Startups Fear Collateral Damage In India’s Call For ‘Vocal For Local’

One doesn’t need a lesson in ancient history to know that Prime Minister Narendra Modi and the  Indian government’s call for citizens and businesses to get ‘Vocal For Local’ is not new. From the Swadeshi movement during the Independence struggle to the Green Revolution in the 1960s, India has always called on its people to back local goods and products.

But in the post-liberalisation era, India has been fast reduced to a large market, that’s akin to a punching bag for the consumption battle between the US and China. In an attempt to retain its economic independence and promote local goods, Modi’s plan undoubtedly has its heart in the right place, but it sorely lacks the one thing that the government has failed at even in the past.

At a time when India is badly hit by a prolonged economic slowdown-turned-recession and the Covid-19 pandemic, PM Modi announced the Atmanirbhar Bharat plan to back Indian companies, products and services on May 12. He urged Indians to go ‘Vocal For Local’ in a bid to create a self-reliant India and assert influence on the global economy.

The very next day home minister Amit Shah ordered that all the 1,700 central police canteens (CPCs) or CAPF canteens sell only local products from June 1 onwards.  A similar announcement was made by paramilitary forces canteen too.

Soon, the police canteen officials sent queries to all the major FMCG and grocery delivery and manufacturing companies asking them to list the products accordingly. On May 29, the CAPF canteens banned the sale of around 1,026 products, but soon after withdrew the ban as it included products from companies like Dabur, VIP industries, Eureka Forbes, Jaquar, HUL (foods), Nestle India.

While Modi announced over a dozen loan packages for Indian companies, however, the government has not issued a clarification over the interpretation of the ‘Vocal For Local’ campaign. Commenting over the campaign and the MHA notification, Nestle India CMD Suresh Narayanan recently said that while the PM meant ‘Make in India’, the context, unfortunately, has been misinterpreted in some quarters. “We have been here for 108 years and 99.7% of Nestle India employees are Indians. We hope there will be clarifications on the matter soon.”

The fact that misinterpretation of the rules happened within the government does not help matters as the situation will be worse outside the government. One can only imagine the plight of Indian startups that are foreign-funded or those that are registered outside the country due to regulatory reasons.

As happened in the case of US social media platform Snapchat after CEO Evan Spiegel had made an unsavoury comment about the Indian market conditions. Angry at the remarks, Indians started uninstalling and review-bombing the Snapchat app, but many also lashed out at Indian company Snapdeal in anger, even though the latter had no connection.

Naturally, there are worries that a small confusion would cost much to many Indian startups. At a time when startups are already fighting the economic crisis as if it’s their last battle, this complication will not help matters.

So it is of utmost importance to define what is local, what should be done to boost the campaign ‘Vocal For Local’ exactly, and what are the measures being taken on the ground, while clearing any iota of confusion that Indian consumers and organisations may have.

The First Big Question: What’s Local?

Whether one calls it ‘Vocal For Local’ or Atmanirbhar Bharat (self-reliant India), a finance ministry official told Inc42 that all have the same motto —  grow local demand and build a supply chain ecosystem. PM’s clarion call ‘Vocal For Local’ should be seen as an attempt to sensitise Indians on building an appetite for consuming local products and goods. Different ministries would promote the campaign in their own way. However, the self-reliant India campaign is a well laid out central plan where different stakeholders have already been assigned the work in order to achieve the same, as per the ministry official. The focus of Atmanirbhar Bharat is more towards meeting the supply-side requirements.

In order to bring clarity over the interpretation of ‘local’ as part of Atmanirbhar Bharat roadmap Shah recently told a news channel that local stands for “Made in India”.

Speaking to Inc42, Mohandas Pai, former Infosys CFO and partner, Aarin Capital explained if a company is registered in India and manufactures in India, it is a local company. Companies that are subsidiaries of foreign companies are also Indian companies for all practical purposes.

Tech startups are fast moving out of the country, registering themselves in Singapore, the US and other countries. Amid global recession and lockdown, startups in their fight for survival have been tweaking their products and services, aligning with the reality of social distancing and work from home culture.

The question is how would ‘Vocal For Local’ translate to startups? What will be the impact on startups?

