Facebook is betting big on India again. Last week, it was formally announced that Facebook Inc. had signed binding agreements to make investments to the tune of $5.7 billion into Reliance Industries Limited’s subsidiary Jio Platforms. Reliance Industry Limited is one of India’s biggest multinational companies, owned by India’s richest man Mukesh Ambani. As of January 2020, Jio is the largest mobile network operator in India with over 370 million subscribers — a feat it had attained by initially offering the service free of charge.
Over the last five years, we have witnessed several alliances between pharmaceutical and agricultural giants such as the Bayer-Monsanto deal and the systematic horizontal expansion of companies in India, such as Walmart’s $16 billion acquisition of leading Indian e-commerce player Flipkart. While Facebook’s minority share in Reliance Jio is nothing like the 77 percent controlling share that Walmart acquired in Flipkart, the Facebook-Reliance Jio deal has to be evaluated closely due to its potential implications for the global tussle on data governance, and for politics on data sovereignty in the world’s largest democracy.
Sparring on Data Localization
Reliance and Facebook have been anything but close allies in the tumultuous geoeconomic debates that have shaped Indian domestic cyber policy over the past couple of years. Since the Reserve Bank of India’s 2018 directive, which mandated the local storage of all payments data, various entities in the Indian government have introduced a slew of data localization policies mandating some form of data localization. The most salient of these was the mandated mirroring provision in the August 2018 draft of the Personal Data Protection Bill prepared by the Justice B.N. SriKrishna Committee. This provision was diluted in the revised December 2019 draft that was tabled by IT Minister Ravi Shankar Prasad and restricted only to “sensitive personal data” and “critical personal data” — both with key exceptions
The flag-bearer of the group of large Indian technology companies supporting data localization was the chairman of Reliance Industries — Mukesh Ambani himself. He staunchly opposed “data colonialism” or the extractive economic practices of technology companies, which profited from the data of citizens from the Global South at the expense of economic growth and development in these countries. Interestingly, other big fintech players — Paytm and PhonePe — were in the pro-localization camp along with Reliance (a detailed list is on page 76 here). Anti-data colonialism ideology notwithstanding, the likely strategic thinking behind this was that these large players had data centers already set up in India, thereby putting foreign technology companies through the hurdle of setting up data centers afresh. Also with Reliance in the pro-localization camp were big Chinese players — Alibaba and Xilinx — who had not only set up data centers in India but also made key strategic investments in companies such as Paytm, as a recent report by Mumbai-based think tank Gateway House demonstrated.
On the other side of the tussle were Bay Area companies led by Facebook, which were desperate to avoid the onerous compliance costs of data localization and left no stones unturned in getting the Indian government to renege on their data localization mandate. Facebook’s public policy vice president traveled to New Delhi and teamed up with like-minded coalitions at industrial lobbying groups including the U.S.-India Business Council, the U.S.-India Strategic Partnership Forum, and the National Association of Software and Service Companies (NASSCOM) to drive home their point. They also took their message to the highest echelons of the U.S. government, with Secretary of State Mike Pompeo and Commerce Secretary Wilbur Ross making data localization a key sticking point in trade negotiations and strategic dialogue — in addition to President Donald Trump explicitly opposing data localization at the Osaka G-20 Summit last year.
Win-Win for Both Companies?
Reliance Jio Head of Strategy Anshuman Thakur and Managing Director of Facebook India Ajit Mohan have agreed that “both Facebook and Jio are independent entities and there’ll be areas that we will collaborate in but there will be areas where we will potentially not agree with each other either.” Further, they have clarified that there is no data sharing agreement between the two giants — although neither company has explicitly ruled this out in the future. Notwithstanding its minority share, the fact that Facebook now has a seat on the board of Jio Platforms might mean that its voice will be given greater importance in policy deliberations. The extent of this influence will have to be observed as consultations on key policies including the e-commerce policy and the Personal Data Protection Bill continue.
What is in this deal for both companies then? The answer lies in the age old diplomatic strategy of realpolitik — the prioritization of strategic dividend in a given set of circumstances over ideological dogma. Each company stuck their necks out on data localization not to preserve a set of normative beliefs but because it was in their strategic interests to do so. Ideological grand-standing was never going to obstruct smart business choices.
