Digital India: It’s important not to get carried away by the effervescence of PM Narendra Modi’s visit to Silicon Valley.
It’s wonderful Apple CEO Tim Cook has indicated his firm may be looking to set up a manufacturing base in India. On the face of it, it’s not so surprising given India is a huge market, the fastest growing and probably the most aspirational. Any multinational that operates on the scale that the $182 billion Apple does, would want to diversify risk – for several reasons including political, geopolitical and financial. After all, the Philippines took away market share from India in the BPO business because customers believed they were getting a better deal there.
But it’s important not to get carried away by the effervescence of PM Narendra Modi’s visit to Silicon Valley. The enthusiasm of the CEOs of the world’s largest tech firms in wanting to help India up the digital curve, seemed to be contagious with almost every one of them committing to do his bit. It helps that many of them are Indian. Nevertheless, the prime minister deserves credit, it is necessary to stress the importance of technology however obvious it may seem.
However, bringing broadband connectivity to 5,00,000 villages is easier said than done. And in all the excitement it would be important not to lose sight of the ground realities. It was Cisco Executive Chairman John Chambers who highlighted them when he said the Indian government needed to reduce regulations by removing all the hurdles if campaigns such as Make in India and Startup India were to succeed. Cisco has committed large investments to India in the past and is expected to spend some $2 billion this year so, Chambers has a good idea of what he’s saying.
That it’s not easy to do business in India is no secret and while the prime minister may promise there will be less red tape that is unlikely to happen; after four months the government is yet to define what an online marketplace constitutes, whether the e-retailers are B2B players or B2C players and to figure out whether or not the private equity money flowing into e-commerce players is foreign direct investment (FDI) or not.
The lack of clarity in regulations extends to matters of taxation – look what happened to the Sriperumbudur unit of Nokia which was shut down after a tax dispute with the tax authorities – and can be a nightmare for manufacturers. Even government officials are understood to have conceded in private that one reason Nokia wanted to leave India was because it was getting much better tax terms in another country in South Asia. It’s true multinationals have survived India’s rough regulatory terrain but for many it hasn’t been a pleasant experience.
So, when we believe we may be able to wean away manufacturing facilities from China, we need to think again. Interestingly, given the sharp slowdown in Chinese manufacturing – which contracted for the seventh straight month in September to a record low – labour is likely to become cheaper. One report showed that for German firms operating in China, the growth rate is now 8.1% compared with 10.2% in 2012.
As IT consultant Siddharth Pai puts it, the vision for a Digital India is great and there could be some serious follow through, but the question is how much and how soon it can be achieved. Microsoft, for instance, is already entangled in a tax case and while many MNCs who are already here simply try and live with it, those wanting to come in, may think twice.