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India widens regulatory grip over tech firms

In 2023, India introduced a series of regulations and tweaked policies that borrowed from Europe’s antitrust approach and Chinese-style government surveillance, alarming executives and investors in the world’s most populous market. Additional regulations are on the horizon in 2024 as New Delhi continues a regulatory shift to more tightly govern the tech sector.

Last year, the Goods and Services Tax (GST) Council began levying a 28% tax on online gaming, casinos and horse racing, severely hitting India’s once fast-growing fantasy sports startups. Leading investors — including Peak XV, Tiger Global and Steadview Capital — warned Prime Minister Narendra Modi the measure would eliminate $2.5 billion in market value and 1 million jobs.

Kavin Mittal, founder of Indian messaging startup Rush, said the new tax felt like a “bazooka” pointed at his firm. The investors wrote that the law, which took effect later in 2023, discourages “prospective investments to the tune of at least $4 billion in the next 3-4 years,” stifling growth of the gaming sector. MPL, a leading fantasy sports startup, eliminated half of its workforce.

Some Indian online gaming companies have since started exploring markets in South Africa and Latin America to sustain their businesses amid the new tax regime affecting their revenues in the home country.

“We never wanted to be in a situation where I may have to say what I’m going to say that India, at the moment, does not look like a unit economics-viable business country for online gaming,” a founder told TechCrunch.

India also enacted a new telecommunications law in 2023, seeking to update its antiquated rules from as early as 1885 made for the telegram era. The law grants New Delhi heightened ability to monitor networks and traffic data for national security interests. Though it does not explicitly include over-the-top (OTT) services such as WhatsApp and Zoom, Meta India policy head Shivnath Thukral warned employees the government could apply the law to Meta’s services in the future.

Privacy advocates cautioned the new telecom law provides India authority to undermine encryption and confidentiality.

Later this year, the Ministry of Electronics and IT will look to enforce Digital India Act, which seeks to replace the IT Act of 2000 and oversee the market practices of large tech companies.

Streaming platforms like Netflix and Amazon Prime are also facing more scrutiny over content deemed vulgar, with a November proposal asking firms to form committees evaluating individual shows and movies.

With over a billion potential new customers, India has become a crucial growth market for global tech titans and investors alike. Giants such as Google, Meta, Amazon, Apple, Microsoft and Netflix have funneled tens of billions of dollars into the country in a high-stakes race to tap into its massive scale and capture the next phase of their growth.

Global venture capital, private equity and hedge funds have invested over $100 billion in Indian startups in the past 10 to 12 years. India began advancing more protectionist policies roughly five years ago. Alongside attractive incentives from New Delhi, this has fueled growth in domestic manufacturing capabilities.

Google chief executive Sundar Pichai urged India in December 2022 to draft regulations in a way that can help the nation benefit from open and connected internet. “It’s important to make sure you’re balancing the safeguards you’re putting for people and creating innovative frameworks so that companies can innovate on top of certainty in the legal framework,” he said.

In January 2023, the Ministry of Electronics and IT proposed forcing social media platforms to remove content deemed “fake or false” by the government’s Press Information Bureau. After strong opposition on free speech grounds, an April revision empowered a government panel instead of the PIB to identify “misleading” posts about the state.

In August, India greenlit its first data protection law giving New Delhi more control over how tech firms process Indian users’ data, while allowing some data transfers abroad. An industry group representing Apple, Google and others requested an extended compliance deadline from the Information Technology Ministry.

Later in 2023, India spooked computer vendors by restricting laptop, server and consumer device imports to boost domestic manufacturing. However, after initial worries, many firms committed to ramping up production lines in India.

And in a move affecting fintech startups, India’s central bank raised risk weights on unsecured loans to slow quick growth in consumer credit. It followed a broader crackdown from the Reserve Bank of India to fintech startups in 2022 that impacted many neobanks and card-issuing firms.

“The RBI’s enforcement actions against fintech companies and its advocating for more stringent regulations impacting their operating and revenue model,” PWC said in a report.

In September, telecom operators in India, the second largest wireless market, would like internet companies to compensate for using their networks, a recommendation they’ve made to the local regulatory body, echoing a viewpoint that is gaining some momentum in other parts of the world but also stoking fears about violation of net neutrality.

Indian policymakers argue that the regulations protect consumers. And to be sure, not all regulations that New Delhi has proposed have received backlash.

In a meeting with OpenAI co-founder Sam Altman, Modi and his officials assured the entrepreneur that India will take a “light” approach with regulating AI, a person familiar with the discussion told TechCrunch.

But for numerous American firms, life is getting increasingly challenging in India.


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