Does Flipkart's Sale Represent a ‘Manchester Moment’ for India's Digital Economy?

In retrospect, it will represent a tragic historic moment for the Indian digital economy that will be difficult to reverse.

Between the 18th and 19th centuries, the industrial revolution re-configured global economic and political power. As machines in Manchester began to spin the bulk of global textile production, within decades, India went from the world’s top textile exporter to a net importer. Between 1750 and 1900, India’s share of global industrial production slumped from 25% to 2%. It was not just because of western command over science and technology. It owed as much to political power and exploitative economic and trade policies. The impact of that shift – let us call it the historic ‘Manchester moment’ – still significantly determines where India stands vis-a-vis the developed world. India continues to regret missing out on the industrial revolution in time.

It is ironical then that we may right now similarly be losing out on another revolution. This contemporary ‘Manchester moment’ is about digital technologies and digital economy. As industrial revolution automated mechanical power, digital revolution is about automation of intelligence. Both represent fundamental shifts in human affairs. The digital revolution will as thoroughly transform our economic, social and political organisation as did industrial revolution.

This tragedy is unfolding right in front of our eyes, in a nation supposed to be in good political and economic control of itself. It also has sufficient basic competencies in digital technologies and conducting modern business. As it was in 18th-19th centuries, India’s failure is primarily political.

Missing the digital revolution

A decade or so ago, China trailed India in terms of IT or software technologies. How has China then suddenly become a digital super-power, posing a challenge even to the US? Digital technologies build over and subsume traditional IT and software, but are centrally about next-generation data-based systems.

It is simple. Just examine where in China (or US) all the cutting edge development of digital technologies – like artificial intelligence (AI), Interent-of-Things and blockchain – takes place. It is within super-large domestically-owned digital ecosystems like Baidu, Alibaba, Tencent and Didi. (In the US, these are Google, Amazon, Facebook, Apple etc). Unlike industrial technologies, digital ones are socially-iterative technologies that develop in real-world social and business settings, and not so much in laboratories. Innovating start-ups too get routinely bought and integrated into these ecosystems.

Over the last decade, China created ideal conditions for development of such large domestically-owned digital ecosystems, which catapulted China to global digital leadership. Both Chinese and US governments devote considerable public funds to partner with their private digital ecosystems for digital R&D.

And India? It first allowed Amazon to dump billions of dollars to close in on the domestic e-commerce market leader Flipkart. Not only were many other Indian e-commerce platforms suffocated in the process, domestic leaders like Flipkart had to off-load considerable equity abroad to obtain capital for matching Amazon’s cash burn. And now, most unthinkably, India is ready to sell its top e-commerce platform Flipkart to Walmart. Very soon, India’s two largest digital ecosystems will be foreign-controlled.

It is difficult to understand why India is inviting foreign corporations to own its digital ecosystems that are epicentres both of digital economy and development and control of digital technologies. It is difficult to think of a quicker path to total digital dependency.

Despite what most people think, digital platforms aren’t just ‘more efficient’ marketplaces. They are monopolistic intelligent agents that reorganise and control whole sectors, as they form backward and forward linkages – from manufacturing, inventory management and logistics, to payment and delivery. Each aspect and every actor is then closely controlled by them, as platforms posses overall sector intelligence. Just think of Uber’s influence on urban commuting. With their fingers dictating the entire consumer goods value chain, online retail platforms like Flipkart are a good proxy for major parts of India’s economy.

Credit: Reuters/Sergio Perez/Illustration/Files

Every sector’s economy will soon be digital economy. Not only consumer goods, all sectors – from B2B, to media, health, education, manufacturing and agriculture – are being similarly digitalised and platform-ised. As Google and Facebook today completely control digital information search and social interactions, so will all other sectors get digitally monopolised. And their controls would shift abroad.

Recent reports note that Google will join Walmart in its Flipkart acquisition. A network of a very few US companies is poised to completely control our economy, society and politics, especially as they become super intelligent and super powerful with AI. Does this threat look any less than what was posed by the East India Company?

Flipkart’s acquisition must be stopped

Why have we not witnessed much challenge to these problematic shifts?

The strategic significance of digital platforms as central and controlling economic agents of the entire digital economy, and as the real sites of development of cutting-edge digital technologies, is not commonly appreciated. What is even lesser understood is the importance of social and economic data that platforms mine and control. The Cambridge Analytica episode showed how socioeconomic behavioural data is of much greater strategic value than even geospatial data. It is rapidly being weaponised by advanced digital powers.

A new trans-national global elite class, quite prominent in India, benefits from and roots for seamless global digital integrations at any cost.

The succession of Indians to top-level positions at many US-based global digital companies, and the latter’s extensive back-offices in India, creates an illusion of our substantial role in the global digital economy. One loses sight of who actually controls digital economy and digital technologies, and how – like it happened with the mentioned historic ‘Manchester moment’ – such controls would shape global economic and political power for decades to come.

Beyond just focusing on more and more foreign direct investment (FDI), a distinction must be made between FDI that creates productive capacities and that which is largely used to extinguish competition, and therefore also innovation, concentrating economic controls, and transferring them abroad.

Whether traders, manufacturers, producers of primary goods (like farmers), logistics and other services providers, or software coders, every economic actor will simply be a ‘worker’ for sectoral platforms, performing within clearly defined work requirements, and terms and conditions.

Associations of workers, small producers and traders cannot remain agnostic between dominance of domestic platforms and of foreign ones. As long as digital platforms are domestic, Indian policy-makers can progressively ensure that everyone gets their rightful share in the digital economy. We can struggle and act politically in this regard. But it can be very difficult to regulate foreign-owned global platforms, which become extremely powerful through global control of any sector’s data and digital intelligence. We will just become abjectly dependent on them on a take-it-or-leave-it basis, as we currently are on Google and Facebook.

India recently begun framing its domestic e-commerce policy, with good indications of efforts at understanding what is really happening with the Indian digital economy. But for it to be meaningful, Walmart’s takeover of Flipkart must first be stopped.

A decade back, Walmart was refused entry into India’s retail sector fearing destruction of small traders in India. It is surprising then that we are today welcoming an e-Walmart, which is many times more (digitally) potent to finish them off. With its largely China-based global supply chains, it will also devastate the manufacturing sector. Amitabh Kant, CEO of Niti Aayog, declared last month, that brick and mortar businesses in India will be dead by 2023. Are we ready for the fall-out?

Resisting Walmart, Amazon and Alibaba does not mean turning our back on the digital economy.

Flipkart’s co-founder, Sachin Bansal, said last year, “…we are making a mistake by not thinking of Internet and technology as a strategic sector and depending too much on China and the US to build that for us…”. “We have the capability, we have the know-how to do this in India ourselves for our markets.” He had earlier advised: “We should do what China does – we need to tell the world we need your capital and not your companies”.

Not only China but also the US and EU are now disallowing foreign takeover of digital companies that are considered of strategic importance.

Left with mere 5% stake each, the two founders may not had have much choice in stopping Flipkart’s takeover. Snapdeal tried to brazen it out against global capital’s buy-or-kill approach, and is currently struggling. But India as a nation cannot be as helpless.

Exercising our collective national choice, the government should immediately disallow this takeover. In default, it will represent a tragic historic moment for the Indian digital economy that will be difficult to reverse.

Parminder Jeet Singh is with IT for Change, a Bengaluru-based NGO.