By Newley Purnell
NEW DELHI -- U.S. technology firms recently facing pushback in
India, the world's biggest untapped digital economy, can expect
more scrutiny following Indian Prime Minister Narendra Modi's
resounding re-election, according to executives and analysts.
They expect Mr. Modi's government to continue tightening
restrictions on American titans such as Amazon.com Inc., Walmart
Inc. and Facebook Inc.'s WhatsApp.
U.S. firms have been pouring billions of dollars into the
country of 1.3 billion people in part because, unlike China, India
has provided a level playing field for foreign firms at a time when
hundreds of millions of people are getting online thanks to cheaper
mobile data and smartphones.
After his election in 2014, Mr. Modi sought to improve India's
image as a place to do business. "I'd like you to believe there is
a red carpet in India, not red tape," he said at a speech in
Japan.
Mr. Modi eased foreign direct investment rules, implemented a
new bankruptcy code and replaced a complex web of taxes with a
nationwide goods and services levy.
But over the past year, New Delhi has acted more like Beijing
and taken steps to tamp down dominant foreign companies and foster
the growth of homegrown startups. Those efforts may not fade with
the election season, some analysts say.
"There is an unstated desire by Indian bureaucrats to assert
control and power over many aspects of corporate activity," said
Gunjan Bagla, managing director of Malibu, Calif.-based consulting
firm Amritt Inc., which helps American tech firms do business in
India.
"The government's historical attitude is that government permits
you to operate a business. That sense is deeply embedded," he
said.
A spokesman who covers economic matters for Mr. Modi's Bharatiya
Janata Party said the government would soon decide how to pursue
various tech issues. "We are not going for total liberalization or
total control" of foreign firms, he said, but "balance has to be
made and the domestic interests will be taken care of."
A spokesman for the online retailer Flipkart -- which Walmart
acquired last year for $16 billion -- declined to comment.
Officials from WhatsApp and Amazon didn't immediately respond to a
request for comment. Representatives from the internet and Mobile
Association of India and the National Association of Software and
Services Companies, both trade groups, declined to comment.
Last year, Indian policy makers began circulating a series of
private, draft government policies on matters such as e-commerce
and data localization. Executives at American firms said they were
not included in some consultation meetings. The executives
privately expressed concerns about the government's moves but said
little publicly for fear of stirring up nationalist sentiments.
Earlier this year, Amazon and Flipkart were forced to scramble
to comply with new e-commerce rules changing the way foreign
companies sell inventory to customers, disrupting their
operations.
India's telecommunications regulator also has solicited feedback
on new regulations that could force WhatsApp and others to let
authorities read encrypted messages between users on
national-security grounds. Those rules could crimp the service's
growth in India, observers say, and undermine its global reputation
as a private service, should it comply.
India is WhatsApp's biggest market, with more than 200 million
users, but WhatsApp has rankled the government for allegedly not
doing enough to halt the spread of false news, some of which has
led to violence. WhatsApp chose India as the location to introduce
its first mobile-payments feature last year, but New Delhi hasn't
permitted it to roll out beyond a test phase.
In the latest development, India's antitrust watchdog this month
began assessing the domestic e-commerce sector, dominated by
Flipkart and Amazon, which has made rapid gains and is investing $5
billion in the country.
The Competition Commission also has been investigating whether
Alphabet Inc.'s Google used the dominant position of its Android
operating system to block rivals in India, according to an official
with knowledge of the matter. Google has said Android has led to
"more competition and innovation, not less." A representative from
Google declined to comment Friday.
"Electorally there's no gain in mollycoddling Amazon and
Walmart," said a senior executive at a tech firm in India,
declining to be named. "When the goods and services tax came in, a
large part of small retail was affected," the person said, referred
to mom-and-pop shops that were forced to begin paying taxes after
years of avoiding them.
"Then you have foreign players drowning them in foreign direct
investment. The government learned at its own cost that helping big
businesses doesn't help them," the executive said.
"There are apprehensions, but there are hopes that all firms
will be given equal treatment" in Modi's new term, said another
senior executive at a tech firm in India, declining to be
named.
India is a market worth fighting for. The country's
online-retail market was valued at $26.9 billion last year but
should rise to $84.6 billion in 2023, according to research firm
Forrester.
"Foreign companies should not rest in asserting their point of
view," Mr. Bagla said. U.S. tech firms need to stress how policy
changes "might harm Indian consumers or slow down the growth of
India's economy," he said.
Meanwhile some local startup founders cheered Mr. Modi's
re-election. "Congratulations to the honorable PM Narendra Modi for
an emphatic victory!" tweeted Kunal Bahl, chief executive of
Snapdeal, one of India's leading local e-commerce firms.
"A stable government bodes extremely positively for the
burgeoning startup economy of India!" he wrote.
--Krishna Pokharel contributed to this article.
(END) Dow Jones Newswires
May 24, 2019 11:41 ET (15:41 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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