[The Outline By Inc42 Plus] Biden Win & The Indian Tech Story

Dear Reader,

Is that a glimmer of light we see after several dreary months? 

We are supposedly closer than ever to a coronavirus vaccine, after nine long months, the pandemic seems to be subsiding in India — at least, for now — and with the festive season here, consumer and business spending is also growing gradually, which may be a sign of recovery. 

On the other side of the world too, there’s hope — after years of rash policymaking and foot-in-mouth decisions by President Donald Trump, there’s a change at the top with Joseph Biden set to take charge. As ever, the US presidential race is not just about the US, but changes things for the rest of the world too, given the domination of US tech companies and investors in India and in other countries. 

The US is by far the biggest source of funding for Indian startups and the technology sector, with US-based private equity and venture capital firms having ploughed in over $12 Bn between January and September this year alone.

Of course, the numbers are a bit inflated given the billions poured into Reliance Jio, but even so, in comparison to previous years, there’s been a glut in 2020 — US investments in India have consistently tracked just above the $2.5 Bn mark in the past five years.

The linkages between Indian startups and Silicon Valley continue to be extremely strong, with an increasing array of cross-border B2B stories like Postman, Druva, Icertis, Freshworks and GreyOrange, while on the B2C side, the largest backers of India’s consumer unicorns like BYJU’S, Flipkart, Zomato, Swiggy and Unacademy are also based in the US.

The major change coming at the top in the US next year has been greeted with wide grins even in India. That’s because, even if US investors had been sweet on the Indian market earlier, there was some tension in the air with recent changes in the tech ecosystems in the India and US, particularly in regard to Chinese tech companies. 

Sanjay Nath, managing director of VC firm Blume Ventures, considers Biden’s victory as a sign of the US becoming more predictable and consistent with key policies. The PE and VC industry, which have really long-term horizons, welcome such consistency.

“Biden’s campaign, like most Democrat campaigns before it, was supported by big tech who have been impacted by the Trump administration’s immigration and visa policies. Big tech companies such as Facebook, Google have large stakes in Jio (for example), and their support for Biden should therefore bode well for Indian startups,” Nath added. 

Vivek Wadhwa, distinguished fellow and professor at the Carnegie Mellon University Engineering, Silicon Valley, agreed with this assessment and said that Biden’s policies will be friendly towards VCs, the startup ecosystem, innovation and science both in the US and also other countries — more so as his chief of staff Ron Klain is from DC-based VC firm Revolution. 

However, one point of concern raised by investors and ecosystem enablers is the possible impact of promised tax regime amendments (featured in Biden’s campaign manifesto) on startup funding in India. The US president-elect has proposed raising the corporate tax rate and treating the long-term capital gains over $1 Mn as ordinary income, in effect taxing returns from VC investments at a higher rate. 

This will naturally impact startup funding in India too. At present, long-term capital gains in the US are taxed at 20% which is much lower than the highest income tax bracket of 37% for ordinary income. If LTCG is taxed as income, investing in VC funds might become less attractive for wealthy investors and limited partners in the US. This could have a chilling effect in fundraising in the US, but all of this is just theory at the moment. 

The second promise — of increasing corporate tax rates back to 28% from 21% — might mean that PE/VC funds offloading stakes in a hurry before the new tax regime kicks in. This could result in founders being pushed to hurriedly negotiated exits, at least as a second-order impact for some startups which have exit potential. 

There’s, of course, a way to go before these become enacted and despite the risk of short-term disruption in funding, India would stand to benefit in the long run.

“Any tax hikes may hit US equities the hardest, which may result in greater inflows into emerging market equities. This would result in India’s stock market seeing greater inflows and once the dust settles and this could push Indian investors to diversify by investing into VC funds and startups,” said Siddarth Pai, founding partner, 3one4 Capital and co-chair of industry body Indian Private Equity & Venture Capital Association’s (IVCA) regulatory affairs committee. 

Moreover, the higher US corporate tax rate may arrest the flow of Indian startups registering in the US, which — among other advantages — was seen as moving to a friendlier tax regime. 

Impact On Talent Movement 

The second major change with Biden as the US President would be to immigration-related regulations. He has pledged to set in motion a number of immigration-related actions in the first 100 days of his administration — which may be enacted to varying degrees of success. 

But for Indian immigrants in the US, or those looking to move to the US for jobs, some of these proposed changes could finally bring some semblance of stability. 

Sachin Gupta, CEO and cofounder of HackerEarth, a startup enabling organisation to hire coding talent expects Biden to focus on building technology skill sets to accelerate the economic growth in the US. This is likely to give thrust towards IT spending, benefiting the Indian IT services companies in the US. 

“This may also benefit the movement of the Indian IT professionals for project-related work visas. Right now, immigration policies in the country are at the discretion of the USCIS. We hope that the new administration will bring in more transparency in the process, making it easier for Indian startups to sell in the US and build a base here,” added Gupta.

The past five years have been tumultuous to say the least for the immigrant talent base in the US. The so-called American Dream fuelled by the success of Indian leaders at Apple, Google, Microsoft and other tech giants. Despite its standing at the top of the technology tree, most technology talent in the US comes from India and China under the H1B, H4 (for spouses) and L1 categories of work visas. 

Aakrit Vaish, founder of Reliance-backed conversational customer experience platform Haptik.ai, which has a strong Silicon Valley presence, has welcomed Biden’s positive stance towards immigration. “Any president that is pro-immigration is great for the tech community, particularly the Indo-US Silicon Valley corridor. It not only helps in employees and relocation, but also gives startups more confidence to bet towards long term stability,” Vaish told Inc42.

