After the ban, what next for India’s digital ecosystem

To overcome weaknesses, foster innovation in the private sector; increase State capacity to govern new markets

The ministry of electronics and information technology (MeiTY) banned 59 Chinese digital applications available in India on Monday evening. The list of banned applications includes TikTok, a popular user-generated content platform, and UC Browser, the most widely used Internet browser in second and third-tier cities. The government ban, affected under the Information Technology (IT) Act, 2000, seems to form a part of the retaliatory strategy against Chinese incursions in Ladakh. This is the first time that India has used such a direct lever in the digital sphere, to react to military events.

Several commentators have warned that the Internet might splinter along national borders in the future, as countries such as India increasingly assert their sovereignty in cyberspace. This reality seems closer than ever, since the world is simultaneously witnessing the Covid-19 pandemic, a widespread economic slowdown and the destabilising impact of the trade war between the United States (US) and China. Uncertainty breeds fear-based responses like protectionism. This is evident in the responses of the US and the United Kingdom, which have signalled a retreat from globalisation, a framework they have championed for decades. The digital economy is not immune to such fundamental shifts.

It is worth asking whether India is prepared for a Balkanised digital world. According to Ericsson, global mobile data traffic was around 456 exabytes in 2019, of which India accounted for approximately 75 exabytes, or 16%. Around 14% of the global population resides in India, and therefore, it punches slightly above its weight in terms of mobile data consumption. However, India has not begun to generate commensurate economic value from this outsized data consumption yet. In fact, the global digital economy seems to mimic its physical counterpart, with the US and China making up the lion’s share.

According to the United Nations, the US and China account for 90% of the market capitalisation of the 70 largest digital platforms in the world. They also account for 75% of all patents related to blockchain technologies, 50% of global spending on the Internet of Things, and more than 75% of the global market for public cloud computing. It’s clear that the two countries will remain at the forefront of global technological developments, which will feed their dominance in the digital economy. The emergence of this bipolar digital landscape narrows India’s strategic choices. The world’s largest digital democracy must foster innovation, competition and scale in the private sector, as well as increase State capacity to govern new markets in parallel.

The biggest digital companies in the world are platforms that offer multiple functions. Such platforms now determine how a large share of the global population communicates, transacts, searches for information and services, buys consumer products, finds new jobs, stores data, distributes and markets products, and so on. Many of the companies that India banned on Monday also follow the platform model. They achieved multi-functionality and a global scale because, like the US, China allows its digital entrepreneurs to take risks. The People’s Republic of China picks winners and provides unconditional State support for its national champions to scale. On the other hand, the US provides legal certainty for innovation and competition to flourish. India will have to strike a balance between both these approaches.

In either case, sudden bans cannot be part of India’s playbook. The digital ecosystem is a breeding ground for the creative destruction of old methods of doing business. It must also prompt a revisit of old approaches to economic regulation, including blunt instruments reminiscent of the licence-permit raj.

India’s digital applications are governed by a 20-year-old law and an eight-year-old policy. Both are unsuitable to digital markets because they were designed for the business process outsourcing ecosystem, not for modern digital applications or platforms. Similarly, the Copyright Act, which provides incentives and protections for most of the content, organised datasets and source codes, that sit at the heart of the digital economy, was last amended in 2012. India’s top 10 digital companies are valued at a tenth of the Chinese equivalents, while its per capita income is about 44% of China’s. There is, therefore, room for India to unlock greater value through a digital reboot of rules and regulations.

Finally, just as India is revisiting its alignments in international relations, it may have to develop a cogent strategy for trade and commerce in the digital economy. If the revenues of information technology-enabled services are anything to go by, a majority of digital economy revenues will come from exports. A large share of these exports will head westwards. This trend will hold because the economic impact of the pandemic is likely to be more pronounced in developing countries than in developed ones. The country will need exports to offset the concomitant slowdown in domestic consumption.

Since global trade is built on the principle of reciprocity, India must do to others, as it wishes for itself.


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