Government’s push for regulating Google, Facebook is ill advised; people will pay for it

Published: March 8, 2019 2:46 PM

The Government of India is really focused on regulating the tech companies – whether it’s e-commerce norms that have upended the businesses of Amazon and Flipkart, data localization threats, changes to existing IT act, or privacy regulation.

An average Indian user might value the affordability of internet-based services a lot more when compared with concerns for European notions of privacy. (Representational photo)

By Ritesh Mehta

The Government of India is really focused on regulating the tech companies – whether it’s e-commerce norms that have upended the businesses of Amazon and Flipkart, data localization threats, changes to existing IT act, or privacy regulation. There is a very strong nationalist message behind it.

By regulating tech sector, which is currently dominated by US and Chinese tech companies, the Indian government wants to be seen as saviors for small businesses and Indian tech companies. They also want to gain access to user data for “national security” seasons. What the government isn’t talking about or likely isn’t thinking about is the price Indian users will have to pay if and when these regulations take their full effect.

Also read: Verdict in Rs 54,000 crore Essar Steel IBC case likely today; here’s what to watch for

Let’s take the example of data localization and privacy regulation and what it will mean for India’s favorite video platform, YouTube. YouTube is owned by Google. Google can make most of their services available to their users for free because these services are supported by ads. These ads are very successful because they are highly effective.

The ads are highly effective because they depend on user data to deliver targeted ads. In Google’s case, they gather data through our search history, maps usage, videos we watch, news we read, etc. At the moment, gathering and storing of data isn’t regulated in India.

Therefore, Google can follow the global best practices and collect data in an ethical way and store the data in a cost-efficient way around the world. If the Indian government passes the data localization regulation, it will force Google to store Indian users’ data in India and will enforce strict norms for how this data crosses India’s borders.

New privacy regulations will also make gathering of this a lot more cumbersome by introducing checks and balances that both Google and hundreds of millions of users will have to abide by. Inconvenience is not the real issue here. It’s the cost of doing business in this regulatory environment.

It will cost Google a lot more money to deliver these services to Indians in a world where they will have to comply with stringent, European style data localization and privacy laws. Google will not and cannot pay for this out of their pocket forever– they will either make the ads in India more expensive or start charging users money to access their services. If ads become more expensive to run, products/services become more expensive to buy. Either way, it’s the Indian consumer that ends up paying the price for stringent regulation.

This gets repeated for services like WhatsApp, Facebook, and all others who make their services and platforms available for free because they can monetize the data. The regulation will also impact Indian companies the same way. American and Chinese companies have deep pockets, and they might choose to take a larger loss on their Indian investments for a longer time and continue to offer their services for free.

But the Indian start-ups who mostly depend on borrowed money from VC funds will find it tough to operate in a highly regulated environment while they are still finding their feet. It is surprising that Indian start-ups aren’t realizing how this drive for regulation will hurt them in various ways.

Two most important ones are, 1) it will turn away some of their global clients who fear Indian government can come and access their data at any time under the garb of national security, 2) the burden of compliance will increase costs and make it harder to compete on a global scale. Indian start-ups working on Artifical Intelligence will suffer badly because you cannot win the AI battle without availability of free flowing, high quality data sets.

Does India have to have European style regulation for tech? I don’t think so. The notion of privacy in India is very different from other parts of the world. We are a nation that shares their passwords, ATM pins, bank account numbers, and other very personal details freely.

An average Indian user might value the affordability of internet-based services a lot more when compared with concerns for European notions of privacy. Heavy regulation of tech can work in Europe because the average European spends a lot more money on the Internet related services and doesn’t always depend on free or subsidized services. UK’s per capita spend of $4200 is 20x more than that of India at $205.

Hundreds of thousands of Indians run their businesses on these free services – think about SMEs that depend on Google Maps for people to find their business, Facebook page instead of an expensive website, and WhatsApp to make sure they send pictures of products to a potential buyer. India is still early in its journey of digital adoption and bringing heavy regulation now can really slow down the progress we have made in the last few years.

The government and civil society vying for stringent regulation of tech should think of creative approaches and look at light touch regulation that is optimized for India. Indians cannot be paying the price for heavy regulation that’s both unnecessary, and damaging to the thriving start-up ecosystem of India.

  • The author is a tech policy consultant, and has spent 14 years at Facebook and Google as an early employee across US and India. The views expressed are author’s own.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition