Why India must open the door to global competitors in ecommerce and other sectors

Vivek Srinivasan is the managing director of Prudence Advisors, a boutique consulting firm that specializes in early stage startups in India.

Since independence, India has had a policy of protecting Indian businesses. The thought behind it was that in a nascent economy, where businesses lack the the experience to stand the onslaught of international competition, giving them time to learn was essential.

But when you are not challenged and your existence is not threatened, you rarely tend to learn. After all, if you want to learn to swim, the best way is to jump into the deep end of the pool. Your survival instincts will take care of the rest.

In the early years of independence, Indians were extremely sold on the idea of buying ‘Swadeshi’ (locally produced). Then, even if the policy had permitted them to, I don’t think people would’ve opted for foreign products. There was no legitimate reason for protecting Indian businesses back then, and I don’t see any legitimate reason to do so now.

To this date, the mistake of the first policy makers has not been completely wiped out. The Indian government kept protecting the manufacturing sector from international competition. Well, now we have no manufacturing sector any more.

In the 1990s, India underwent the first round of economic reforms, which let foreign companies enter into some sectors. Unlike China, there are several sectors such as information technology, where 100 percent ownership by a foreign entity is possible in India. Global behemoths like Microsoft, Google, and Facebook operate their businesses on Indian soil with little to no restraint. These businesses have helped create thousands if not millions of jobs.

However, in many sectors, including multi-brand retail, insurance, defence, and ecommerce to name a few, there is no such freedom. In most of them, foreign ownership is still curtailed to between zero and 25 percent.

The policy-makers in India seem to forget:

Good business begets jobs; Jobs beget wealth; Wealth begets growth; Growth begets business.

One thing, I have learnt while working with Indian startups is that starting a business is about making a series of decisions for your customers, whether in product or services. If you make good decisions for your customers, you are able to create value and the customers will reward you by giving you more business. If you make horrible decisions, customers will avoid you. Simple.

Drawing an analogy here, policy is about creating a fundamental framework – economic and legal – within which businesses are supposed to function. If you create a great framework, businesses will thrive. If not, they will die. For years in India, consumers have been the victims of these protectionist policies, which have thrust inefficient businesses as the only choice.

For example, imagine that I am a restaurateur. I decide to source vegetables from a farm that does not provide good quality produce just because I am afraid that he will go out of business. Would that be good decision for the customers who come into my restaurant? Would you like to eat to my restaurant? Come on! We are saving a poor farmer by feeding you bad vegetables.