Protectionism Isn't Patriotic
Samuel Johnson got it wrong: Patriotism is the last refuge of the unprofitable. The Indian e-commerce giant Flipkart Online Services Pvt. lost 23 billion rupees last year, and so its co-founder and executive chairman, Sachin Bansal, has suddenly morphed into a great champion of local companies. “We need to take a more India-centric approach” to regulation, he told a Bengaluru audience last week, citing Donald Trump approvingly.
Bansal is leading an effort to lobby the Indian government to raise new barriers to foreign competition. He has plenty of global examples to back up his argument. Besides Donald Trump, there’s China: “What we need to do is what China did and tell the world we need your capital, but we don’t need your companies,” he said. Bhavish Aggarwal, co-founder and chief executive officer of the taxi aggregator Ola, which lost 8 billion rupees last year, has joined Bansal’s lobbying group. “The markets are being distorted by [foreign] capital,” he complained during the same Bengaluru discussion.
The chutzpah on display here is truly extraordinary. Presumably the $1.3 billion Ola raised from Japan’s Softbank didn’t distort the market too much for Aggarwal’s liking. He and Bansal clearly aren’t speaking as disinterested observers of economic theory, but as entrepreneurs locked in fierce competition with Uber Technologies Inc. and Amazon India Ltd., respectively. They also seem to be employing a rather odd definition of “Indian.” Flipkart's parent company, for example, is incorporated in Singapore, which last I heard was not a state in the Republic of India. So is the produce delivery start-up Grofers and the doctor-finding app Practo. Some others, like the online help desk Freshdesk, operate out of the U.S.
If, one happy and distant day, Flipkart makes a profit, Singapore will presumably benefit and the Indian government’s revenues will be unaffected. Amazon India, meanwhile, is very definitely registered in India -- in Bengaluru, in fact, a short distance from where Bansal was lambasting the company for its foreign roots.
The call for a “level playing field” for Indian firms is also dubious on its face. As always, Western companies have struggled more than local competitors with Indian regulators. On one well-known occasion, the government of the southern state of Karnataka granted Ola a licence but denied Uber one for apparently frivolous procedural reasons that set off alarm bells.
The air of self-righteousness adopted by these foreign-funded, foreign-registered tech companies seems particularly unwarranted given that they are, after all, as “disruptive” as any multinational. Flipkart hopes to put small neighborhood retailers out of business. Ola cannibalizes local taxi stands.
When they stand up and argue for their business models and against outdated regulations, they make the case -- rightly -- that they provide great benefits for Indian consumers. So it’s a little absurd for them to demand restrictions on other companies just because those same consumers are choosing them in droves. If Ola wants to beat Uber, it should focus less on foreign capital and more on why it’s losing -- because Uber’s taxis have the reputation of being cleaner and more efficient, and their drivers more polite and better-trained than Ola’s.
The bigger worry is that these demands from India’s e-commerce giants come at a time when the government might well be predisposed toward listening. Capitalism with hyper-national characteristics has become visible in several other sectors of the Indian economy. Even in e-commerce, the government has consistently given in to nativist sentiment by passing laws that stunt the business model: Foreign investment is allowed in online “marketplaces” only, for instance, which means that Amazon India can’t hold any inventory of its own.
The government of Prime Minister Narendra Modi, since it came into power, has made promoting investment into India a priority. But Modi’s “Make in India” program is already dangerously close to becoming a protectionist campaign, rather than one that increases India’s openness and attractiveness as an investment destination. The last thing India needs now is to suggest to possible investors that their “Indian” competitors can successfully use nationalist sentiment against them.
That’s especially true in e-commerce: The money flowing into the sector has been one of the few developments that’s allowed the government to claim that investment into India is growing, and not stagnant. If India wants to emulate China, as Bansal suggests, it should remember the real reason for the mainland’s success -- a predictable and profitable business environment for foreign investment, not false patriotism.
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