Infosys cofounder and Axilor Ventures chairman Kris Gopalakrishnan told Inc42, “For many startups, especially B2C, the large market opportunity is in India. If you look at the startup unicorns in India, again they are servicing the Indian consumers. And their products and services are made in India for India. India is a services economy (>60%) and many of the startups have services solutions – India is the market.”

Gopalakrishnan is the chairperson of the committee of experts appointed by the IT ministry on non-personal data. He said with consumer spending at the lowest, India’s demand too has been deeply affected, forcing a significant number of startups and other companies to suspend their operations.

So, in such a situation, is it the right time for the government to lay down such a long term goal?

Gopalakrishnan explained, “Given that logistics is limited, there is no choice but to go local. If you look at retail, it is the neighbourhood kirana store that serviced the consumers during the crisis. Only just now, the large ecommerce players have started to take orders and deliver. It is in manufacturing that we need to localise. We need to localise the supply chains as many of the intermediate products and components are imported. The TV may be assembled in India, but the chips and boards are imported.”

Beyond managing the supply chain, India also needs to build self-reliance if it wants to be taken seriously as a tech superpower, said Amit Gupta, cofounder of adtech unicorn InMobi and micro-mobility platform Yulu.

“The US and China have become a superpower only because of the scale of economies they offer and it is essential for India to realise the importance of its large domestic market.”

“Back in pre-2000, we had software companies building B2B products for the listed companies in the western market. Now, the norm is that you start a B2B company here and then one of the founders move to the US in order to understand their market and make a winning product…For B2C startups, however, you need to fit into the country market else it will be impossible to create a winning product and a large company eventually,” Gupta added.

Anti-China Sentiment Hangs Over India

China has been another important factor behind the push for ‘Vocal For Local’. It has already started creating a war-like situation in the new union territory of Ladakh and has been opposing India on most international trade platforms. Besides, the countries are also fighting an economic trade war with each other, where China continues to dominate. Indo-China economic trade value from January to July 2019 stood at $53.3 Bn, out of which India’s exports to China were just $10.38 Bn (5.02% decline) while China’s exports to India were $42.92 Bn (2.51% decline).

Amid lockdown and recession, for many startups in the Indian ecosystem, the fear is that the end is near. Aarin Capital’s Pai said that most startups are solving India’s problem so they are all very local. But the problem is they don’t have enough capital. At least 18 of the 32 unicorns in India have some form of Chinese investment and many of them use Chinese technologies in critical areas too.

“Many of these startups today hold their board meetings in China. There is no clarity over where the data is stored. Is our data going to China, we don’t know. So, the Chinese influence is very strong. And, that’s why we may need such policies. However, it also needs policy changes to make sure that startups can access more capital within India.” — Mohandas Pai

Backing local goods could help India in the ongoing Sino-Indian border conflict and could also be understood by the Indo-US conflict analogy during the 1965 Indo-Pakistan war. With the US showing solidarity with Pakistan, India’s wheat supply from the States was severely constrained. Facing drought and a full-fledged war with Pakistan right after the 1962 China war, India was believed to be on the brink of collapse.

However, the then prime minister Lal Bahadur Shastri, urged India to fast for a day to address the immediate food crunch and also laid the foundation for the so-called Green and White revolutions which helped India become self-reliant in the areas of agriculture and dairy farming.

Similar to how the US tried to control India’s policies all those years back, in recent time, there has been a rising fury over Chinese imports, products and services in India. While Chinese companies such as Alibaba, Huawei, Bytedance, Xiaomi have made huge investments in India and indeed are market leaders in many categories. The companies have also set up their manufacturing base in India and thus have created direct/indirect mass employment in India.

However, on the flip side of the policy, most of these companies are directly protected and promoted by the Chinese government and many countries including Australia, Germany, Belgium and the US have banned numerous Chinese companies such as telecom giants ZTE and Huawei, drone manufacturer DJI and others. These companies have been grounded largely on the back of reports that their products may purposely contain security holes and backdoor access for the Chinese government to exploit and spy on foreign citizens.

Backed by its government, Chinese companies have built the world’s strongest and largest manufacturing base in the world. This is an area which still remains among the weakest points of India as far as self-reliance is concerned. While Modi’s Make in India campaign brought some momentary thrust, it has not been able to boost manufacturing in India as expected in terms of semiconductors and hardware manufacturing.

