FDI in Indian economy

The deal raises several concerns for privacy, net-neutrality and consumer welfare

Note4Students

From UPSC perspective, the following things are important :

Prelims level : 10 % condition for FDI.

Mains level : Paper 3-What are the implications of two dominant players in IT and telecom respectively coming together for data privacy and net neutrality?

Facebook’s decision to acquire a 9.99 per cent stake in the parent company of Reliance Jio could have several implications. It could impact retail stores which we are trying hard to protect by restricting FDI in retail. Second, it could have implications for net neutrality. Third, it would have implications for data privacy.

Implications for the country’s retail landscape

  • Recently, Reliance Industries and Facebook announced that the California-based social media giant will acquire a 9.99 per cent stake in Jio Platforms limited, the holding company of Reliance Jio, for $5.7 billion (Rs 43,574 crore).
  • At its core, the idea is to create an ecosystem around JioMart, enabling customers to access the local Kirana stores using WhatsApp, combining both offline and online retail.
  • This ability to connect millions of local businesses with end consumers, and provide them a seamless online transaction experience could radically alter the country’s retail landscape.
  • Both firms have stressed on the new opportunities for businesses of all sizes, and especially for the millions of small businesses across the country.
  • With the ongoing lockdown in the country only reaffirming the importance of the local Kirana store — major online delivery channels have struggled to reach consumers during this period — integration is bound to be an enticing proposition.

Opportunities for cross-selling

  • A scaling up of this model will also provide opportunities for cross-selling — significantly increasing the upside for firms and increasing the valuation of its retail arms.
  • At present, though, the reach of WhatsApp Pay is limited — just over a million Indians are reported to currently have access to the pay feature.
  • But this sort of model is popular in other Asian economies such as China, Korea and Japan where apps like WeChat have a wide range of product offerings, which induces consumer stickiness.
  • This arrangement also allows Jio to greatly expand its product offering to its more than 370 million-odd subscriber base.
  • The deal may also open up the entire WhatsApp consumer base of around 400 million — to Reliance, including those on other telecom platforms such as Airtel and Vodafone.

The following concern could arise from the deal and the UPSC can frame a question based on these concern, like ” Recently a global IT giant acquired a significant stake in an Indian telecom giant. Discuss the various issues which could arise from coming together of such dominant players.”

What are the concerns in such deals?

  • Implications for consumer welfare: Given the dominant market position of the players, concerns over the market structure and its implications for consumer welfare are bound to arise.
  • Questions over net neutrality: The tie-up also raises questions on net neutrality with the possibility of preferential treatment being granted.
  • Data privacy issue: Third, given the data privacy issues highlighted in the past by the Cambridge Analytica episode, for instance, there are apprehensions over the enormous amounts of data that will be collected by these entities.
  • This concern gains significance especially when India still does not have a personal data protection law.

Conclusion

Whenever two dominant players of respective fields come together, it gives rise to concern. The government must keep watch on the implications and how such a deal plays out in the future. If the concerns raised turn out to come true, maybe India should come out with the antitrust law of its own.

 

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