featured image

An employee works at a computer terminal against the backdrop of a photo of the late Apple co-founder Steve Jobs at the Start-up Village at Kinfra High Tech Park in the South Indian city of Kochi, Oct. 13, 2012. Three decades after Infosys, India’s After the largest software service 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 block by helping engineers develop 1,000 internet and mobile companies over the next 10 years. It offers its members office space, guidance and a chance to chat with the stars of the tech industry. But critics say this might not even be the start of a game-changer unless India faces a host of other barriers — from bureaucracy to a lack of innovation and a lack of investors — that hinder entrepreneurship in the third largest. block the economy of Asia. Matching Feature INDIA-TECHVILLAGE/ Photo taken Oct 13, 2012. REUTERS/Sivaram V

Register now for FREE unlimited access to Reuters.com

MUMBAI, Aug. 4 (Reuters Breakingviews) – India’s war against foreign tech giants is being misunderstood. It’s a messy attempt at best to prevent vulnerabilities from coming from the large and growing tech sector. Official heavy-handedness to address those potential problems, however, could have the opposite effect.

In recent months, New Delhi has raided offices 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) of South Korea’s Krafton. ( 259960.KS). At the same time, officials are urging US companies including Amazon.com (AMZN.O) to integrate their platforms into one open and shared e-commerce network. Social media giants Twitter (TWTR.N) and Meta’s WhatsApp are also suing New Delhi as the rules become stricter. The latter has 530 million users in India, the largest number of any country.

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

Register now for FREE unlimited access to Reuters.com

Other hurdles are specific to China. India has been closely monitoring the investments of the People’s Republic since a deadly border dispute in the Himalayas in 2020. Data is an extremely sensitive issue. India has banned more than 300 apps, mostly Chinese, and some games from companies like Sea and Krafton, backed by China’s Tencent (0700.HK) for national security reasons. Like online content regulation, cybersecurity is a growing problem for governments around the world. Beijing, for example, has tightened rules for foreign listed Chinese companies that house large amounts of user data.

At first glance, New Delhi’s crackdown on smartphone makers also seems motivated by tensions with its neighbor. Chinese manufacturers are dominant, accounting for three-quarters of India’s 168 million shipments by 2021, according to Counterpoint Research. But the dispute is messier: New Delhi alleges that the companies illegally move money abroad under the pretense of royalties, among other things; on Wednesday, a government agency accused Vivo of evading $280 million in taxes. It is a common complaint against foreign companies and suggests that 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 in the year to March. For example, Xiaomi and Vivo have made major investments to heed Prime Minister Narendra Modi’s call to make, or at least assemble, goods in India. The market may be growing at double digits, but Chinese manufacturers can 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 accustomed to highly competitive entry-level handsets and leave South Korea’s Samsung Electronics (005930.KS) as the main beneficiary. Local rivals lack scale.

On the e-commerce front, New Delhi wants Big Tech to support a new digital infrastructure inspired by its wildly successful interoperable payment system. It is still in its infancy for the so-called Open Network for Digital Commerce, which is in talks with more than 200 companies and is being tested in 30 cities. The idea is to integrate all e-commerce services in the long run. 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 is an ambitious project. Success would give foreign companies access to a much larger market by increasing the overall penetration of e-commerce by the single digits, albeit at the expense of profitability as users can compare prices from different service providers. Breaking down digital payment walls in India with the help of Google Pay and Walmart’s (WMT.N) PhonePe, for example, drove $1 trillion in transactions annually.

The rapid withdrawal of foreign companies from Russia highlighted the difficulties of being dependent on one or two companies. In that way, India’s effort to establish controls and controls over its internet infrastructure seems timely and may provide solutions for others to follow. But with so much turmoil at the same time, there is a danger that officials will drive away the companies that need it far too quickly.

Follow @ugalani on Twitter

CONTEXT NEWS

An Indian government agency has accused China’s Vivo Mobile of tax evasion worth rupees 22.1 billion ($280 million), Reuters reported on Aug. 3 citing a statement.

Vivo India did not immediately respond to a request from Reuters for comment. The charge of tax evasion is the second in India this week against a Chinese phone manufacturer.

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

Register now for FREE unlimited access to Reuters.com

Editing 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.

.