How brutal and disruptive political changes due to growing nationalism and pressure from local businesses are making India increasingly hostile to foreign technology companies

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In 2014, a year after Amazon launched its Amazon shopping site, CEO Jeff Bezos made a quick visit to the country. Dressed in a classic Indian wedding attire, he climbed into a painted truck with a very big $ 2 billion check.

Bezos could not contain his enthusiasm for India, which is home to the second largest Internet population. "We exceeded our biggest expectations for the rapid growth of Amazon India," he said in a television interview at the time. When asked what he thought of local regulation in the country, Bezos replied: "India is a very good place to do business".

For years, India has wanted the prosperity of foreign companies. When the Bharatiya Janata Party (BJP) took power in 2014, one of its main objectives was to formulate plans and structure incentives to attract foreign investment. In 2015, Prime Minister Narendra Modi unveiled his intention to liberalize the rules on foreign investment. "India is unstoppable on the path of economic progress[and]… wants the world to see the great opportunities it offers, "he said before his trip to the UK. He also visited the United States and met with senior Silicon Valley executives, who have almost all expanded their engagements in India.

Above: Indian Prime Minister Narendra Modi with Microsoft's Satya Nadella, Google's Sundar Pichai, Cisco's John Chambers, Adobe's Shantanu Narayen and Qualcomm's Paul Jacobs in San Jose, California on September 26, 2015. (Image: Office press information)

Later, the government was accused of turning a blind eye to the creative ways in which Amazon violated the standards of FDI (e-commerce policy) in India. It has also introduced noble incentives to encourage businesses to participate in Make in India and Digital India, a set of state-run initiatives to boost employment growth in the country. .

Change of mood

But over the past year, in the run-up to the May general election, the Indian government has unveiled – and in many cases imposed – a wave of radical change. It now dictates how foreign companies manage and use Indian user data and other aspects of the operation of e-commerce platforms. He is currently working on introducing increased monitoring of technology platforms.

In April, the Indian government issued a regulatory directive requiring US payment companies to store financial data of Indian users locally. The government said that it was necessary for the American giants to comply to ensure "better monitoring" and added that "it is important to have unlimited supervision access to the data stored with of these system providers, as well as their service providers / intermediaries / third-party providers and other entities of the payments ecosystem. "

MasterCard and Visa, the two largest card networks in the US, as well as lobby groups representing Google and Facebook, two solutions offering payment solutions in India, have spent months fighting fiercely against the directive. They were joined by no less than 30 US senators, who urged India to rethink its position on data localization. "We see this (data localization) as a fundamental element for the future development of digital commerce and a crucial element for our economic partnership," senators wrote in August.

Despite intense pressure and public outcry from the US government, India has refused to extend the six-month deadline. With more choice, the US giants complied with the directive last October. Little did these companies know, the Indian government had just started.

At the end of December, India revised its e-commerce policies to impose new restrictions on how Amazon and Walmart-owned Flipkart sell products in India. Both e-commerce companies are still working to minimize the damage that these revised policies have inflicted on their businesses.

Tens of thousands of items – if not more – disappeared from Amazon and Flipkart overnight when the revised rules came into effect earlier this month. And these products remained unavailable at the time companies started to cut ties with sellers in which they had a financial stake (according to the new policies, a foreign player can not be affiliated with sellers with whom he does business) and worked on the restoration of some items.

Amazon and Walmart, who made a massive $ 16 billion bet on India last year, are not the only companies in Silicon Valley to have found themselves at the heart of what many describe as a regulation of increasingly hostile by the government.

US industry lobbyists and industry watchers say they see a radical change from the government's "warm, welcoming, and collaborative" approach in 2014. "Over the past year or so, the engagement has been combative, with brutal and disruptive politics. changes that take place without consultation and, exceptionally, without any possibility of negotiation or even extension of time – as we have seen with data localization and FDI in e-commerce ", told VentureBeat Prasanto K Roy, Technology and Policy Analyst.

Last month, Aruna Sundararajan, secretary of the Indian Telecommunications Department, told a group of Indian startups that the government was working on formulating a new "national champion" policy to encourage "business growth" Indian ". A secretary from Sundararajan refused to comment. this upcoming policy.

This week, the Indian government has begun finalizing a regulatory directive specifying how it wants intermediaries (Internet service providers, websites, applications and services that rely on users to generate content) to operate in the country. Any entity with more than 5 million users in India will need to create a local office and create automated tools to identify and remove harassing, hateful and damaging content. (Some critics have compared the movement to censorship in China.)

Nationalism to China

Nationalism is the theme that brings together all the policy changes that the Indian government has unveiled over the past year. "All of these measures are aligned with rising nationalism on the eve of May 2019 and are often more aligned with, possibly under the impetus of, specific lobbies, which are simply surfing on the wave of nationalism," Roy said.

Reliance President and CEO Mukesh Ambani speaks at the Vibrant World Summit in Gujarat at the Mahatma Mandir Exhibition and Convention Center on January 18, 2019 in Gandhinagar, India.

