‘Shutting out global tech firms will hurt economy’

‘Shutting out global tech firms will hurt economy’

By Siddharth Tiwari | New Delhi | 6 January, 2018
Indiatech.org, a lobby group set up by homegrown internet companies, aims to push for preferential treatment from the government.

The demand for “preferential treatment” and the consequent check on the entry of multinationals will hurt the economy as well as the consumers and will destroy fair trade practices, experts told The Sunday Guardian. Their comments came after Flipkart, Ola, MakeMyTrip, Quickr and Hike messenger recently floated a lobby group, indiatech.org, reportedly aimed at persuading the government to protect the growth prospects of “home-grown” internet companies. The group is reported to kick-start its operations early this year. 

The group—spearheaded by Sachin Bansal, co-founder of Flipkart—believes that aggressive spending by overseas companies distorts the chances of a level playing field for Indian players and, therefore, it aims to “persuade the government to protect home-grown internet players”.

Devi Yashodharan, a writer and co-founder of trendlyne.com, told The Sunday Guardian: “Protectionism is not a healthy approach for the Indian economy overall. It benefits companies who are already frontrunners in their respective sectors, but consumers and the broader economy lose out. The Organisation for Economic Co-operation and Development (OECD) released estimates that for countries rolling back liberalised norms on trade, the loss to their GDP annually would approximate up to 2%; each dollar of increased protection leads to a drop of 66 cents in gross domestic product (GDP).”

Moreover, industry insiders believe that the entire “home-grown companies” argument used by the lobby group against companies like Amazon and Uber is misleading. Speaking to this correspondent, Amazon India rejected these arguments and claimed they are as Indian as the companies targeting global ventures.

An Amazon India spokesperson told The Sunday Guardian: “Amazon India is a completely India registered entity, and as Indian as any other. We have consistently maintained our support for free flow of the capital. Free flow of capital is not only good for customers, but also helps create jobs, develop infrastructure, aids the growth of small businesses and facilitates India’s economic development.”

However, the lobby group— Indiatech.org— has asserted that the group aims to provide a cohesive voice and structured platform to local players. The group, which is being set up as a non-profit and would have different layers of membership, believes that consultative law-making process to ensure level-playing will help local players against heavy capital-backed global rivals.

“Global companies can raise capital much easier than local Indian companies can, because they have access to many more markets than we do, and this ends up distorting competition,” Ola co-founder Bhavish Aggarwal said in a public statement last year when the debate around a “level playing field” for Indian start-ups began.

The lobby group has found support from both Indian and foreign venture capital (VC) firms. Reportedly, Japanese internet and telecom giant SoftBank Group will provide its financial and strategic expertise. A Softbank spokesperson told this correspondent: “We stand for a fair ecosystem and positive stable environment for e-commerce to flourish in India. Although there aren’t any specific challenges faced by the start-ups, but yes a disciplined and positive ecosystem with a stable regulatory framework is essential for long-term success of e-commerce.”

NOT A HEALTHY APPROACH

Through indiatech.org, Sachin Bansal, co-founder of Flipkart who brought together like-minded internet companies to rally against global internet companies, has argued for a “China-like” policy to shut out international competitions. According to media reports, Bansal has asserted that “like China, India should make it clear to the world that we need their capital, but not their companies”.

An e-commerce strategist told this newspaper on the condition of anonymity: “It was companies like Flipkart and Snapdeal that brought behaviour changes in Indian consumers who were extremely sceptical in adopting internet shopping. And when the market was created, the biggies from the West entered with huge capital backing to fall back on and disrupted the market. We need a group that exclusively talks about the interest of Indian companies.”

While many are siding with Bansal’s argument, some companies and industry insiders are in favour of global competition.

Abhijit Shaha, founder and president of product and technology of RentSher and a member of global collaborative consumption forum, said: “Isolationist nature will not be good for India in terms of both innovation and economic growth. Competing with global ventures not only helps consumers, but also helps new companies evolve and get better in the game.”

Reiterating Shaha’s observation, Yashodharan pointed out that China’s crackdown on an open internet and shutting out international competitors has deeply constrained free speech as well as choices for its citizens. “We are not operating in a vacuum. Countries are unlikely to tolerate India welcoming their capital while kindly declining their competition,” she said.

Speaking to this newspaper, an industry insider claimed that the companies that are rallying against their global competitors have actually replicated the business models of the overseas companies and most of them have the same investors as well.

Alok Singh, operations manager, e-commerce, Ultra Media, and Entertainment, said: “Overseas companies like Amazon are growing faster because they have a deep focus on innovation not only because they have capital. All these companies too have heavy capital backing. In fact, many of them have the same investors as their global counterparts.”

Alok Singh further pointed out that India is increasingly becoming a great market for investors and any move to shut out overseas companies will only hurt the improving business sentiments in the country.

“Our Prime Minister has been toiling hard to get investors to India. Now, if there are policies that single them out, then they’ll be reluctant to invest here,” he added. Flipkart, MakeMyTrip, and Ola refused to comment.

OPEN COMPETITION PAYS OFF

One of the arguments floated by the group is that “unfair play” by the global competitors has made the real fight on capital—huge investments and predatory pricing strategy—and not innovation. The group further argues that if home-grown companies aren’t favoured over global competitors, India is likely to lose $10 billion of foreign direct investment and over $1 billion of tax revenues.

Refuting the argument of “unfair play”, such as capital dumping by the global competitors, Yashodharan said: “We should acknowledge the scale that Indian internet companies have managed to build with the help of global capital. Ola won the race against other similar Indian platforms like TaxiForSure, thanks in part to raising more capital, and doing it faster than its competitors. We need home-grown companies that can compete effectively against global players, the way Indian pharma firms, for example, now compete in US markets.”

She added that if we want to build global companies from India, which is one of the linchpin goals of the government’s policies, then “preferential treatment” would be closing that opportunity for Indian companies to evolve and develop the expertise required to compete globally.

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