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Recent Stand-off Between India and China Affecting the Tech Ecosystem in India

Recently a decision was taken by the Indian government to block access to Chinese apps. This ban has significant consequences for consumers in India that use these apps daily. It also gives tech companies in India a reason to worry as Chinese investors may hold off on investing money into startups in India. On the consumer side, we have TikTok banned along with 58 other mobile apps. TikTok is a social app, with over 100 million active users in the country. TikTok has served as a platform for a lot of marginalized people who usually wouldn’t reach out to larger audiences, such as smaller independent artists and content creators. The app is lightweight and thanks to affordable internet for people in rural areas, everyone can interact and upload content online through their mobile phones which are then shared with the millions of users in the TikTok network. Another immensely popular app which was banned is WeChat, an app that many people across India and Indian expats use to communicate through, to send chat messages and do video calls.

The reason behind this ban is a concern that these apps are connected to activities that threaten the national security and defence of India. This ban can be viewed as a drastic development in a stand-off between India and China following deadly battles between Indian and Chinese military along the Himalayan border in June. The clashes led to the death of at least 20 Indian soldiers and an undisclosed count on the Chinese side. The Indian government stated that they received reports of apps stealing and sending data to servers outside the country, which compromised national security.

Asserting Political Power

This is the second political power move the government has done recently. Earlier this year, in April, restrictions were imposed on foreign investments from bordering countries. If a bordering country wants to invest money, they would need official approval from the government to do so. The startup ecosystem in India has a lot to worry about, considering that many of the countries biggest tech unicorns are heavily backed by Chinese companies such as Tencent, Alibaba and Xiaomi. Alibaba, for example, is one of the leading investors in the e-commerce payment system and fintech company Paytm and its subsidiaries. Experts and entrepreneurs now fear that many foreign investors will now hold off on pumping in more money. Instead, tech startups in India will have to look at other geographies to attract venture capital. 

The big challenge with other geographies is that they may lack the same investment philosophy that the Chinese investors have. Most tech unicorns in India are still operating with heavy losses, which means that these companies are in a very capital-intensive phase. The Chinese investors have a strong faith that the Indian market will evolve in the same way that the Chinese market has. So the faith and patience behind Chinese funds are essential as tech unicorns such as Paytm, Swiggy, and Zomato are burning through their capital to cover losses. At this point, companies as such need as little pressure as possible from investors and the Chinese trusts the process and believe the trade-off of having a significant market share is worth their while. So the challenge for startups in India is to find passive investors in new geographies that are willing to put in significant investments with a delayed return.

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