Many of India's top tech start-ups are establishing a lobbying group to push for governmental regulations to put an end to global companies' continued success in the country. The group, called Indiatech, will begin its operations early next year. Chief among its agenda is to coax the government in New Delhi into passing regulations to help local companies dominate the country's internet market, industry sources told CNBC. The new group represents an aggressive new strategy for a local industry that has been scrambling to compete with global giants — and repeatedly come up short. If the lobbying efforts are successful, they could benefit domestic firms while squeezing out big-name companies like Amazon and Uber from the hugely promising market. Online retailer Flipkart, Uber rival Ola and messaging app Hike are among the Indian tech companies behind the new lobbying effort. Local grocery marketplace Grofers, travel booking service MakeMyTrip, online classifieds platform Quikr and VC firms Matrix and Kalaari have also joined the organization, people familiar with the matter said. "If one of the participating members went to the government with a proposal of this kind, it will not be taken seriously," said one source with knowledge of the matter, who requested anonymity as he wasn't authorized to speak to the press. "But if an industry lobby body, which represents nearly all of the local giants, makes a suggestion, it will be heard."

Stumbling unicorns

On paper, Flipkart appears to have moved beyond its 2016 struggles to raise money: It secured $4 billion from a myriad of global investors including SoftBank, Microsoft and eBay this year — albeit at a valuation of $11.6 billion from $15 billion two years ago. But while Flipkart was struggling to raise capital, rival Amazon doubled down on its India bet by pumping $3 billion into the local operations. The announcement bolstered Amazon's total planned investment in the country, which it entered in 2013, to $5 billion. The results of that strategy are clear: During the important festival of Diwali, a period traditionally crucial for retail companies in the country, Amazon India surpassed Flipkart in sales for the first time. E-commerce isn't the only sector seeing a showdown: Other Indian unicorns such as ride-hailer Ola and messaging app Hike are also struggling to put up a strong fight against global rivals, such as Uber and Facebook's WhatsApp, respectively. Those firms, along with others from the U.S., China and Europe, have entered India with huge supplies of capital at their disposal.

Narendra Modi, India's prime minister, at a town hall meeting at Facebook headquarters in Menlo Park, California, U.S., on Sept. 27, 2015. David Paul Morris | Bloomberg | Getty Images

The darlings of India's tech startups have attempted to put up a brave front by offering lofty discounts and expanding their portfolios, but the formation of the lobbying group shows their new strategy is to seek the government's protection from the global onslaught. The organization would convince the government to make the "right policies, and bring to their notice the interventions and some decisions that will help us," an executive at one of the founding members of Indiatech said. "The end goal is to help Indian companies get preferential treatment," the executive added, requesting anonymity. It's worth noting that many of the start-ups seeking protectionist regulation have benefited from international investors. In fact, some of the biggest-name members in the lobbying group — Flipkart, Ola, Hike, Grofers and Quikr — share Japan's SoftBank as an investor. "Our intent is to work with the government to support the development of the rapidly evolving Internet ecosystem in the country and we hope the organization would facilitate this," a SoftBank spokesperson told CNBC in a statement. Flipkart, Hike and Grofers declined to elaborate to CNBC about the rationale behind participating in the Indiatech group.

Protectionism

Calls for the Indian government to intervene and protect local companies are part of a narrative in the making for more than a year. Notably, at a conference last December, Sachin Bansal, co-founder and executive chairman of Flipkart, suggested that the Indian government should do "what China did 15 years ago and tell the world we need your capital, but we don't need your companies." Also in attendance at that conference, Bhavish Aggarwal, the CEO and founder of Ola, echoed Bansal's suggestion: "There is a narrative of innovation that non-Indian companies espouse, but the real fight is on capital, not innovation. The markets are being distorted by capital," he said at the time. Their views were met with a mixed response from industry leaders, some of whom pointed out the irony that both Flipkart and Ola have raised much of their capital from foreign firms. Regardless, some say the stakes are too high for government inaction. "If the government doesn't wake up, it will see Silicon Valley kill off a large segment of its entrepreneurship ecosystem and challenge its leading retail and technology companies," Vivek Wadhwa, tech entrepreneur and distinguished fellow at Carnegie Mellon University's College of Engineering, told CNBC. "Foreign companies will gather massive amounts of private data about every Indian citizen — even more than the Indian government has. Facebook and Google will have the tools to sway Indian public opinion and affect elections. This is dangerous for any democracy," he added, saying he believed the government should learn from China, which he says realized very early on that if it allowed Silicon Valley giants to dominate its internet, they would hurt local companies. Chinese companies are now rivals to Silicon Valley, and firms like Tencent and Alibaba lead the nation's internet market. Last month, China's Tencent hit a market capitalization of $500 billion. Along those lines, Vijay Shekhar Sharma, founder of e-commerce and electronic payment company Paytm, recently said in a Twitter post that "India is effectively letting modern world East India Companies own its Internet." Alibaba-backed Paytm is facing heat from services by global companies. Its wallet application, used by over 200 million users in the country, has seen strong growth of late, but other companies are interested in moving in on the market. Google introduced Tez payments app for India in September, and it has already amassed 12 million customers, the company said. On top of that, Facebook's WhatsApp, used by more than 200 million users in India, is said to be considering plans to integrate a payment option in its app. Paytm declined to comment for this story. Some warn, however, that replicating an approach similar to that of China could go terribly wrong. "It is counterproductive to look at China selectively and cherry-pick parts of protectionism we like," said Prasanto Roy, vice president and head of the Internet, Mobile and E-commerce Council at the National Association of Software and Services Companies — an industry group set up in 1988 for India's then-nascent software and IT industry. "Protectionism is a double-edged sword and any attempt at raising trade barriers could hurt more than help India if there is reciprocal action. Keep in mind that the $150 billion IT industry (two-third of it software and services exports) is premised on an open, non-protectionist global marketplace," he added. Eyes are on the government now, but not everyone believes New Delhi would pass new laws to help local tech firms. "The government wants investors and foreign companies to come to India and create more jobs and opportunities in the country. I don't think the government would take any action to hurt foreign companies in any way," said Satish Meena, an analyst at Forrester Research. Officials at the Department of Industrial Policy & Promotion weren't available to comment.

A market in flux

The recent arrivals of Amazon, Uber and Netflix in India and the aggressive expansions of businesses by Facebook, Microsoft and Google have changed the dynamics of the local market. Those global firms bring some services to the table that no Indian company rivals, but they're even gaining traction in categories in which domestic firms had a first-mover advantage. In 2015, Flipkart and Snapdeal together accounted for 75 percent of the online retail market in India, according to financial services firm Morgan Stanley. Today, however, much has changed: Flipkart and Amazon India are jockeying to be market leader, and Snapdeal, which recently ended merger talks with Flipkart to no avail, has seen its market share collapsing. In October, Amazon India announced it had more than 44 percent of total customer share and more than 42 percent of total transactions during the festival of Diwali, citing third-party data from market research firm Kantar. Amazon credited its Prime subscription service, which it launched in India last year, for helping it bolster sales.