In October this year, the news broke that Sachin Bansal, online marketing giant Flipkart’s executive chairman and cofounder, wanted to set up a lobby group to represent the interests of Indian consumer Internet start-ups.
The idea was said to be to form an association to lobby with the government seeking favourable laws for Indian online companies that would prioritise them over Chinese and US consumer Internet firms as well as India’s powerful brick-and-mortar retail lobby.
But Bansal’s definition of which Indian companies should be favoured by the government seems to be rather convenient and self-serving, particularly when we consider his remarks while speaking at the Carnegie India Global Technology Summit in Bengaluru on Wednesday.
“What we need to do is what China did (15 years ago) and tell the world we need your capital, but we don’t need your companies,” Bansal was quoted as saying by the Economic Times.
Bhavish Aggarwal, chief executive officer of taxi-aggregating company Ola, backed Bansal’s pitch in the same panel discussion.
“What’s happening in both our industries (is that) there is narrative of innovation that non-Indian companies espouse but the real fight is on capital, not innovation. The markets are being distorted by capital,” he was quoted to have said.
The government should thus apparently favour Indian e-commerce companies over brick and mortar retailers because they give Indian customers choice, better prices and convenience. But the government should favour Indian companies over foreign firms despite the fact that competition gives Indian customers just that – choice, better prices and convenience!
This is an awfully narrow definition of the set of firms that the Indian government should be partial to – and it just so happens that this definition includes Flipkart and Ola.
The irony is that brick and mortar firms are likely to be more “Indian owned” than Flipkart and Ola.
Bansal, however, insists that it is not the investors who matter, but the entrepreneurs – a bad argument, since majority ownership of the company rests with foreign investors, who therefore have a substantial say in its running and operations.
Asking for greater protectionism for Indian firms is bad for the Indian economy. Favouring nationalism over growth, innovation and competitive forces is the wrong road to take. Over the last two decades, India’s Information and Technology industry successfully created jobs and wealth for millions of Indians thanks to low trade barriers that allowed these companies to compete in global markets. Protectionist measures hurt job creation, result in higher prices for customers and benefit businesses disproportionately.
Such calls based on nationalism are reminiscent of the lobbying by Indian firms in the 1940s. In the Bombay Plan that eight leading Indian industrialists, including the Birlas and the Tatas, presented to the government in mid-1940s, what they wanted was not business-friendly policies but policies friendly to Indian businesses.
It was this that led to the infamous licence raj, as trade borders were closed and competition was limited through licensing. By 1964 more than half of India’s product industries had just one or two firms competing in them. What resulted was decades of slow growth and high poverty rates. Our economic history offers us a cautionary tale of what happens when we yield to emotional, nationalistic appeals.
Flipkart and Ola are using China as an example to follow at a time that the Chinese government has clamped down on freedom of expression. Its crackdown on foreign firms is at least partly an unwillingness to embrace an open internet and the free movement of capital.
Using China as a blueprint is a dangerous trend indeed for Indian companies.
Devi Yesodharan is a writer and entrepreneur, and co-founder of trendlyne.com