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Protectionist Pleading

The key goal of economic policy should be to encourage competition in the interests of consumers, not producers

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On a panel I was chairing recently in Delhi, an entrepreneur called for protection for Indian start-ups from foreign competition.  He argued that India should emulate the closed and controlled Chinese market.  His company offers co-working spaces and his concern is the rapid growth in India of WeWork.

When challenged, this entrepreneur was honest enough to accept that his plea for protection was self-serving and even hypocritical.  He was trying to disrupt the market for office space but was objecting to a global major with an attractive offer, trendy brand and copious funding doing the same.

In recent months we have heard similar rumblings from leading entrepreneurs seeking protection from foreigners.  In December 2016, Sachin Bansal of Flipkart and Bhavish Aggarwal of Ola went public on this issue.  Sachin reportedly stated, "Tell the world that we need your capital, but we don't need your companies".  Bhavish is said to have added, "The real fight is on capital, not innovation.  The market is being distorted by capital."

In December 2017, a number of tech leaders and their investors announced the formation of "IndiaTech" to lobby against the impact of global competition on the Indian market.  Vijay Shekhar Sharma of PayTM is reported as stating, "India is effectively letting modern East India Companies own its internet".   IndiaTech was said to be supported by a number of Indian unicorns including Flipkart, Ola, Hike and PayTM, as well as investors such as Kalaari and Softbank.

So far, the Indian Government has rightly resisted these cries for protection of Indian start-ups.  Indeed, Narendra Modi made a strong case at Davos this year in support of open global markets.  India, he said, was opening "a new door to FDI".

While the Chinese model is a stark alternative, it is clearly in India's interest to cleave to the proven strategy of nurturing free, if properly regulated, markets.

India tried the planned and closed model for years, and it simply did not work.  Some of today's entrepreneurs are too young to remember the misery of the license raj.  While open competition is often tough for producers, it is clearly a better economic model in the Indian context.

The key goal of economic policy should be to encourage competition in the interests of consumers, not producers.  Ordinary Indians have clearly benefitted since 1991 from exercising their power of choice, even if that sometimes means they chose to buy from companies with international ownership.

It is, moreover, hard to determine which companies are truly Indian and hence would qualify for the protection sought.  All Indian unicorns are funded by, and most are majority owned by, foreign investors.  A number of the so-called Indian champions, including Flipkart based in Singapore, are actually foreign companies themselves.  It is hard to distinguish Indian from foreign when all are substantially owned by foreign capital and the foreign companies create as much value in India in terms of employment and tax paid.  

It is irrefutable that, since the reforms started in 1991, FDI has been good for Indian consumers, jobs and growth.  Equally, Indian companies have proven themselves perfectly capable of taking on foreign competition both at home and overseas.  Competition is the key to innovation and productivity, and competition like capital carries no passport.  India should welcome all investors who want to create businesses and employment in India, rather than pander to self-appointed national champions.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Alan Rosling

The author is an entrepreneur and strategic adviser. He co-founded Kiran Energy and was earlier an Executive Director of Tata Sons. He was a Special Advisor to the British Prime Minister during 1991-93. He now lives in Hong Kong but is frequently in India. He is the author of Boom Country? the New Wave of Indian Enterprise.

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