Reliance’s Mukesh Ambani is on a spending spree — India

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In these uncertain times, few things are more reliable than investment announcements from Mukesh Ambani, chairman of Reliance Industries (RIL) and India’s richest man.

In the past month alone, RIL bought a 15% stake in online lingerie retailer Zivame—a stake it reportedly wants to grow—and paid Rs620 crore ($83 million) for a majority stake in online pharmacy Netmeds. In a press release, RIL said the Netmeds deal would help its subsidiary Reliance Retail “broaden its digital commerce proposition to include most daily essential needs of consumers.”

Ambani is far from done. RIL is reportedly in different stages of talks with at least four other firms for potential investments or buyouts, including the India business of Chinese short-video app TikTok, which was banned in India on June 29; and homegrown retail giant Future Group, which owns, among other things, 300 department stores under the popular brand Big Bazaar.

RIL’s deep pockets are giving the Indian startup ecosystem access to critical funds and could help pump up valuations. But critics are concerned that giving a free hand to one company could compromise the spirit of fair trade, and maybe even lead to a monopoly.

“There is legitimacy to a lot of the needs of the startup sector, but whether Reliance should play that role and to what extent, those are questions that need to be considered,” says Apar Gupta, executive director of the Internet Freedom Foundation, a New Delhi-based advocacy group. “Is our competition-law regime strong enough to consider all the risks, and evaluate them to a level where people can have confidence in these determinations?”

For evidence of Ambani’s ambition and tactics, one need look no further than Reliance Jio, RIL’s subsidiary that has wreaked havoc in India’s telecom sector over the past four years.

The Jio effect

Since it launched in September 2016, Reliance Jio has carpet-bombed its rivals by offering dirt-cheap services—at one point making phone calls in India nearly free. The strategy has helped the company overtake all other players in both users and revenue.

The aggressive pricing forced rivals to lower rates, eventually leading them to book huge losses. “The situation is dire—it is a matter of survival for everyone,” Bharti Airtel chairman Sunil Mittal said in December. “There is one competitor who has unlimited access to finances—I wouldn’t comment on that, but the situation is bad.” Some industry experts worry that Vodafone Idea’s financial struggles could pave the way for a duopoly.

RIL’s aggression in the startup space may lead to similar outcomes, making it hard for smaller businesses to thrive and curtailing innovation in the long run. These are exactly the kinds of things Amazon and Facebook are being accused of in the US.

Reliance Jio’s control over telecom—the core infrastructure for digital businesses—also gives it an edge over rivals, and raises concerns about the company’s ability to misuse its unique position.

Those worries became more pronounced this year: In April, Facebook took a 9.99% stake in RIL subsidiary Jio Platforms for Rs43,574 crore ($5.7 billion), and in July Google took a 7.73% stake for Rs33,737 crore ($4.5 billion). Jio Platforms is the umbrella entity for all of Ambani’s digital and internet businesses, including mobile apps, broadband connectivity, smart devices, cloud computing, big data analytics, artificial intelligence, the internet of things, augmented and mixed reality, and blockchain.

“Google CEO Sundar Pichai’s statement is that this is a component of the India Digitization Fund, and there will be product tie-ups [between the two companies],” says Gupta of the Internet Freedom Foundation. That has a degree of concern as it poses challenges for startups that may compete in the same space where Google and Jio Platforms choose to operate.

Ambani’s internet dreams also create risks for Indian consumers.

Data is the new oil

In January 2019, Ambani made a strong pitch for protecting Indians’ data. “In this new world, data is the new oil and data is the new wealth,” he said during an event. “India’s data must be controlled and owned by Indian people and not by corporates, especially global corporations.”

Today, RIL is sitting on a treasure trove of data via its telecom, digital, and retail arms. Its new investors, Facebook and Google, have a wealth of data, too. And acquiring more internet businesses will give RIL even more of that precious “oil.” While companies’ access to user data is raising red flags all over the world, experts worry that India doesn’t have competition laws in place that would be strong enough to combat misuse.

“Our competition law right now is not suited to an evaluation of data-side harms and data markets,” says Gupta. “It does not consider them and does not have the expertise to do so.” He says India’s Ministry of Corporate Affairs is currently evaluating the need to consider data as a core area of competition regulation.

Satan or savior?

Not everyone is feeling threatened by Ambani’s growing clout over the Indian internet. It doesn’t hurt that RIL is making investments at a time when many Indian startups are hanging by a thread.

The Covid-19 pandemic has taken its toll on the startup ecosystem, requiring many businesses to pivot and some to close entirely. In addition, most startups in India rely on venture capital and private equity funding, which the pandemic has made scarce. In March, when Covid-19 cases in India were still few, startup funding dropped 50% from the month before.

“Public markets are crashing and venture capital funds have become extremely cautious towards their spending,” Apoorv Ranjan Sharma, co-founder and managing director of startup accelerator 9Unicorns, wrote in The Economic Times. “Deep-pocketed global investors, too, have decided to put off some large deals for the time being.”

Against that backdrop, some entrepreneurs see Ambani as a savior. They are hopeful that, if acquired, smaller firms will thrive under RIL, which does not have a strong technology background and will need to invest in young teams to succeed.

In addition, most Indian entrepreneurs see Reliance Jio as a major force behind years of industry growth. “A lot of tech-related innovation in India has happened because of Jio,” says Bipin Preet Singh, founder and CEO of digital payments firm MobiKwik. “Many startups that have pitched for investment in recent years have talked about Jio because it has helped them.”

RIL’s growth in the digital economy also fits with prime minister Narendra Modi’s push for local businesses to win over India’s 1.3 billion-strong consumer base. There’s a belief among some entrepreneurs that RIL is a safer option when it comes to data because it’s an Indian company.

“The reality is that Jio has created the biggest and the best internet network in India at the lowest possible cost,” says Singh. “My bigger fear is that if only foreign companies are coming and taking over all our market, then all the data is sitting with them and it will be available to foreign governments. You’re joking if you think it won’t be available to, say, Donald Trump.”

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