India’s Livemint website, September 26 article, original title: Distancing from China in the field of technology, India might be shooting itself in the foot. Over the past few years, India has been a key battleground for American and Chinese tech companies. Now, American firms may have an edge.
As popular anti-China sentiment heats up amid border clashes, New Delhi has cracked down on Beijing’s activities in the country’s tech ecosystem, imposing bans on more than 200 Chinese applications and increasingly requiring regulatory scrutiny for investments from the country.
However, these restrictions have created a void in India’s startup scene. Since 2015, Chinese private equity firms have invested around $3.3 billion in India, mainly in companies related to the internet economy, according to financial solutions firm Refinitiv.
In recent months, such investments have fallen sharply. Since New Delhi tightened foreign direct investment rules in late April, Indian tech firms have signed just six deals with Chinese private equity firms. This compares with 15 such deals between January and April this year and 37 last year. Not just investment funds, but Chinese technology companies have also become cautious about investing in India.
Chinese investors tend to back companies that are starting from scratch, while U.S. firms tend to invest in mature companies, said Santosh Pai, a corporate lawyer and an honorary fellow at the Institute for Chinese Studies.
Defence and strategic circles are concerned about China’s influence on India’s tech ecosystem, yet greater dependence on the US is also not without risk. This could bring back the days when India’s tech sector was vulnerable to Silicon Valley, says Arun Natarajan, founder of Venture Capital Intelligence, “Over the past five years, Chinese and other South Asian funds have been a force for balancing the volatility of US investments. As Chinese investment retreats, entrepreneurs will once again have to rely on large US investments”. Since the Indian economy lacks capital, foreign funding is crucial.
Putting firewalls around the tech ecosystem will only leave Indian companies deprived of a source for infusion of capital and technology. It is worth noting that it is already quite difficult for overseas companies and investors to do business in India’s digital economy. The tech sector has shown more resilience at a time when the Indian economy has been hit hard by the raging epidemic. Policymakers should promote competition and innovation in the sector, rather than restrict capital or technology flows.
(By Nikita Kwatra and Sriharsha Devulapalli, translated by Wang Xinhua)