi wants Big Tech to support a new digital infrastructure inspired by its hugely successful interoperable payment system. The so-called Open Network for Digital Commerce is still in its infancy. It is in talks to onboard over 200 companies and is being piloted in 30 cities. Over time, all e-commerce services will be integrated. Imagine if WhatsApp or Google Maps could facilitate any web transaction or corner shops could make themselves visible to users of multiple independent apps like Instagram or Uber.

It’s an ambitious project. Success would give foreign companies access to a much larger market, with overall e-commerce penetration increasing from single digits, but at the cost of profitability, as users can compare prices from different service providers. For example, breaking down digital payment barriers in India using Google Pay and Walmart’s PhonePe (WMT.N) enabled transactions worth US$1 trillion per year.

The rapid withdrawal of foreign firms from Russia highlighted the problems of dependence on one or two companies. In this way, India’s attempt to establish checks and balances over its Internet infrastructure seems timely and may offer solutions for others to follow. But with so much upheaval at once, there is a risk that the authorities will drive the companies they need away far too soon.

consequences @ugalani on twitter


An Indian government agency has accused Chinese company Vivo Mobile of evading 22.1 billion rupees ($280 million) worth of taxes, Reuters reported on August 3, citing a statement.

Vivo India did not immediately respond to a Reuters request for comment. The tax evasion allegation is India’s second this week against a Chinese phone maker.

The author is a columnist for Reuters Breakingviews. The opinions expressed are their own.

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Edited by Robyn Mak and Thomas Shum

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.

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