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Frequent spats with India may hinder US tech giants’ expansion plans

US tech giants’ frequent spats with the government could eventually lead to a rethink of their India expansion plans.

Walmart’s Flipkart and Amazon challenge India court order on antitrust probe. Photo: Reuters.

With Walmart-owned Flipkart and Amazon India joining peers WhatsApp and Twitter in confronting the Modi Government and Indian politics, experts fear that the frequent spats with the administration could eventually lead to a rethink of their India expansion plans.

(AF) These US tech giants have already invested billions in India and plan to spend billions more to make India, their largest growth market, a hub in Asia. But they may be now increasingly disillusioned, industry sources say.

According to a Reuters report on Thursday, Flipkart and Amazon.com have filed legal challenges against the resumption of an antitrust investigation into their business practices.

The Competition Commission of India (CCI) launched an investigation in January last year after a complaint accused Flipkart and Amazon of promoting select sellers on their e-commerce platforms and using deep discounts to stifle competition.

The companies have denied wrongdoing and near-immediate legal challenges from the pair stalled the investigation for more than a year until a court last week ruled it could resume, having dismissed arguments that the CCI lacked evidence.

In a fresh appeal filed on June 16, Flipkart argued that decision by the Karnataka court to allow the probe to resume was erroneous and must be put on hold.

“Irreparable injury will be caused to the appellant if the investigation was to continue pending the present appeal,” the Flipkart said in its suit, which Reuters said was not made public yet.

It also urged the court to quash the initial CCI order for the investigation.

Amazon has mounted a similar challenge added the news agency, and both are likely to be heard by a two-judge panel this week, the report added,

Multi-pronged challenges

Amazon and Flipkart are also battling accusations from offline retailers that their complex business structures allow them to circumvent foreign investment rules for e-commerce.

WhatsApp and Twitter, on the other hand, are fighting unprecedented restrictions on every form of digital content- from social media to streaming platforms- brought in by executive order in late February-called Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (IT Rules 2021)- and made effective from 25th May.

The sweeping rules give the Indian government new powers that will force almost every tech company- including the US tech giants- comply with government surveillance and censorship demands.

The day after the IT Rules 2021 came into force, WhatsApp sued the Indian government to protest against the mandate “to ‘trace’ chats” which it said was “equivalent of asking us to keep a fingerprint of every single message sent on WhatsApp, which would break end-to-end encryption and fundamentally undermines people’s right to privacy.”

Three days later Twitter in a statement accused the India government of “dangerous overreach that is inconsistent with open, democratic principles”, and alleged that it has been forced to “withhold” – block in India – portions of “legitimate free speech” on its platform.

“Over the past 12 months, policy and regulatory issues involving foreign tech companies have cropped up every few months, which only shows how knee-jerk India’s reactions have been to foreign investments in the e-commerce and digital media space,” Ankur Bisen, the senior vice president of the retail consultancy firm Technopak, told Asia Finance.

Huge commitments

“Having invested the kind of money the tech giants have; they expect visibility of the policies to ensure that their investments are protected. So, while the CCI investigations and data regulations are fine, the policy uncertainty is surely unnerving these giants,” Bisen feared.

Walmart, acquired Flipkart, one of the country’s largest e-tailers, for $16 billion in 2018, setting major plans on India’s rapidly growing e-commerce market.

India is, “our long-term bet,” Walmart chief executive officer Doug McMillon said while visiting India in December.

Amazon too has committed $6.5 billion to invest in the country, while Google pumped $4.5 billion into India’s biggest telecom company Jio last year, from a newly created $10 billion fund earmarked for investment in India over five to seven years.

Facebook last year also invested $5.7 billion in Jio, while its messaging app, WhatsApp, which has amassed over 400 million users in India, has started expanding the payment feature since November.

It is also set to expand its ambit of services to finance- health insurance and micro-pension, e-commerce, education and social welfare this year through tie-ups with local players, according to reports.

Why worry?

But the CCI is reportedly planning to intensify its scrutiny of the two big-tech firms after accusations from offline retailers that both Amazon’s and Flipkart’s complex business structures are letting them circumvent foreign investment rules for e-commerce.

In February, a Reuters investigation based on Amazon documents showed it had given preferential treatment for years to a small group of sellers on its Indian platform.

Amazon though had furiously denied that report claiming that it “does not give preferential treatment to any seller”.

“I think, instead of fighting the government, both should allow the CCI to conduct its investigations as soon as possible so that they can look forward to the findings giving them a clean chit,” Alvis Lazarus, the chief executive of the supply chain and management consulting firm Hesol Consulting, told AF.

“What’s their worry, if they are not guilty,” he said.

With reporting by Reuters.


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Indrajit Basu

Indrajit Basu is an India-based correspondent for Asia Financial and wears two hats: journalist and researcher (equity). Before joining AF he reported on business, finance, technology, wealth management, and current affairs for China Daily, SCMP, UPI, India Today Group, Indian Express Group, and many more. He is also an award-winning researcher. If he didn't have to pay bills, he would be a wanderer.


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