An employee works on a computer terminal against the backdrop of a picture of late Apple co-founder Steve Jobs at the Start-up Village in Kinfra High Tech Park in the southern Indian city of Kochi October 13, 2012. Three decades after Infosys, India's second-largest software service provider, was founded by middle-class engineers, the country has failed to create an enabling environment for first-generation entrepreneurs. Startup Village wants to break the logjam by helping engineers develop 1,000 Internet and mobile companies in the next 10 years. It provides its members with office space, guidance and a chance to hobnob with the stars of the tech industry. But critics say this may not even be the beginning of a game-changer unless India deals with a host of other impediments - from red tape to a lack of innovation and a dearth of investors - that are blocking entrepreneurship in Asia's third-largest economy. To match Feature INDIA-TECHVILLAGE/ Picture taken October 13, 2012. REUTERS/Sivaram V

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 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 WhatsApp are also taking New Delhi to court 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 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.

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.

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

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Source: Reuters

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