The year 2020 will go down in history as one where lives were changed by the Chinese-origin COVID-19 virus. This is also the year the world at large and India reset their relations with China because of its actions.
For decades, China has grown and profited from the world, with little or no scrutiny. It has supported states with ties to terror and its technology sector is based on illegally stealing and proliferating technologies from the West. So, the belated waking up of the world to the threat China poses is a good thing.
In India, post the Galwan treachery, there is a determination to redefine the economic relationship with China. For China, the good times in India began some years ago when the Congress government threw open the Indian markets and consumers to it. China started ratcheting up huge trade surpluses, currently over $50 billion annually. As our exports remained flat, imports from China steadily surged — displacing Indian manufacturers and jobs.
After laying low the Indian manufacturing sector, China’s next focus was on the IT sector. India is poised to become one of the world’s largest connected economies as internet penetration approaches one billion. It is a major market for smartphones. There is a huge strategic economy developing around the ecosystem of digital consumers, the internet and smartphones.
As start-ups and innovation flourished under Prime Minister Narendra Modi’s vision of Digital India, Chinese investors quickly cornered a major stake in 18 out of India’s top 30 Unicorns. The total investment is small — about $3 billion over the last five years — but due to weak privacy and data protection regulations, these investments give China a disproportionate influence in this strategic part of our economy.
A recent report states: “Chinese funding to Indian tech start-ups is making an impact disproportionate to its value, given the deepening penetration of technology across sectors in India. These are investments made by nearly two dozen Chinese tech companies that have funded 92 Indian start-ups. China is embedded in Indian society, the economy, and the technology ecosystem that influences it.”
China had it pretty good not just in India but around the world. I have long argued — much before the COVID shock — that the free-pass to China in technology was dangerous for democracies. The internet and the technologies around it emerged out of labs, universities and garages in the West. For many years, it has been obvious that state actors in China were engaged in organised technology spying and proliferation at its source. The lack of intellectual property laws and general contempt for international law in China made it difficult for Chinese companies or individuals to be held accountable until the recent Huawei prosecution in the US. This effectively put a brake on the Chinese ambition to control and shape the future of the internet. It’s worth remembering that in 2010-2011, China moved the UN to wrest control away from the multi-stakeholder non-governmental organisation, ICANN, to a UN organisation called UN-CIRP staffed with government nominees. Guess who supported China’s efforts? India. It took my raising the issue in Parliament and public outcry to get the then government to back off. The institutional capture of the WHO by China shows how easy it would have been for it to control the internet if its UNCIRP attempt had been successful.
But China has overplayed its hand one time too many. Two factors are driving national behavioural change from India.
First, China’s treacherous conduct in Galwan means its current posture of having friendly relations with India — already undermined by its support for Pakistan-based terrorists — is no longer tenable. China is no longer a trusted nation or economic partner.
Second, PM Modi’s vision of Atmanirbhar Bharat signals a strong strategic focus on economic and technological sovereignty and security, as the global economy undergoes deep, tectonic changes post the coronavirus shock.
The ban on 59 Chinese apps needs to be seen in this context. As you see consumers dumping Chinese brands, Indian corporates are diversifying their supply chains away from China. This reset of the India-China relationship will undoubtedly create short-term disruptions. But the move will also launch the mobile app sector in a new direction.
The global mobile app business is over $600 billion and will be a multi-trillion-dollar business in the coming years. China has tried hard to dominate it through its large captive user base and by keeping non-Chinese digital brands away from its consumers. Indian companies have a very small role in this market, which is growing globally at 21-22 per cent CAGR. In India, the growth rates will be far higher. We need to recognise that India is the world’s biggest and most strategic consumer tech market. India’s open, diverse consumer power will shape the future of global tech for decades. We need to capitalise on this.
India needs tougher privacy and data protection regulation to prevent other Chinese-origin products from abusing their access to Indian consumers. Of course, there are reforms required to realise the vision of Atmanirbhar Bharat and for India to become a global tech powerhouse. For example, Indian start-ups rely disproportionately on overseas venture capital funding — all Indian Unicorns thus far have been foreign-funded. Hence, one deep reform needed is the expansion and diversification of our financial sector.
India’s economy started being redrawn from May 2014, from one that depended on a few groups into one where the energy of thousands of startups and MSMEs would transform and drive economic growth. Atmanirbhar Bharat catalyses this vision.
This article first appeared in the print edition on June 3, 2020 under the title ‘A much-needed reset’. The writer is a Rajya Sabha MP and a technology entrepreneur.
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