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AMAZON.COM

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Modi's Re-Election Means More Scrutiny for U.S. Tech Giants

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05/24/2019 | 09:41am EDT

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.

Stocks mentioned in the article
ChangeLast1st jan.
ALPHABET 0.03% 1243.59 Delayed Quote.19.09%
AMAZON.COM 1.12% 1776.51 Delayed Quote.17.01%
FACEBOOK 1.71% 189 Delayed Quote.41.77%
WALMART INC. 0.10% 119.27 Delayed Quote.27.90%
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