China has also been a huge factor behind the crumbling manufacturing sector in India. Pai further said that China has intentionally not opened up its markets to India and to Indian companies. “We have a $60 Bn trade deficit annually with China. And in the last 10 years, more than $500 Bn. China could have bought products like rice, wheat, sugar, etc from India. But, it does not. It could buy soya beans from India but it does not do so in large quantities. China has been hostile to India in buying and India has been very open.”

Hence, unless the Indian government takes a strong stand to make China open up the market and buy more from India, things won’t change, Pai suggested.

Easier Said Than Done: Critical Structural Challenges 

“You can’t just promote local, if the imported products are cheaper.” – Ravneet Singh Pholeka, chief business officer, Ather Energy

The INR 20 Lakh Cr has been a no show for startups, so If the government is really serious about promoting local manufacturing, local services, it needs to work on the essential structural changes that vary with every industry.

The government needs a bigger plan and execution in terms of structural changes, policy amendments and other systematic changes as the situation is drastically different in different sectors.

Ather’s chief business officer Ravneet Singh Phokela said each and every sector needs Himalayan steps to make India rise to the challenges of Make in India. In the EV sector, for instance, India has been largely dependent on China. According to the ministry of science and technology response in Lok Sabha in February this year, the import of lithium-ion (Li-ion) batteries has quadrupled from 2016-2018.

The quantity of lithium batteries imported and expenditure has grown from 175 Mn units valued at $384 Mn in 2016-17 to 450 Mn units valued at $929 Mn in 2019-20 (up to Nov 30). According to ministry of commerce data, China, Hong Kong and Vietnam are the top three nations exporting batteries to India. Chinese imports were worth $773 Mn in the last fiscal year with Hong Kong shipping $267 Mn worth and Vietnam $114 Mn.

India’s entire EV industry, as well as the renewable energy industry, are heavily dependent on China. Further, this makes Indian EVs much costlier than the Chinese imported ones. Naturally, Indian companies find it difficult to compete with the sellers who import all the parts from China and simply assemble them in India and sell it at much cheaper rates.

Ather Energy’s Phokela believes the issue has been addressed to some extent with the FAME scheme where the government has been incentivising the local vehicles. The importance of localising EV industry has already been identified and the government has indeed rolled out FAME II schemes which promote local manufacturing. The government as part of its EV policy has given a roadmap regarding the localisation of EV.

If you import from outside you won’t be able to benefit from EV policies. Besides battery cells, almost every part is indigenously manufactured by Ather, added Pholeka.

However, there are numerous issues in each and every sector that remain unresolved. Rameesh Kailasam, CEO of IndiaTech.Org an internet consumer advocacy group said,

“In EV alone, there are differential GST rates. The GST on battery inside the vehicle is 5%; battery outside the vehicle is 18%. Then if that is offered as a service, then there is a GST rate on service. Somewhere as a policy we need to look at it from an enabling point of view plus a market encouragement for consumption.”

These anomalies have to be removed from a policy standpoint, to make it more attractive for people to actually offer innovation and innovative services in EV space and so every other sector, Kailasam added.

That’s just one sector. In every sector, the story is almost similar. Dozens of policies and other market issues remain that need to be sorted to pave the way for a truly self-reliant India, where one can proudly be Vocal For Local, without just settling for an Indian product.

Mass Hysteria Hurts Brands

In the last few years, India has registered an exponential rise in its internet users, from 259 Mn in 2015 to 574 Mn in 2020 which is expected to hit 639 Mn by year-end. At one end, the internet penetration has deeply helped startups spread its legs across the countries, at times startups may have to face the online trolling as well.

In terms of the top 5 social media apps, India currently has the largest user base in the world. At one end, it has immensely helped startups in reaching more customers and addressing their grievances, but other times startups have become victims of the online mobocracy.

As mentioned earlier in the case of Snapdeal and Snapchat. Snapchat founder and CEO Spiegel had allegedly said, “This app is only for rich people… I don’t want to expand into poor countries like India and Spain” in 2015, The statement surfaced in April 2017 and brought trouble for Snapdeal just due to the similarity in the name, despite no connection whatsoever between the two companies.

Similarly, a controversial ad for washing powder Surf Excel resulted in many attacking tech giant Microsoft and its spreadsheet software Excel.

