Is Prime Minister Narendra Modi being too generous in the way he has chosen to endorse brand Facebook by spending exclusive time with its CEO Mark Zuckerberg at the tech company’s headquarters in California?
This came out of the Snowden revelations. Facebook has over 1.2 billion users globally and India is one of its fastest growing markets at 125 million plus users. Facebook strategists might argue 125 million users in India is tantamount to just whetting one’s appetite in a market with potentially 800 million plus smart phone users.
So what is Prime Minister Modi getting out of giving Facebook so much of his personal attention? Mind you, Modi has also talked of “Start Up India” and “Stand up India” which presumably means the government would give special encouragement to home-grown Internet companies which will give competition to established giants like Facebook and Google. This has happened in China already. So the domestic tech companies will also demand the government’s attention, in terms of a more conducive policy and regulatory environment, which enables them stand up to the Facebooks and the Googles of the world.
It is in this context that the PM’s presence at the Facebook headquarters must be seen. Normally heads of MNCs queue up at home to meet any Indian Prime Minister because they see India as a juicy market for future expansion, and therefore it becomes important for them to keep the government in good humour. During his forthcoming US visit, the Prime Minister is also visiting the CEOs of Google, Oracle and other tech companies who clearly have a strategy to grab a big share of the Digital India project which is close to Modi’s heart. Former TRAI Chairman Rahul Khullar says the Digital India project, if implemented seriously down to the district, block and Panchayat level, will require an investment of Rs.30,000 crore per year for at least four years. This cannot be done by the government alone. The private sector will have to share the cost of the digital infrastructure. Of course, the private sector will eventually benefit greatly as new users come on board exponentially after all the infrastructure, both hardware and software, is in place. Foreign companies, whom Modi is wooing, are clearly eyeing this opportunity.
So it is all very well that the Prime Minister is encouraging foreign companies to come and do business in the digital space. But we also need a strong policy framework, which enables small start-ups in the digital space to flourish and take advantage of the new digital infrastructure and potential explosion in the Internet user base in India. So, a conflict is bound to emerge between big tech companies and the smaller ones in the domestic market. We have already tasted some of this tension in the net neutrality debate in recent months. In this context, one must not forget that global tech players like Facebook have a natural tendency to use their accumulated market power and dominance to create disruptions in the Indian market. Prime Minister Modi must remain mindful of these factors when he showers praise and personal attention on these global brands.
Let’s not forget that only last year 65 advocacy organisations in 45 countries released an open letter to Mark Zuckerberg protesting that Facebook’s launch of Internet.org “violated the principles of net neutrality, threatening freedom of expression, equality of opportunity, security , privacy and innovation”.
Tax on digital companies
Facebook’s ostensibly altruistic objective of offering free services to certain segments of Internet users through Internet.org is yet to take the developing world by storm. More discerning citizens understand that it could be a deep strategy on Facebook’s part to build a quasi-monopolistic ecosystem in the digital world. Global regulators, including the ones in the developed world, are yet to fully come to grips with competition issues in the digital space. There are intractable tax issues too, which specialised committees at the United Nations are grappling with. Tax jurisdictions are very difficult to determine for apportioning taxable income in the digital business. What proportion of Amazon.com‘s global profits is to be attributed to its business in India, Indonesia or Brazil for the purpose of levying tax? This question continues to trouble governments and regulators.
These and many other complex questions will arise as India tries to build its digital business landscape. This would require more nuanced answers to policy and regulatory questions, notwithstanding all the bonhomie on display at the Silicon Valley during the PM’s forthcoming visit. By being seen in Zuckerberg’s company, Modi may appear ‘cool’ to over 125 million, mostly young, Facebook users in India. There could be some political play there too. But hard reality will follow soon. Ultimately the government will be expected to provide a truly level playing field for the next 500 million Internet users and digital service providers to emerge in a properly designed, net neutral regime. That will be the biggest challenge.