India’s war on foreign technology risks a misfire

An employee works at a computer terminal against the backdrop of a portrait of late Apple founder Steve Jobs at the start-up village of Kinfra Hi-Tech Park in the southern Indian city of Kochi, October 13, 2012. India’s Infosys operates after three decades. The country’s second-largest software service provider, founded by mid-level engineers, has failed to create a conducive environment for first-generation entrepreneurs. Startup Village wants to break the logjam by helping engineer 1,000 internet and mobile companies over the next 10 years. It provides its members with office space, mentorship and the opportunity to hang out with the stars of the tech industry. But critics say this may not even be a game-changer unless India addresses several other hurdles — from red tape to a lack of innovation and investors — that are stifling entrepreneurship in Asia’s third-largest economy. Image taken on October 13, 2012 to match the India-TechVillage feature. REUTERS/Sivaram V

MUMBAI, Aug 4 (Reuters Breakingviews) – India’s war on foreign tech giants has been misunderstood. Preventing vulnerabilities from the vast and growing technology sector is a messy endeavor. Official severity in addressing those potential problems, however, can have the opposite effect.

In recent months, New Delhi has raided the offices of Chinese smartphone makers Xiaomi ( 1810.HK ) and Vivo and banned popular mobile games such as Free Fire by Singapore’s Sea ( SE.N ) and Battlegrounds Mobile India ( BGMI ) in South Korea’s Crafton ( 259960.KS ). At the same time, officials are urging U.S. companies including Amazon.com ( AMZN.O ) to merge their platforms for e-commerce into one open, shared network. Social media giants Twitter ( TWTR.N ) and Meta WhatsApp are appearing in court in New Delhi as the code of conduct gets tougher. The latter accounts for 530 million users in India, more than any other country.

Some of the animosity is real. When it comes to social media, the political ramifications of unfiltered online content mean companies may have no choice but to do things the New Delhi way.

Other barriers are China-specific. In the year Due to the deadly Himalayan border conflict in 2020, India will keep a close eye on investment from the People’s Republic. Information is highly sensitive. India has banned more than 300 apps, mostly Chinese, and some games, such as Sea and Crafton, backed by China’s Tencent ( 0700.HK ) on national security grounds. As with the regulation of online content, cyber security is a growing concern for governments around the world. For example, Beijing has tightened rules on the retention of user data by foreign-listed Chinese companies.

New Delhi’s crackdown on smartphone makers, on the other hand, appears to be fueled by tensions with its neighbour. Chinese manufacturers dominate, accounting for three-quarters of India’s 168 million shipments by 2021. But the dispute is worse: New Delhi accuses the companies of illegally transporting money offshore under the pretext of royalty payments, among others; On Wednesday, a government agency accused Vivo of evading $280 million in taxes. It’s a common complaint against foreign companies, and it suggests that the issue goes beyond geopolitics.

All this undermines the message that India is open for business, with annual FDI inflows hitting a record $84 billion through March. Xiaomi and Vivo, for example, have invested heavily to respond to Prime Minister Narendra Modi’s call to manufacture or at least assemble goods in India. The market may be growing at a double-digit rate, but Chinese manufacturers can still go; Xiaomi’s Indian unit reported a profit margin of less than 1 percent for the year to March 2021. The exit will hurt consumers using highly competitive entry-level handsets and leave South Korea’s Samsung Electronics ( 005930.KS ) as a major user. Local competitors lack scale.

In e-commerce, New Delhi wants Big Tech to support a new digital infrastructure inspired by its wildly successful interactive payment system. It’s still early days for the so-called Open Network for Digital Commerce, which is talking to more than 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 users visible to more unrelated apps like Instagram or Uber.

It is a project with great potential. Although it reduces profitability as users can compare the prices of different service providers, success allows foreign companies to grow their total e-commerce revenue by single digits and have a large market. Breaking down digital payment walls with the help of Google Pay and Walmart ( WMT.N ) PhonePe in India has enabled annual transactions of one trillion dollars.

The rapid retreat of foreign companies from Russia has highlighted the problems of dependence on one or two companies. In this way, India’s efforts to implement checks and controls on its Internet infrastructure seem timely and provide solutions for others to follow. But with so much turmoil happening at once, there is a fear that the authorities may be too quick to evict the companies they want.

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An Indian government agency has accused Chinese-owned Vivo Mobile of evading taxes worth 22.1 billion rupees ($280 million), Reuters reported, citing an Aug. 3 statement.

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

Editing by Robin Mack and Thomas Shum

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