India can win by continuing to innovate
Since Prime Minister Narendra Modi came to power, he has focused on making India a more attractive investment destination, easing foreign direct investment rules, and ensuring India climbs up the World Bank’s Ease Of Doing Business index. This focus has yielded impressive dividends. India is one of the world’s fastest-growing large economies, and is attracting record levels of foreign investment.
Yet, there are increasingly loud voices calling for protections against foreign internet firms. It is important for India to repudiate these protectionist sentiments. As India knows well from its long period of self-imposed economic isolation, Indian businesses thrive in competitive environments.
Investors and businesses have responded enthusiastically to the Modi government’s focus on openness and deregulation. According to the ministry of commerce and industry, in fiscal year 2016-17, India attracted a record $60.1 billion of foreign direct investment. In 2017, India attracted a net foreign portfolio investment of $31 billion, up from $3.2 billion in 2016 and $10.6 billion in 2015.
The Modi government has also launched new projects to strengthen India’s ecosystem for innovation, such as the Atal Innovation Mission and Startup India. While such projects take a while to yield results, they are headed in a very positive direction. Companies such as Uber, Microsoft, Amazon, and Google are investing in India and sharing their skills and expertise—and more importantly, adding choice and variety for Indian consumers and businesses. Uber, for example, has partnered with Invest India to create UberEXCHANGE, in which Uber executives visited India and shared their expertise with Indian start-ups.
Despite these positive examples, there are reports that some are asking the Indian government to shield India’s internet start-ups from foreign competition, arguing that they are not able to match the resources of multinational companies and therefore need protection. Their argument lies in the notion that not only do multinational companies have more capital, they can run negative margins in India by leveraging successful businesses in other countries.
However, this idea that Indian companies are hurt by multinational presence and cannot compete with foreign companies due to a lack of resources does not hold much merit. It not only ignores the fruitful tech ecosystem to which multinationals have contributed in India, but also the accomplishments of Indian technology companies.
Companies such as MakeMyTrip, Oyo, and Naukri.com have built their businesses on innovating for users rather than relying on protectionist policies, allowing them to successfully compete with multinational companies. Indian tech giants like TCS, HCL, Infosys, and Wipro thrive and have successfully built international businesses to make India the world’s leading software and IT services provider. These companies have since flourished due to their ability to innovate and provide a variety of effective solutions to consumers. Rather than restricting consumer choice through protectionist measures, government should be encouraging a broadening and deepening of the tech ecosystem in India.
By promoting competition, the government can ensure that Indian consumers have access to the best products and services available. India’s businesses and growing middle class want more choices, and cutting-edge tech companies of all nationalities are at the forefront of meeting these demands in a tailored way.
In 2016, Samsung launched a strategy entitled “Make for India”, creating products specifically based on insights from the Indian experience. In the absence of arbitrary barriers to market entry, companies are able to innovate in a unique fashion to cater to the Indian market, ultimately benefitting Indian consumers and companies, providing them a wider array of products and services to meet their demands and to make India more competitive.
In the same vein, discouraging access to the best technology, no matter the country of origin, impedes India’s ability to achieve some of the prime minister’s key stated priorities. The economic multiplier effect of a robust tech sector simply cannot be underestimated. A tilt towards protectionism will likely result in a slide down the World Bank’s Ease Of Doing Business rankings, where India has recently made impressive gains (its rank improved by 30 spots in 2017, reaching the top 100 for the first time).
Additionally, by limiting competition, the Modi government would disadvantage its acclaimed Digital India campaign—and the Startup India campaign as well, as Indian start-ups would lose access to international platforms and information.
Ultimately, India stands at a crossroads. Doubling down and creating barriers might help some businesses in the short term, but in the long term, start-ups, entrepreneurs, and consumers would lose and India’s competitiveness would suffer. Worse, the negative signal would leave both foreign and domestic companies wary of investing in India, and those that remain would have lost any incentive to innovate.
Instead of allowing protectionist urges to isolate India from the thriving global technology sector, the government should invest in the future by encouraging start-ups to be more competitive and to become global leaders (as so many Indian companies have), as well as by ensuring Indian consumers have the choices they want and deserve.
(Disclaimer: McLarty Associates works with a number of firms in the internet sector in India.)
Robert O. Blake, Jr. is a senior director with McLarty Associates, and formerly served as assistant secretary of state for South and Central Asia from 2009-13.