Amid rising outrage against China, startups fear the ‘Vocal For Local campaign’ may backfire on them. Startups such as Ather Energy and Yulu have already taken proactive measures minimising their imports from China. While Yulu has already joined hands with Bajaj, Ather Energy has diverted its lithium-ion cell imports to Japanese and Korean vendors.

However, online trolls seldom look into details before trolling and ‘Vocal For Local’ may turn into targeted harassment too, said many startups. There’s also the danger of false statements and out-of-context criticism against any startup with the mixed logic that it is funded by Chinese investors. Clarifications are always issued as it was by Snapdeal in the above case. However, it does have the same ripple effect as the initial hate campaigns do.

Yulu’s Gupta said funds are usually raised from Chinese, Japanese and US funds as part of strategies and should not be made an issue as Indian startups are catering to the local needs first.

“On online hate campaigns, there’s no good answer. Mob just does what it thinks is right, there is no personality. So, from a company’s perspective, the companies need to make sure that their act is always aligned with the country’s interest.”  – Amit Gupta

Pai said that for a startup, communication with consumers is paramount for handling online trolling and any potential backlash. He thinks if a company has got a majority of funding from China, it should clarify to its customers its data safety, storage and security practices.

As a long term solution on how online mobocracy can be dealt with in real-time, Kailasam said, intermediaries or social media platforms can not remain passive in such scenarios. The intermediaries guidelines must be tweaked and should force intermediaries to take down fake allegations instantly.

In fact, Google Play and Youtube has been hyperactive in recent days in taking down review bombs and forced low-rating.

Protectionism Vs Globalisation: Which Way Will India Go?

In the post-liberalisation era, policies such as Donald Trump’s America First or Beijing’s Made in China are often criticised for promoting protectionism. The latest version of Made in China 2025 aims to make China the world’s leading manufacturer in telecommunication, railway, and electrical power equipment by 2025. The policy intends to establish China at second or third in the world by 2025 in robotics, high-end automation, and new energy vehicles industries.

As a result, Chinese foreign policies are largely dictated by these gameplans. Since tech companies are often backed by the Chinese government, India’s independent and rather small companies have found it hard to compete with the scale the government association affords tech giants from China.

India’s Micromax, perhaps a forgotten smartphone maker, was not long ago snapping at the heels of the then world’s largest smartphone maker Samsung in India. However, the same company could not compete with Chinese smartphone manufacturers such as Xiaomi, and the BBK Electronics-owned Vivo, Oppo as well as Huawei and Honor brands.

The case is similar in other prominent areas. In such a scenario, Pai argues that India has no choice but to take steps to protect India and Indian companies. However, by doing so, does it violate the WTO norms and agreements by promoting protectionism?

Not according to Kailasam. “Promoting Vocal For Local is not violating any norms because it is not a policy that bans foreign companies. It’s a policy that simply encourages people to buy local products,” he said

At one end, while it is being said that it would help save local companies, on the other, some of the entrepreneurs have also expressed concerns over decreasing market competition and product quality.

In telecom, we have seen how over two dozen companies have now reduced to simply four. Similarly, in many areas, India simply does have any local market. For instance, in most of the sectors, the luxurious products are often foreign players, most exporting their products directly to the Indian market.

For instance, a consumer who is used to buying high-end international designer labels and collections, there’s simply no option in the local market.

Hence, it is essential to have a diversified ecosystem with room for competitive players to co-exist. Furthermore, we have seen half-baked apps such as Patanjali’s Kimbho and recently Mitron, which despite having some serious security lapses, gained initial traction in the name of local products.

Ather’s Phokela said it would be worrying if low quality and unfinished products get traction through the campaign, just because they are Indian. That would be against the spirit of technology.  

As we have seen in the ecommerce policies, the Indian government has a tightrope to walk on. While making policies sector-wise, the policymakers must look into the ASEAN and other markets, the import duties on raw materials and the local duties.

Besides revising the differential and outrageous GST plans, the imported products, in any case, should not be cheaper than the local products. The government, therefore, must revise the foreign trade agreements with most of the countries as it makes life difficult for the local startups in order to compete with foreign players.

The easiest way to increase local manufacturing and tech production is to get the government to release its existing stranglehold on this sector. “If you are manufacturing in India, but have to import some of the raw materials from outside the country as those are not available in India, the government must carefully impose tariffs and duties because, without raw materials, no manufacturing can happen,” added Kailasam.