India’s war on foreign tech risks misfiring

KRAFTON

04/08/2022 03:42

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Una Galani
    MUMBAI, Aug 4 (Reuters Breakingviews) - India’s war on
foreign technology giants is misunderstood. It is, at best, a
messy effort to prevent vulnerabilities emerging from its large
and growing technology sector. Official heavy-handedness to
address those potential problems could end up having the
opposite effect, however.
    In recent months, New Delhi has raided offices  urn:newsml:reuters.com:*:nL3N2X50Y6
of Chinese smartphone makers Xiaomi  1810.HK  and Vivo, and
banned popular mobile games including Free Fire by Singapore’s
Sea  SE.N  and Battlegrounds Mobile India (BGMI) by South
Korea’s Krafton  259960.KS . At the same time, officials are
nudging U.S. firms including Amazon.com  AMZN.O  to integrate
their platforms into a single open and shared network for
e-commerce. Social media giants Twitter  TWTR.N  and Meta’s
 FB.O  WhatsApp are also taking New Delhi to court  urn:newsml:reuters.com:*:nL3N2NP090
as operating rules get tougher. The latter boasts 530 million
users in India, the most of any country.
    Some of the hostility is real. When it comes to social
media, the political ramifications of unfiltered online content
mean that companies may have little option but to do things New
Delhi’s way.
    Other hurdles are China-specific. India is keeping a close
tab on investment from the People’s Republic since a deadly
Himalayan border clash in 2020. Data is a top sensitivity. India
has banned over 300 apps, mostly Chinese, and some games from
companies like Sea and Krafton backed by China’s Tencent
 0700.HK  on national security grounds. Like online content
regulation, cybersecurity is a growing concern for governments
worldwide. Beijing, for instance, has tightened rules on
foreign-listed Chinese companies housing troves of user data.
    On the face of it, New Delhi’s crackdown on smartphone
makers also looks motivated by tensions with its neighbour.
Chinese manufacturers are dominant, accounting for three
quarters of India’s 168 million shipments in 2021, per
Counterpoint Research. But the dispute is messier: New Delhi
alleges the companies are illegally moving money offshore on
pretext of royalty fees, among other things; on Wednesday a
government agency accused Vivo  urn:newsml:reuters.com:*:nL1N2ZF0Z4 of evading $280
million of taxes. It’s a common complaint against foreign
companies, and suggests the issue goes beyond geopolitics. 
    All this muddies the message that India is open for
business, threatening annual foreign direct investment which hit
a record high of $84 billion in the year to March. Xiaomi and
Vivo, for example, have made large investments to answer Prime
Minister Narendra’s Modi’s call to make, or at least assemble
goods, in India. The market may be growing at a double digit
pace, but Chinese manufacturers could still walk away; Xiaomi’s
Indian unit reported a net profit margin of less than 1% in the
year to March 2021. An exit will hurt consumers used to
highly-competitive entry level handsets and leaves South Korea’s
Samsung Electronics  005930.KS  as the main beneficiary. Local
rivals lack scale. 
    In e-commerce, New Delhi wants Big Tech to back a new
digital infrastructure inspired by its wildly successful
interoperable payments system. It’s still early days for the
so-called Open Network for Digital Commerce, which is in talks
to onboard over 200 companies and is being piloted in 30 cities.
Over time, the idea is to integrate all e-commerce services.
Imagine if WhatsApp or Google Maps could facilitate any web
transaction or if mom and pop stores could make themselves
visible to users of multiple unrelated apps like Instagram or
Uber.
    It’s an ambitious project. Success would give foreign
companies access to a much bigger market by growing overall
e-commerce penetration up from single digits, albeit at the
expense of profitability as users will be able to compare prices
of different service providers. Tearing down digital payment
walls in India with the help of Google Pay and Walmart’s  WMT.N 
PhonePe, for instance, enabled an annual $1 trillion worth of
transactions.
    The quick retreat of foreign firms from Russia highlighted
the problems of being dependent on one or two companies. In that
way, India’s attempt to establish checks and controls over its
internet infrastructure looks timely and potentially offers
solutions for others to follow. But with so much upheaval at
once, there’s a danger that officials will chase away the
companies it needs far too soon. 
    Follow @ugalani https://twitter.com/ugalani on Twitter
    
    CONTEXT NEWS
  An Indian government agency has accused Chinese-owned Vivo
Mobile of evading taxes worth 22.1 billion rupees ($280
million), Reuters reported on Aug. 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.

 (Editing by Robyn Mak and Thomas Shum)
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