Employees ride bicycles past Building 44 at the Infosys campus in Electronics City, Bangalore, India Vivek Prakash/Bloomberg via Getty Images

In May 2018, Walmart gave India’s startup scene a $16 billion (£12bn) boost, splashing out on a majority stake in Flipkart, the online retailer and Amazon rival. On the surface, India’s largest internet deal justifies the recent hype around its tech sector. But underneath there is trouble brewing, as India’s digital giants risk suffering a big tech backlash of their own.

At first this might seem surprising. Technology is flourishing in India. American VCs are pumping in billions in investment, forging tight links between Silicon Valley and cities such as Bangalore and Hyderabad. Whereas China is drawing up digital barriers, India remains open, welcoming in US tech giants and, increasingly, Chinese ones too.


Facebook now has more account-holders in India than any other country, while rapid growth in South Asia is critical for tech giants such as Apple, Google and Twitter. Even basic infrastructure, long a joke, has improved, in part because of Mukesh Ambani – India’s richest man — who pumped $33 billion into a new super-fast nationwide 4G network.

So what’s the problem? Partly it is that expectations are overblown. Walmart’s decision to buy Flipkart smacks more of desperation than opportunity, as the US-based group tries desperately to avoid being overrun by Amazon.

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Investors hoping India can mimic a China-style internet boom in areas like online payments are set for disappointment too. For a country of 1.3 billion people, India’s middle-class, the people who should be shopping online, is limited: only eight million people earn $20,000 or more a year. Combine this with poor basic infrastructure in areas like roads and power, and an infamously complex regulatory environment, and even the most nimble startup will struggle.

Then there are deeper problems, which link India to the troubles of the supposedly arrogant and unaccountable "big tech" giants of the west. Of course, India’s internet mavens do not seem themselves this way. Where India’s economy is often perceived as inefficient and corrupt, technology businesses, from unicorn startups to traditional IT firms, are mostly viewed as innovative and honest. While India’s buccaneering industrialists are often suspected, tech titans like Infosys billionaire Nandan Nilekani are admired for their ethics.


The tech elite is physically set apart too: whereas India’s tycoons live mostly in Mumbai and New Delhi, its digital magnates often live in Bangalore. Out of view, India’s tech sector “grows at night”, as thinker Gurcharan Das once put it: it expanded while the government was asleep, and thus not interfering.

But now, India’s government is waking up, putting particular focus on foreign technology companies. In 2016, Facebook endured a backlash over its Free Basics internet service, which critics said contravened net neutrality, or the idea that all web traffic should be equally treated. Ahead of India's potentially tempestuous general election in 2019, Facebook and other social media platforms also stand accused of sins ranging from peddling fake news to spreading ethnic hatred between Hindus and Muslims.

Domestic tech companies are at risk too, from startups such as Flipkart and ride-hailing group Ola to traditional outsourcers Infosys and TCS. Put simply, almost all the elements that kindled America’s tech backlash are present in India, from increasingly powerful internet companies to lax standards over privacy and data protection.

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Some blame here lies with the government. Prime minister Narendra Modi, a technophile with 43.1 followers on Twitter, has launched splashy digital initiatives – but he has done little to strengthen areas like online privacy.

Walmart's Flipkart deal will test the limits of Amazon’s global empire Retail Walmart's Flipkart deal will test the limits of Amazon’s global empire

There are deeper social concerns too. Tech companies with relatively well-paid workers are creating wealth, but in a country as divided as India, they are also exacerbating problems of economic inequality. Just as the tech sector has created new divisions between rich and poor in San Francisco, the same is true in Bangalore and Hyderabad, the two cities which topped a recent index for the world’s most rapidly changing urban areas.


In the long-term, India’s tech giants are likely to become even more powerful than their equivalents abroad. Whichever of Amazon or Flipkart wins out, their current battle will dominate Indian shopping to an extent that even Amazon cannot manage in the US, if only because there isn’t much of a pre-existing organised retail sector to begin with. The same is true across a range of other sectors.

Yet with great power comes great responsibility. The hard-won social legitimacy India’s tech sector won is running out. The billionaires of Bangalore must stop seeing themselves as a breed apart. Instead, they need to learn from the mistakes of their Silicon Valley peers, making their operations more transparent and welcoming better privacy protection and improved data and governance standards. If they don’t, the big tech backlash that hit Menlo Park and Mountain View will sweep through Bangalore soon enough.

James Crabtree’s book on India, The Billionaire Raj: A Journey Through India's New Gilded Age (Oneworld), is out now