James Crabtree is an associate professor in practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is author of "The Billionaire Raj."
There are two ways of interpreting April's $5.7 billion deal between Facebook's Mark Zuckerberg and billionaire Mukesh Ambani.
The first is clearly positive for India, as its potentially vast digital market has tempted Facebook into buying a 10% share in Jio Platforms, a subsidiary of Ambani's Reliance Jio telecoms and data business. Zuckerberg is not known for buying minority stakes and this was his second largest deal, behind only the $19 billion purchase of WhatsApp in 2014.
The second interpretation is less rosy, given how hard it has become for foreign investors to prosper in India on their own, not least when they have to compete with a company as powerful as Reliance. This is all the more so in a digital sector riddled with erratic, techno-nationalist regulation.
Let's take the positives first. Facebook and Reliance are complementary. Ambani invested huge sums to build Jio. With nearly 400 million customers it is already the world's largest telecoms company by subscribers. It boasts millions of small business customers in its JioMart e-commerce offering as well. So far, though, Reliance has struggled to build successful social media apps, leaving a gap in its digital empire.
Zuckerberg also has a big customer base in India: more than 300 million for Facebook and over 400 million for WhatsApp. Given his lack of access to China, India is vital to Zuckerberg's future growth. Yet the company makes little money from all those users and has struggled to break into payments in particular.
The duo's partnership began gently with a new service allowing JioMart customers to order food via WhatsApp. Yet even this is significant, since it allows Reliance access to WhatsApp's customer network while creating a route for WhatsApp to begin earning revenue.
In the long run Facebook and Reliance could go on to create more ambitious Chinese-style mega-apps, bringing together payments, retail and social media, in the mold of Alibaba and Tencent. This explains why investors were enthused, pushing Reliance stock up by 10% and propelling Ambani past Jack Ma to become Asia's richest man, according to Bloomberg.
Yet there are three reasons to be wary of Facebook's deal given what it reveals about the direction of India's digital economy.
First, it is far from clear that Reliance's tech dominance, which Facebook will now help to cement, is good for India. Its vast telecoms investments have been positive for consumers in the short run, hundreds of millions of whom now have fast, cheap internet. But its heavy spending, most of it cross-subsidised from its oil refining businesses, has left other companies as wreckage strewed around the rest of India's already debt-laden telecom sector.
The scale of Reliance's ambition is impressive. "In India, Reliance dominates energy, telco, and retail in the same way that Exxon, AT&T and Amazon do in the U.S.," as analysts from Bernstein put it recently. But rather than an innovative Silicon Valley-style enterprise, Reliance looks more like a technology monopolist in the making, whose market power could holds potentially damaging long-term implications for competition.
This leads to the second worry, namely India's drift to techno-nationalism, which is also likely to be an underlying rationale for Facebook's deal. Helping Reliance create a huge new tech empire is now almost an explicit national aim. Many Indian policymakers back creating new digital champions, including at least one global giant to rival Alibaba or Facebook itself, a role only Reliance can plausibly fill.
Pursuing this aim is dragging India down a techno-nationalist path. "India's data must be controlled and owned by Indian people and not by corporates, especially global corporations," Ambani said in 2019. A range of regulations have followed, from data localization rules to e-commerce laws helping local players. Facebook may well have decided it needed an Indian partner to offer some measure of protection against being viewed as a feckless global outsider.
This leads to the third and largest problem with Facebook's deal, namely the state of openness to foreign investment in India in general. Prime Minister Narendra Modi styles India a magnet for international businesses. Yet the record of large foreign companies there is poor, and especially so for those who square off against Reliance.
The Indian business of Britain's Vodafone is now in ruins, following a series of damaging claims from India's tax department and a brutal price war against Jio. Walmart spent $16 billion to buy Indian e-commerce group Flipkart in 2018 only to find its business hampered by a range of regulatory and tax challenges.
Next up will be Amazon, which has invested heavily in Indian online retail and now faces a fierce battle for survival as Reliance moves more fully into e-commerce too. In general it is getting harder for foreigners to compete.
Then there is the specific problem that in India you can either be with Reliance or against it. Those who chart the latter path have a habit of coming off second best. Facing such a choice, Facebook may well have decided that $5.7 billion was a small price to pay.