India Looks to Curb U.S. Tech Giants' Power

By Newley Purnell 

NEW DELHI -- Indian policy makers are looking for ways to tamp down American tech behemoths, a shift that could crimp growth potential in one of the biggest remaining open markets for their expansion.

India wants to slap new rules on Amazon.com Inc., Apple Inc., Alphabet Inc.'s Google, Facebook Inc. and other firms, using a page from China's playbook to take control of its citizens' data and shelter homegrown startups.

The proposed rules, which have emerged in recent weeks in a series of private, draft government policies, have U.S. tech companies concerned, according to people familiar with the matter. American firms are betting billions on the Indian market because, unlike China's, it has been relatively open to foreign competitors. That might be about to change.

"It is unprecedented and it needs to be taken very seriously," said Vinay Kesari, a Bangalore-based technology lawyer specializing in regulatory matters who has worked with U.S. tech firms. "It could have huge implications."

A draft of a new e-commerce policy, reviewed by The Wall Street Journal, repeatedly calls for a "level playing field" and outlines new rules for "encouraging domestic innovation and boosting the domestic digital economy to find its rightful place with dominant and potentially non-competitive global players."

Data created by users in India from e-commerce platforms, social media and search engines would need to be "stored exclusively in India," the draft says, adding that the government would have access to it.

The policy draft also suggests closing some of the loopholes that allow foreign e-commerce companies to skirt restrictions on foreign ownership of retail.

Indian policy makers and some local startups are worried the South Asian nation is missing an opportunity to develop its own world-beating tech titans. They see how China's restrictive policies have helped it create some of the world's biggest and most innovative tech brands, including Alibaba Group Holding Ltd. and Tencent Holdings Ltd., and want to give Indian companies more breathing room to grow.

For U.S. companies, India is a prize worth fighting for. It now has 390 million internet users, more than the U.S. and second only to China, according to a report from consultancy Bain & Co. Its e-commerce market is expected to be worth $33 billion this year, three times greater than what it was in 2015, according to research firm eMarketer.

Amazon is spending $5 billion to boost its operations here. It dominates the e-commerce market along with Flipkart, a homegrown company that Walmart Inc. bought for $16 billion earlier this year. A handful of smaller, local online shopping startups are vying for the few remaining online shoppers. Amazon and Walmart declined to comment.

While it is still uncertain if or when the new policies will be implemented, they could hamper Google, Facebook and its WhatsApp messaging service, which have hundreds of millions of Indian users and typically use servers around the world. Google, Facebook and WhatsApp declined to comment.

To house data locally, the companies could have to make use of local data centers, which would be costly and could prove disruptive to their operations, said Tarun Pathak, an analyst at research firm Counterpoint. Another concern would be ideological: American tech firms typically want to protect data from government snooping except in extreme cases.

Many Indian companies, which also store their data outside of the country, would also be affected, said Ashish Aggarwal, head of public policy at Indian tech-industry group Nasscom.

Separately, a draft report from a panel working on the Indian government's cloud-computing policy recommends data normally kept in the cloud be stored in India. That could affect Amazon's popular cloud-services business, along with a similar service offered by Microsoft Corp. Electricity, which data centers demand, costs more in India than in many countries, and a surge in demand here could incur additional costs. A Microsoft spokeswoman declined to comment. A spokesman for Amazon Web Services didn't respond to a request for comment.

Similar data-storage requirements in China forced Apple this year to begin shifting iCloud accounts of China-based customers to a local partner's servers. It also will store encryption keys for those accounts in China, a change that alarms privacy specialists. It historically stored encryption keys exclusively in the U.S. for all global users.

Meanwhile, India's main telecom regulator has threatened to punish Apple for refusing to make a spam-blocking app created by the regulator available on its App Store, according to an official at the Telecom Regulatory Authority of India. Apple has been reluctant to accept the app, which is designed to counter unwanted text messages and phone calls, because it violates users' privacy, analysts said. Indian authorities have told telecommunications companies to cut off iPhones if Apple doesn't cooperate, the official said. An Apple spokesman didn't respond to requests for comment.

The proposed policies come on the back of an outcry by Indian politicians and authorities about a spate of lynchings triggered by rumors spread on WhatsApp. WhatsApp has tried to slow the flow of information on its messaging service but authorities say the company isn't doing enough. They want more control to see who is spreading rumors and try to stop them, analysts say. A WhatsApp spokesman declined to comment.

--Rajesh Roy, Tripp Mickle and Jay Greene contributed to this article.

Write to Newley Purnell at newley.purnell @wsj.com

(END) Dow Jones Newswires

August 13, 2018 13:00 ET (17:00 GMT)

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