India Starts to Reap Benefits of US-China Hostility

Major IT giants look for a less-unfriendly atmosphere

By: Neeta Lal

After decades of outright antagonism to foreign direct investment in technology, India appears about to benefit from the supply chains that have been broken by the Trump administration’s trade war with China.

It was only six months ago, on January 16, that India’s trade minister Piyush Gopal said Amazon, the online retail behemoth, “hasn’t done India any big favors by investing $1 billion in the country.”  But in contrast, on July 11, India welcomed a US$1 billion investment by Foxconn, the Taiwanese company that makes iPhones for Apple, in an assembly factory in southern India as Apple signals its determination to diversify out of the growing hostility to China. Other multinational tech firms have already made similar moves.

That follows an announcement earlier in the week by Google India’s chief executive officer Sundar Pichai’s announcement of a US$10 billion fund to help power India’s digital growth.

“When I was young, every new piece of technology brought new opportunities to learn and grow,” Pichai said. “But I always had to wait for it to arrive from someplace else. Today, people in India no longer have to wait for technology to come to you. A whole new generation of technologies is happening in India first.”

Google, through a combination of partnerships, equity, infrastructure, and ecosystem investments, aims to usher in more high-quality, low-cost smartphones to enable greater Internet access in the country, building new products and services in consumer technology, education, health and agriculture, and empowering small and medium businesses to transform digitally, he said.

These developments have sent ripples of excitement through India Inc. at a time when the economy is expected to contract anywhere from 5 percent to 10 percent of GDP, the biggest reversal in four decades. They also come at a critical stage in India’s digitization when changes in technology and network plans have enabled more than half a billion Indians to get online, Google said in a blog post.

This stepping up of engagement between Indian and US tech firms is an indication that movement out of China is accelerating as well as underscoring the attractiveness of the digital story of Asia’s third-largest economy, even in the midst of a debilitating global economic slowdown.

That is with the necessary caveat that despite the promise of the digital economy, the country’s notoriously overbearing regulatory environment could get in the way. An as yet-unpassed personal data protection law, for instance, has raised widespread apprehensions about the breach of privacy among individuals and corporates. Allaying such fears and building confidence of foreign investors would go a long way in helping the country achieve its potential, critics say.

There are additional questions. Despite offers of what amounts to free land to interested multinationals, India’s infrastructure is shambolic, China has spent decades developing top-quality, educated labor and sophisticated logistics, critical factors in which India lags.

That doesn’t quell the optimism of Vivek Bhatnagar, a domain expert and consultant with Bharti Airtel, one of India’s leading telecoms companies, who said

“The next phase of India's prosperity will be driven by digitalization with next-generation technologies. The nation's naturally tech-savvy demography - 1.2 billion mobile phone connections, 560 million internet subscriptions, and over 350 million smartphones - will power an inclusive digital transformation.

With American technology majors locked out of China, “none of them were in a position to dominate the undeveloped global digital landscape,” said Shatrujit Khatri, an associate economics professor at Delhi University. “India offers them a unique opportunity to have a toehold in a market which could well be the ‘next China.’”

China has long banned foreign companies that could compete with its domestic companies. Google, Facebook, Netflix, Bing, Twitter, Pinterest, and Quora were all shown the door. That, coupled with the trade wars, Covid-19, and a growing sense of distrust in China’s authoritarian regime have made it easier to justify isolating China politically and economically, Khatri said.

It is also part of the reason India has been able to reap investment from other tech companies. Facebook, Intel, Qualcomm, and an array of global private equity firms and sovereign wealth fund companies have, in the past year, pumped around US$20 billion into Jio Platforms for one-third ownership of the company promoted by India’s richest man, Mukesh Ambani.

In April this year, Facebook became the first company to invest in the digital business unit of Reliance Industries, paying US$5.7 billion for 9.9 percent.  Qualcomm (0.15 percent) followed and then Intel (0.39 percent) as did private equity firms L Catterton (0.39 percent), TPG (0.93 percent), Silver Lake (2.08 percent), KKR (2.32 percent), General Atlantic (1.34 percent) and Vista Equity Partner (2.32 percent).

Jio Platforms’ appeal, say experts, emanates from its offerings at a rock bottom price as well as credentials as a subsidiary of a global conglomerate (Reliance) which owns a third of the Indian market, ahead of Vodafone Idea and Bharti Airtel. The company also possesses one of the most modern high-speed wireless networks in the world, offering services at prices so low as to be dubbed predatory.

However, it isn’t just Reliance Jio which has caught the eye of global internet stalwarts. Google has reportedly been in talks with Vodafone Idea over an investment, while Microsoft and Amazon have also reached out to another leading telecoms company, Bharti Airtel. Netflix has been investing heavily in localized content for years.

What also augurs well for India’s digital growth story, say market analysts, is the confidence displayed by homegrown telecoms companies. Ambani said this week he is confident of building 5G networks, a potentially tectonic development which can upend the rules of the digital game internationally.

It would also eliminate the need for the services of companies such as China’s Huawei which is caught in a global backlash over US hostility and allegations that it does surveillance on behalf of China’s communist regime.

“India’s entry into the global market for 5G gear, via Jio, would have geopolitical implications that are adverse for China and positive for everyone else. This technology edge could add sheen to India Inc in general,” pointed out an editorial in The Economic Times.

Geopolitical developments are also helping propel things in India’s favor. Following India’s decision to ban the widely used Chinese app TikTok, in the aftermath of the clash between Indian and Chinese soldiers in Ladakh, the US administration is considering following suit. American arm-twisting of countries to keep Chinese company Huawei’s equipment out of their 5G networks has resulted in the UK also banning the purchase of new Huawei equipment by its telecom operators end 2020, reversing Prime Minister Boris Johnson’s earlier stance.

These developments mesh with Prime Minister Narendra Modi’s nationalist government’s plans to see India ride the crest of an international data wave.  

“Digitalization of every sector is one of the Central Government's ten leading targets for the next decade,” a Joint Secretary in the Ministry of Telecom told AS.  The official points to the government’s National Policy on Electronics and the National Policy on Software Products introduced earlier this year. The initiative aims to build a comprehensive digital manufacturing and research and development ecosystem, to augment the country’s digital literacy and infrastructure under the "Digital India" program.  

India is already deploying digital tools in priority sectors of healthcare, education, financial services, agriculture, and transportation. Digitalization of the economy is also a key prerequisite for some of the government's flagship programs such as Make in India, Startup India and Skill India, the official said.  

In its Union budget for FY 2019-20, the government called for additional investments in boosting the digital economy, while also making digital transactions more attractive. The latest India Economic Survey highlights that the country’s digital consumer base is the world's second-largest, as well as the second-fastest growing among 17 major economies.

A report by the Ministry of Electronics and Information Technology, in partnership with McKinsey, describes how India can create more than US$1 trillion of economic value from the digital economy in 2025, with half the opportunity originating in new digital ecosystems that can spring up in diverse sectors.  

By 2025, India could create a digital economy of US$800 billion to US$1 trillion, a value equivalent to 18-23 percent of nominal GDP. The existing digital ecosystem could contribute up to US$500 billion of economic value, but the potential economic value for India could be as much as double that amount — almost US$1 trillion— if digital technologies are used to unlock productivity, savings, and efficiency across more diverse sectors such as agriculture, education, energy, financial services, government services, healthcare, logistics, manufacturing, trade, and transportation, the report adds.

Neeta Lal is a Delhi-based Editor & senior journalist who tweets @neeta_com and a longtime contributor to Asia Sentinel


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