In the past year, there has been a lot of policy thrust on making India achieve independence in semiconductor manufacturing. But true independence cannot be attained without owning the software layer on top of the hardware. In other words, India must prioritise making its own software products.
In a country that is well-known for IT services prowess, we lag far behind in products that we even import basic things like email or cloud storage. Currently, India is a net importer of software products by a wide margin. A 2019 white paper on the Ministry of Information Technology website says that India imports software products worth about $10 billion. But this number is likely to be an underestimate given that even today a lot of software purchases are paid for through personal credit cards. Add to it, the import of performance marketing solutions, and so on, and the total imports could be close to $30 billion. Ironically, a fraction of these imports might be from companies founded in Bengaluru but based in Delaware.
Why do we need software independence in an open world unless the software comes from hostile neighbours? A recent article by H Warudkar and Arvind Gupta very elegantly put that “…one of the key factors affecting value co-creation is inherent “trust” in digital platforms.”
The government has many platforms like the Unified Payments Interface (UPI) and Open Network for Digital Commerce (ONDC) which are governed by the laws of our land. But the biggest platforms still remain in the hands of global private players. When our laws don’t have jurisdiction over these companies, trust is difficult to build. An ecosystem cannot be built around a platform that does not obey the laws of the land. The snub to our Parliament by Twitter after its CEO was summoned by a House committee and the finding of abuse of its dominant position by Google which led the Competition Commission of India to impose hefty fines are recent examples of such behaviour.
That apart, there are three broad benefits from a tech ecosystem that is ‘domiciled’ in India — direct job creation, technology know-how creation, and wealth creation.
Given these benefits, why haven’t we built software products for local markets? For the longest time, a simple thing like recurring payment, the backbone of software as a service (SaaS) products, was available only for foreign software players due to our lopsided banking regulations.
This is just one example of how India has not even given a level playing field to domestic players. If you need more such examples, just ask any mobile gaming company or mobile app company in India.
No wonder then, founders are more eager than earlier to go as far away from Indian regulators as possible. This brain drain is exacerbated by other rules as well. As Tejesh Chitlangi wrote in a recent article, the Securities and Exchange Board of India (SEBI) needs to positively enable the VC industry that channels Indian money into Indian tech companies. Any changes to the Alternate Investment Funds (AIF) regime will only strengthen the resolve of Indian fund managers to domicile offshore. A lock of funds available domestically in turn will push start-ups abroad.
We have celebrated for a while that we are seeing a reverse brain drain, accelerated by the COVID pandemic. Also, we take pride that our best and brightest are not even going abroad but joining local start-ups. But guess where are these game-changing start-ups domiciled?
Delaware, Dubai and Singapore.
Odds are high that the next Google, Adobe or Microsoft will be founded by Indians staying back or coming back. But if Satya Nadella was to come back to India and start another company, the company will still be based in Delaware.
The long-term strategic implications of having a domestic software product industry haven’t escaped the government, but the signals are somewhat mixed.
The photo-ops of leaders of global monopolies with the leaders of the Indian government have been so prominent that they can deter any local founder from daring to compete. Or even complain. That may not have been the intention of the government, but the impact on the founders’ psyche is real.
One step to counter this could be implementing a Digital Competition Act and prescribing a code of conduct for tech giants as advised by the Parliamentary Standing Committee on Finance, led by Jayant Sinha.
Venture capitalist Sanjay Swamy gave a fantastic suggestion recently on creating GIFT city as a sandbox for hosting all Indian and global tech companies. This can be massive in its impact.
Remember, how the government brought a revolution in the auto industry through the Maruti Suzuki deal. The auto component ecosystem around India’s biggest car maker then fuelled growth in the entire auto industry and helped India emerge as an exporter of cars.
Perhaps, Google can be urged to set up Hindustan Google and develop tech out of India. As of now, all the know-how of Google remains in the US and the India office has largely sales teams.
If the start-up industry wants a software independence movement, it needs to work with the government on a vision, and from there one can ask for Budget amendments, laws and regulations.
Anand Lunia is general partner, India Quotient. Views are personal and do not represent the stand of this publication.
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