Above: Mukesh Ambani, President and CEO of Reliance, speaks at the Vibrant World Gujarat Summit at the Mahatma Mandir Exhibition and Convention Center on January 18, 2019 in Gandhinagar, India.

Image Credit: Siddharaj Solanki / Hindustan Times via Getty Images

Mukesh Ambani, the richest man in India and the owner of Reliance Industries, the largest industrial home in the country, may not be the one benefiting from these moves. While Amazon and Walmart were meeting with representatives of the Indian government to request an extension of the revised e-commerce policy deadline, Ambani, Modi's ally, announced that Reliance Retail, the country's largest retailer, is will launch in e-commerce.

In his announcement to a group of merchants and government officials, including Modi, Ambani said that India should "collectively launch a new movement against data colonization", similar to the movement led by Mahatma Gandhi against colonization India's politics. "In order for India to succeed in this data-driven revolution, we will have to transfer control and ownership of Indian data to India – in other words, restore Indian wealth to every Indian." He said, adding, "Prime Minister, I am sure you will make it one of the main goals of your Digital India mission. "

The changes to the e-commerce policy, which only impose restrictions on foreign capital, have huge implications for the $ 670 billion retail market. "It's about preventing foreign companies from operating in this market. So, if you look at Ambani or Kishore Biyani [founder and CEO of Future Group, one of the largest brick-and- mortar retailers in India] or any other Indian who wishes to operate in the market, he can continue to play with the standards of his choice. They are not subject to any of these concerns, "Nikhil Narendran, a partner at the Trilegal law firm, told VentureBeat.

The idea that the Indian government should favor domestic companies has been in the works for years. The leaders of Indian smartphone vendors, who once ruled the local market, urged the government two years ago to help them fight the Chinese sellers' assault. Around the same time, Sachin Bansal of Flipkart and Bhavish Aggarwal of the Ola airfield company suggested that India reproduce the Chinese model.

"What we have to do, is what China did (15 years ago) and tell the world" We need your capital, but we do not need your businesses " Bansal said Many have argued that India (and other countries) should focus on building its own business ecosystem instead of giving in to the giants of Silicon Valley Vivek Wadhwa, a distinguished member of Carnegie Mellon University and Harvard Law School, recently advocated for this, while Wadhwa said recent moves by India are "a step in the right direction. "although he added that policies needed to be adjusted.

Some of the recent requests from the Indian government – including the location of the data – are probably fair. "The government needs to have data reasonably quickly," Narendran said. But the way the Indian government wants to do this would require technology companies to reconfigure their global infrastructure, he said.

In the past, "these needs were balanced by reasonable protections, such as the safe harbor of intermediate responsibility," said Roy. "We find that the counterweight of reason is disappearing in the face of rising nationalism and fear."

WhatsApp, owned by Facebook, which will also have to comply with any intermediate regulations, faces crucial challenges in India, its biggest market, for more than a year. The Indian government has pushed WhatsApp to bring "traceability" to its platform so that it can find the origin of dubious content on the platform. At a press briefing in New Delhi earlier this month, Carl Woog, WhatsApp Communications Manager, reiterated that WhatsApp is committed to providing end-to-end encryption to users in India.

Hundreds of millions of users, but little revenue

While China continued to set barriers for US companies, India has become one of the last major markets for Silicon Valley companies. For years, Google, Facebook and others have turned to India to find their next billion users, said Kunal Shah, founder of the FreeCharge mobile payment service and CRED financial service. , at an event last month.

"All global companies like to come to India because it's the MAU farm [monthly active users]. Facebook and Google love to offer free internet access here because it creates those great MAUs that they can monetize in the global marketplace. They do not care about ARPUs (average revenue per user). And the ARPU of a person in this country is nothing next to that of a user in the global market, "he added.

Silicon Valley companies have invested billions of dollars in the country. In terms of the number of users, their bets seem to bear fruit. Both Facebook and Google have more than 250 million users in India. These companies, as well as Amazon, identify India as their fastest growing market.

However, from a revenue point of view, India's contributions to their financial performance are, at best, a jolt. In India, the $ 1.4 billion business turnover achieved by Google ended in March 2018, compared with $ 110.9 billion globally. (India-specific financial details are based on figures provided by Paper.vc, an India-based research company that tracks regulatory filings.)

During this period, Facebook recorded revenues of $ 78 million in India, against $ 39.9 billion worldwide. Amazon's revenue in India, where it has invested $ 5.5 billion so far, is $ 754.2 million, compared to $ 177 billion worldwide.

Roy warned that the new regulatory pressure from the Indian government could make the nation less attractive to foreign companies. "If companies and their investments invest with the promise of a progressive and competitive regime and the laws suddenly change to prevent them from supporting local businesses, it is obviously less attractive for these companies to invest more – or for the new ones. companies to invest, "he said.

And if India becomes less attractive to foreign companies, the resulting conditions could hurt Indian companies – contrary to the hopes of the Indian government. "Start-ups do not receive their funds from Ambani or Biyani. Much of their funding comes from foreign venture capital firms. In the future, startups in the country will have to become more dependent on domestic financing, "Narendran said.

In the coming months, we will see how much the Silicon Valley companies want to win in India.