This acquisition benefits both companies. For Reliance, the equation is simple. The money is vital for fulfilling Mukesh Ambani’s goal of making Reliance Industries debt free by 2021. Over the past five years, Reliance Industries had invested approximately $39 billion in expanding the Jio digital ecosystem — a gambit that attracted over 370 million users but shot up net debt to around $13 billion. Facebook’s investment comes at a crucial time as a 20 percent stake sale in Reliance’s Jamnagar refineries to Saudi Aramco is likely to be delayed given the crude oil price fluctuations. Second, this deal gives Reliance leverage in the e-commerce space as Reliance Retail’s Jio Mart can now connect local vendors with customers through Facebook-owned WhatsApp’s messaging platform. Together, they can target a huge demographic with Jio having in excess of 388 million subscribers and WhatsApp boasting over 400 million.
For Facebook, the deal comes close on the heels of the nod from the Reserve Bank affiliated National Payments Corporation of India (NPCI) to allow WhatsApp Pay to operate in India, and its decision to comply with the data localization guidelines. Facebook has denied that this deal will help roll out WhatsApp Pay, it is currently in its beta rollout stage.
Most importantly, it allows them to tap the vast economic potential of India’s digital ecosystem while benefiting from the knowledge, reach, and political influence of a bohemian local partner. With Chinese opportunities effectively closed to the Silicon Valley giant and the banning of its Free Basics platform in India in 2016, this partnership was strategically important for Facebook to benefit from untapped data troves. However, this sparks concerns of unfair market competition and structural concerns for consumer welfare in India.
Broader Implications for India
The Swadeshi Jagran Manch, affiliated to the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS), the ideological patrons of the ruling Bharatiya Janata Party, are worried. Along with the Confederation of All India Traders (CAIT) and the Laghu Udyog Bharati, another RSS affiliate, they have argued that the deal will gift both companies the ability to monetize vast pools of data even though there is no specific data sharing agreement yet. Virendra Nagpal, convenor of Laghu Udyog Bharati, requested the Telecom Regulatory Authority (TRAI) keep a keen eye on potential net neutrality violations that may occur as a result of this deal. Despite the absence of clear supporting evidence in the public domain, their concerns are valid.
Apart from the implications for competition regulation, which have been discussed in detail elsewhere, there are two key implications of this deal for India’s political economy that we need to watch out for. First, this could mark a shift away from Chinese investments and prove to be a boost for Indo-U.S. trade and investment relations. This deal comes on the heels of a change to India’s Foreign Direct Investment (FDI) norms that make it more difficult for Chinese companies to continue investing in India. These norms certainly act as fetters to the AliBaba-Paytm alliance to compete with Jio Mart. While this “decoupling” may be necessary to prevent hostile Chinese takeovers of Indian companies during the economic downturn ensuing from the COVID-19 pandemic, excessive cozying up to big tech companies from the United States might ultimately compel India to renege on some of its core multilateral stances — most importantly its data sovereignty vision.
The second vital implication is for India’s constitutional ethos and democratic fiber. Facebook and WhatsApp have taken a stance for end-to-end encryption and staunchly resisted requests from the Indian government for tracing the origin of messages. Jio, on the other hand submitted to TRAI last year that all Over The Top (OTT) platforms should provide decryption keys and full access to user data when requested by law enforcement authorities. If Jio Mart operates in conjunction with WhatsApp then some policy convergence will be necessary at some point. Unlike Apple and Microsoft, which have fought against intrusive access requests from U.S. government agencies, Facebook has not taken any significant steps in terms of standing up to regimes to preserve and protect rights such as privacy.
Thus, it remains to be seen whether Facebook will use its position on the board to resist the combined will of both Jio and the Indian government on issues as end-to-end encryption. Big tech companies such as Facebook are uniquely placed to lead and effect changes in favor of user rights, given their global and pan-jurisdiction reach. These can be used either toward furthering or undermining the cause of democracy.
No one can be sure about where this deal and its associated realpolitik will take us. At this stage, we can offer no compelling answers but stress the need to remain vigilant and eschew complacency.