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India may face the consequences of Indo-China tech war

Recent events have suggested that India, China, and America are competing against one another in tech war. American firms still have the upper hand.
|| Basim Sheikh

Amidst the recent clashes around the border, there was an enormous uproar among Indians. More than 200 Chinese apps, including the famous TikTok, has been banned by Indian government.

Such moves took place in the wake of restrictions on FDI imposed to undermine Chinese opportunistic takeovers. India is prospecting that such moves will inhibit China from exerting Tech influence in India.

Nevertheless, these restrictions and policies against China has left a void in India’ own start-up ecosystem. Over the past few years, China has made substantial investments in Indian Tech startups.

But these investments are noticeably decreasing now. Since later April, when new FDI rules became effective, only six deals has been made between Indian Tech and Chinese PE firms. Comparatively, from January to April— in a period of 4 months— 15 such deals were signed. 37 deals were in 2020. Even Chinese firms are now circumspect in their investments in India.

India still has a huge market for Tech start-ups, as there’s a growing demand for mobile phones and internet. India is considering the risks involved in Chinese investments, all the while sidestepping the risks involved in investments done by America. In this scenario, India may be swayed by the events in Silicon Valley.

A recent report by the parliamentary standing committee postulated that Indian startups are no more dependent on outside investments.

“Chinese and US tech companies have not come up on their own,” said Jabin Jacob, associate professor in the department of international relations, Shiv Nadar University.

Foreign funding is imperative for developing economies, as they fall short of adequate funds. 99% bets not paying off for the venture capitalist, still enable Indian entrepreneurs to learn, to innovate, and to pay the bills.

Indian sources do not have the kind of money needed to fill the void created after removing investments from China. “While domestic investors can provide early-stage funding to home-grown consumer apps, they don’t have deep-enough pockets to provide multiple rounds of capital that some of these usage-driven apps need before they start generating revenue,” said Natarajan.

Imposing restrictions on inchoate tech eco-system will only deprive Indian firms of capital and technological inputs. Noticably, doing business in India’s digital economy is difficult for foreign players.

India is considered one of the most protectionist countries in the world. Early investments made by China had helped India sustain an ecosystem. Now, it is unlikely for India to accomplish the same goals in the same timeframe.

Policymakers propose to stir up the competition among firms in order to spawn novel innovations in the country. The state is also planning to underpin technological innovations and healthy competition, keeping in mind the welfare of the country as a whole. Even during a unforgiving pandemic, when nearly all other sectors failed to survive, Indian tech companies came off better and exhibited their potential.

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