East India Company, Redux
Amazon is one of the world’s most valuable companies with a market capitalisation of $1.7 trillion. It is also a ruthless competitor that likes to dominate every market it operates in. India has proved a harder nut to crack than founder Jeff Bezos thought. Amazon trails Flipkart-Walmart on the gross merchandise value (GMV) and is embroiled in litigation with the Future Group.
Amazon is not the only American company trying to play hardball in India. Invesco, the Atlanta-based investment management firm, has for months tried to block attempts by the Zee group to recast its business. The merits of each case will be adjudicated in court but a larger question looms: as India grows into the largest consumer market in the free world, the relationship between Indian companies, regulators, foreign investors and multinational corporations needs to be reset.
With China not part of the free world, India’s pre-eminence as a large, expanding and dynamic marketplace will only increase. For the most part, foreign investors and multinationals have established excellent working relationships with Indian stakeholders: regulators, customers, shareholders and employees. Foreign companies recognise the growing importance of the Indian market.
With China turning inwards and placing tough restrictions on the domestic operations of global companies, India is in a sweet spot. Its assets are not just a large, diverse consumer market. English is India’s language of business; the judiciary (unlike China’s) is independent and based on Anglo-Saxon jurisprudence; technological talent abounds; the entrepreneurial ecosystem is strong. And yet history reminds us of certain lessons that Indian enterprises and regulators, as well as foreign investors and companies, must heed.
In 1599, a group of businessmen from England (Britain as a country didn’t exist at the time) approached Queen Elizabeth I to grant their company a charter for overseas operations. The charter was duly granted by the Queen in 1600 and the East India Company was incorporated. It began trading on India’s west coast, in Surat and elsewhere. English envoys paid obeisance to the ruling Mughals in the 17th-century courts of Emperors Akbar, Jehangir and Shah Jahan, using flattery to get more and more trading rights.
In 1707, the kingdoms of Scotland and England merged to form the United Kingdom. Within 50 years, the East India Company, with an army of mercenaries from Europe, the Middle East and India, had conquered Bengal. No longer were British envoys supplicants of the Mughals. The tables had turned. For the next 190 years, from 1757 to 1947, India’s colonised economy grew at an annual average of barely 0.25 per cent a year. Famines were common. Poverty spread. Traders and farmers were taxed at 40 per cent of their income. Widespread misery was the inevitable outcome.
It has taken India 75 years to shake off nearly two centuries of colonial vassalage and emerge as the third-largest economy in the world by purchasing power parity (PPP) norms and the fifth largest at current exchange rates. Unfortunately, India’s policymakers have not fully leveraged the country’s strengths while allowing its weaknesses to become economic speed breakers.
What are those weaknesses? They fall principally into three categories. First, over-regulation. Oversight is necessary but Indian regulators tend to be inflexible. For example, some of the Reserve Bank of India’s new rules governing the use of credit cards to prevent fraud have been over-zealous. The Telecom Regulatory Authority of India (TRAI) and the Securities and Exchange Board of India (SEBI) have intervened with a heavy hand rather than providing the light touch that good regulators deploy.
India’s second endemic weakness is the glacial pace at which the judiciary operates. India needs separate commercial courts where corporate disputes like Amazon-Future and Zee-Invesco can be settled quickly, transparently and professionally. The Supreme Court is not the appropriate forum for such commercial disputes.
The third weakness that prevents India from punching at its true geoeconomic weight is poor communications. Indian policymakers are reactive, not proactive. When the registration of several NGOs was not renewed on time recently, the government’s lethargic response allowed the media, domestic and international, to ascribe motives to the ministry of home affairs (MHA). The truth was less complicated. Most of the NGOs concerned had not filed their annual accounts. The moment they did, their registration was completed. In a 24/7 news cycle, rapid disgorgement of information is vital. Fake news fills the vacuum. Truth is the victim.
In the Amazon-Future and Zee-Invesco cases, the truth has been obfuscated. During a webinar organised by the independent policy, unit Think Change Forum, Dr. Sanjaya Baru, media advisor to former Prime Minister Manmohan Singh, minced no words: “The CCI has been made toothless. Look at its ability to punish people who are contravening competitive requirements. We live in an economy in which the powerful are able to set the rules. The fact is that Amazon is facing issues about regulation and competition and monopolistic and oligopolistic behaviour across the world and not just in India. A healthy debate is required on their practices and a healthy discussion is required on the role of regulators.”
Think Change Forum, pertinently added, “This (CCI) decision sends a strong message that MNCs disregarding sovereign laws of India and the authority of Indian lawmakers will do so at their own cost. It’s a lesson for Amazon who took pride in pushing the boundaries of what’s permitted by Indian law. Amazon challenged CCI in the High Court and Supreme Court. Amazon’s country manager failed to turn up on the ED’s summons. Amazon officials walked out of a CCI hearing and questioned India’s antitrust regulator’s power — that it lacks the authority to revoke an approval once granted. India is not the only country where Amazon has had run-ins with lawmakers. The company is facing investigation in the US on anti-competitive practices. Many will claim that CCI’s decision will dent India’s image as a foreign investment destination. However, to attract MNC investment at the cost of upholding local laws is not something any country will allow. India shouldn’t.”
The East India Company left economic scars on India that are still visible today. Amazon, Invesco and other foreign firms must learn the lessons of history or be condemned to repeat them.
