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Business News/ Opinion / Views/  Opinion| India’s policy plans could hold back its digital startups
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Opinion| India’s policy plans could hold back its digital startups

Policymaking should follow a consultative model that ensures wide representation of interests
  • For many Indian start-ups, their proprietary technology is their key competitive advantage
  •  (iStock)Premium

    Indian startups have helped put the country on the map by building products and services that are tackling some of the world’s toughest problems. If you walk through Hyderabad’s T-Hub, you can sense the creativity and hard work all around.

    Prime Minister Narendra Modi understands the value these businesses are creating, and has focused on building an environment to help them grow. Programmes such as Startup India and Atal Innovation Mission are examples of his support and long-term vision for the sector. Yet other policy measures by the Indian government are shortsighted and may undercut India’s startups before they can prosper—particularly in digital technology where India’s entrepreneurs can “go global" very quickly.

    A prime example is the move by the ministry of electronics and information technology to amend the Information Technology Act, 2000, and replace it with the IT [Intermediary Guidelines (Amendment) Rules] 2018. And more recently, the department for promotion of industry and internal trade has circulated a Draft National e-Commerce Policy for stakeholder comments. These proposals contain harmful provisions that could hurt Indian entrepreneurs in digital technology ventures. They will also undermine the very sector that Modi credits for fuelling India’s economic powerhouse.

    In the proposed amendment to the IT Act, the government has suggested that all online intermediaries be proactive in censoring content deemed “unlawful" by the government. The draft e-commerce policy also includes monitoring and supervision requirements for intermediaries to prevent dissemination of pirated content and for payment gateways to restrict payments to “rogue websites".

    Not only do such vague legal standards create uncertainty, they increase compliance costs for both big and small players. Proactive filtering is a complex engineering task that is immensely challenging—if not impossible—for most companies to implement.

    Similarly, restrictions on cross-border data flows as envisioned in the draft e-commerce policy means businesses, both in India and abroad, won’t be permitted to leverage distributed systems and operate at scale. A vast majority of startups in India use services that necessarily involve international data flows. Restricting them from doing so curtails their ability to operate, or will drive up the costs of providing services to local businesses and end consumers.

    What’s more, additional costs have the potential to create additional barriers to entry and would favour a few well-established players over small businesses. Startups would be significantly impacted; any entrepreneur that wants to act as an internet intermediary would immediately face a difficult hurdle due to the proposed legislation.

    The challenge of dealing with unlawful content does not simply end with implementing a technical solution. Technology alone won’t always be able to define whether a piece of content is considered unlawful. Companies that are pushed to review contentious material will likely choose to remove it to avoid liability. The result is promoting censorship over freedom of expression.

    New regulation often comes with disadvantages for a handful of players. But in this case, the amendments pose a threat to India’s entire innovation and digital leadership.

    For many Indian start-ups, their proprietary technology is their key competitive advantage. Giving the government the right to seek disclosure of source code and algorithms in the context of trade negotiations creates a huge disincentive for startups to innovate. Furthermore, foreign companies whose technology is in high demand will also think twice before doing business in a country where they might have to reveal such sensitive information.

    On top of complicated technical and disclosure requirements, mandating a company with more than 5 million users in India to incorporate itself locally will discourage ventures from focusing on India in their strategies. They may even decide to skip India, possibly cutting India off from the rest of the world.

    Research by Broadband India Forum- Indian Council for Research on International Economic Relations (BIF-ICRIER) points to the pitfalls of forcing apps—many of which are intermediaries—to incorporate in India. Apps contributed a minimum of $20.4 billion ( 1.4 trillion) to India’s GDP in 2015-2016. If a company decides not to make its app available here, India stands to lose out on the benefits brought to its economy.

    The Indian government is taking numerous positive proactive steps to create a stronger ecosystem for the nation’s vibrant startup market. Yet beyond physical spaces and support systems, the policy ecosystem must also be shaped to encourage risk-taking, innovation and growth.

    The way forward on policy-making in India is to follow a truly consultative and multi-stakeholder model that ensures a wide representation of interests at all stages of the process. This not only complies with international best practices, but will also allow India to balance its national interests with access to global markets. The proposed rules make it more difficult for Indian small and medium enterprises to grow, and also less attractive for global technology companies to innovate for India’s needs. This, in turn, would result in a loss for consumers, an outcome that is the opposite of what Prime Minister Modi has sought to accomplish.

    Robert O. Blake, Jr is a senior director with McLarty Associates, and formerly served as US assistant secretary of state for South and Central Asia from 2009-13

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    Published: 10 Apr 2019, 09:29 AM IST
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