Donald Trump’s Make America Great Again vision hampered knowledge exchange severely, but that could soon change. The tech community did not take the Trump rules well, largely because it affected their ability to hire skilled workforce and consequently increased H1B wages and also forced many companies to move their centres to cheaper locations. Immigration lawyers have welcomed Biden’s approach to reverse many ill-planned constraints on these visa holders. Whether the president-elect is able to make these changes happen is another matter altogether. 

MR Rangaswami, founder of Sand Hill Group and Indian American-centric platform Indiaspora, said “Biden will undo the changes Trump brought about, but it will take time for the bureaucracy to implement it. India needs to be patient with that.” 

The Geopolitics Of Tech Policy

And finally, the most important question from the point of view of the tech industry is whether Trump’s exit would cause a new shift in geopolitics and global conflicts centred around tech policy. 

It is interesting to note that Biden’s campaign was largely bankrolled by Silicon Valley giants  — Google’s parent Alphabet, Microsoft, Amazon, Apple and Facebook made up five out of the top seven contributors to Biden’s campaign committee in 2020. Will this have a bearing on the outlook towards big tech and the recent calls for breaking up of tech companies?

Though we continue to fight for a more inclusive internet, there’s no denying that the decision making in the US will have a bearing on the many impending tech regulations drafted in India. 

The list of laws and regulations that are in a state of flux in India runs long — personal data protection, ecommerce policy, and intermediary liability, moderation of social media and now OTT and digital media players. These laws would essentially determine the functioning of Google, Amazon and Facebook in the 1.3 Bn strong Indian market.

According to Vishnu Prakash, a diplomat who served as India’s High Commissioner to Canada in 2015-16, there might be some flexibility in dealing with the US under Biden. “It is very evident to all leaders and players in the field of technology diplomacy that every country will pursue its national interests. It is not going to be easy in the sense that neither side is going to give up easily. But now the US will not be in your face like it has been during the Trump era,” he told us.

Trump’s attitude towards foreign policy has been criticised for not only being flippant, but also rash — the trade tiffs that he started with China and the EU have hurt global supply chains and the pandemic has only compounded the effects of his decisions. Despite the apparent friendship between him and PM Narendra Modi, India has not been spared by Trump as the US launched an investigation into the country’s digital tax levy in June this year. 

With Biden having 48 years of political experience, the new administration is expected to be a lot more nuanced in its dealings with other countries through building consensus and reaching compromise on contentious issues. Will that mean a more stable world order in technology?  

“I don’t see a period of stability. I think that the world is at a crossroads and this is a time of geostrategic churning. While the tone of Biden’s administration will be polite, there will be very much a sting in the message,” Prakash said.

Regulations & The TikTok Story

Change is afoot even for Chinese short video app TikTok. While the world waits to see how Biden will deal with an increasingly belligerent Beijing, the outgoing Trump administration has decided to delay enforcement of restrictions on the app. 

Even as TikTok’s parent company ByteDance hankers to secure a partial sale of its US business to American investors, media reports suggest that it’s employing a similar playbook to pave its way for an India comeback. The Indian government had banned a slew of Chinese apps after a border skirmish with the neighbour in June this year.

When Biden is briefed by the outgoing Trump administration about issues at hand, India’s tech policy is sure to feature in the list of affairs as Google, Amazon and OTT streaming platforms find themselves in regulatory crosshairs of the country.

The global search giant was slapped with an antitrust notice — the second in less than six months — by competition watchdog CCI last week. The notice alleges that Google unfairly promotes its own payments app through “prominent placement on the Play Store. It also accuses Google of “imposing unfair terms” on users by requiring them to use the payments app.

Meanwhile, OTT platforms such as Netflix, Amazon Prime, Disney+ Hotstar, Apple TV+ and digital news publishers have been brought under the purview of the information and broadcasting ministry, which has heightened fears of censorship on streaming platforms and scrutiny at par with legacy media and film industry.

Technology & The SBI Story

For a long time, public sector enterprises in India have refused to acknowledge the disruptive capacity of technology. That’s changing slowly and at the forefront of that change is the country’s biggest bank — State Bank Of India. 

In the last four years, SBI has been a harbinger of times to come as it was the first among Indian public sector banks in adopting digital tools and banking. It was also instrumental in the Bankchain project, India’s first blockchain exploration consortium. “Going digital has been the key priority for us to cut the operational costs, bring transparency and efficiency into our system,” a source within the company told us. 

Today, SBI is preparing for another leap with YONO (you need only one) app — as it aspires to become a top fintech and lifestyle app with a current total user base of 27 Mn. Competing with the likes of Tata and Reliance in India’s super app race and also struggling to overcome some severe technical challenges, can YONO forge an identity independent of SBI in the near future? 

While Indian business behemoths scramble for a pie of the Indian consumer tech market, they are sure to come to blows with the US tech giants at one point or another — the ongoing legal tiff between Reliance and Amazon over the fate of Future Group in India won’t be the last such instance.

How will the president of the world’s biggest economy, backed by the billionaires of big tech, react to India’s continuous regulatory prodding? And will the close connections of India’s startups and tech giants such as Reliance and Infosys to the US market, prove a worthy weapon in India’s armory? Many questions to ponder before the new year begins. 

Happy Diwali,

Deepsekhar & Romita