
Google faces up to $5B fine from Competition Commission of India - vizack_vizz
http://timesofindia.indiatimes.com/tech/tech-news/internet/Google-faces-up-to-5-billion-fine-from-Competition-Commission-of-India/articleshow/31724382.cms
======
todayiamme
The interesting thing is that there is a large historical precedent for such
activity by the Indian government. In 1977, they tried to do the same thing
with IBM and Coca-Cola.[1] Both of the companies pulled out of the Indian
market in a move that had widespread impact upon the nascent Indian economy.
It is alleged that the desire for an equity grab by the existing power complex
in India was the prime motivating factor for the acts that were sprung upon
those companies. These acts were designed to force them to "partner" with an
Indian company. At that time the market just wasn't big enough to warrant such
sacrifice - even today Ikea refuses to enter the market because of this - and
they pulled out.

Although there are several parallels over here, one of the key take-aways for
me from this news is that India is just not a good place for anyone (other
than its citizens perhaps) to do business. The system is inherently broken and
flawed to the degree that any smart startup should look elsewhere if they're
considering expanding to this market.

\----

[1]
[http://content.time.com/time/magazine/article/0,9171,919167,...](http://content.time.com/time/magazine/article/0,9171,919167,00.html)

~~~
bushido
You did not factor in a few important aspects into your analysis:

a. A law was passed in India called the "Foreign Exchange Regulation Act" in
1973 with the aim of regulating payments and foreign exchange. It contained
language that was extremely restrictive for any foreign investments, by all
foreign entities including Indian citizens living abroad.

b. This was not initially a concern, but became a huge problem during a 21
month period between 1975-77 when a state of emergency was declared in India
[[following the assassination of the then Prime Minister]] edit: incorrect
attribution, emergency was declared, but the prime minister was assassinated a
few years later.

c. The law was fixed/made more flexible in 1993, and foreign investments
immediately started returning.

d. The act was repealed in its entirety in 1998.

e. The issue mentioned in the article revolves around a complaint being made
to CCI and as "a complaint filed with CCI cannot be withdrawn" there is no
choice but to investigate.

f. The $5B amount is baseless and pure conjecture with no source/comment from
either the Competition Commission of India, Lawmakers or Google.

Strangely there are very few to no parallels over here. It definitely does not
warrant a statement as broad as _India is just not a good place for anyone
(other than its citizens perhaps) to do business_.

~~~
todayiamme
>>>a. A law was passed in India called the "Foreign Exchange Regulation Act"
in 1973 with the aim of regulating payments and foreign exchange. It contained
language that was extremely restrictive for any foreign investments, by all
foreign entities including Indian citizens living abroad.<<<

I'm pretty sure that you have misunderstood the law. Here's a report prepared
by a group at the University of Illinois, Urbana-Champaign in 1987;

"""During 1977, IBM was asked to withdraw from India due to its unwillingness
to comply with the Foreign Exchange Regulation Act (FERA) of 1973. Earlier,
IBM commenced operations in India in 1952, with long term objectives of growth
and increasing market share in the world com- puter and information systems
market through an improved competitive stance. During a period of 25 years,
IBM made total profits of approxi- mately U.S. $5 million on a total
investment of $8 million. Total remittable profits, at the time of phasing out
its operations in 1970, were approximately $10 million. These profits included
a net asset value of approximately $5 million.

This poor performance was largely attributed to several factors, including
compensation of approximately $7.5 million paid to employees and assets sold
at less than book value. Other factors included a high rate of effective
taxation of 80% to 85% as well as low rates of depreciation on equipment. IBM-
India operations constituted only 0.06% of IBM Corporation's total business.
IBM's activities in India during this period and the events leading to the
IBM-India withdrawal are summarized in Appendix A.

During this period, the Government of India (GOI) alleged that a large number
of foreign-owned and foreign-controlled corporations operating in India were
making excessively high gross revenues and before-tax profits. Further, the
repatriation of large amounts of capital by the multinational corporations
constituted a serious drain on India's scarce foreign exchange reserves. The
GOI contended that the multinational corporations were using monopolistic
power to stifle competition in the Indian market. In addition, the
multinational corporations, according to the GOI, gained favorable rates for
large financial credits, thereby competing with domestic firms for scarce
capital. Finally, the GOI per- ceived that the multinational corporations were
transferring obsolete technology or current technology of minor importance for
developmental purposes.

Surveying the industrial scene, the GOI found that most foreign direct
investment had occurred in the consumer goods sector. These ventures yielded
high rates of profit and required simple technology which could be furnished
by domestic entrepreneurs.

Based on these findings, the GOI formulated its own priorities with regard to
the country's development. With an abundance of natural re- sources and a
large supply of low-cost skilled labor, India provided the multinational
corporations with a large, untapped market and opportunity to enhance their
international competitiveness.

Taking stock of its developmental priorities and increased bargaining
strength, the GOI formulated its desire to influence the course of foreign
direct investment in India. The primary objective was to ensure that foreign
direct investment in India would fall in line with the nation's developmental
priorities. The means adopted to achieve this objective was the Foreign
Exchange Regulation Act (FERA) legislated on January 1, 1974.

Foreign Exchange Regualtion Act— The FERA affected all foreign companies with
foreign equity exceeding 40 percent. According to FERA, four levels of foreign
equity participation were permitted.

First, all trading companies engaged in purely commercial activities as well
as manufacturing enterprises utilizing "non-sophisticated" technology, were
required to reduce their foreign equity to 40 percent.

Second, "high technology" companies, utilizing "sophisticated" technology
and/or engaging in "special" activities, as designated by the GOI, were
permitted to retain a foreign equity holding of 74 percent.

A third intermediate level of 51 percent foreign equity was established for
multi-activity companies engaged in both sophisticated technology fields and
other commercial and trading activities.

The fourth level of 100 percent foreign equity was permitted only in those
instances where foreign firms were engaged in purely export activities."""

[https://www.ideals.illinois.edu/bitstream/handle/2142/28913/...](https://www.ideals.illinois.edu/bitstream/handle/2142/28913/changingmultinat1332nega.pdf?sequence=1)

That sounds like an equity grab to me.

>>> b. This was not initially a concern, but became a huge problem during a 21
month period between 1975-77 when a state of emergency was declared in India
[[following the assassination of the then Prime Minister]] edit: incorrect
attribution, emergency was declared, but the prime minister was assassinated a
few years later.

c. The law was fixed/made more flexible in 1993, and foreign investments
immediately started returning. <<<

The assassination in of itself was a result of an intense power struggle in
the Indian state. It's not so hard to look at it and see that these people
needed additional revenue and decided to pressure successful companies to get
a cut of their business. You can call that market protection if you want or
attach any other label, but the fact is that they saw (from their perspective)
a potential source of revenue and they flexed their muscle to get a slice of
the pie. It backfired and they had to drop the changes they made to get people
back on the table.

>>> d. The act was repealed in its entirety in 1998. <<<

The protections were enshrined elsewhere. The only thing really changed was
that now the Indian market was large enough and that the power players were
willing to make nudge-nudge-wink-wink exceptions for much smaller fee.

>>> e. The issue mentioned in the article revolves around a complaint being
made to CCI and as "a complaint filed with CCI cannot be withdrawn" there is
no choice but to investigate.

f. The $5B amount is baseless and pure conjecture with no source/comment from
either the Competition Commission of India, Lawmakers or Google. <<<

I've said nothing about the amount or the complaint, just that such
shenanigans aren't out of the ordinary from the Indian power players.

>>>Strangely there are very few to no parallels over here. It definitely does
not warrant a statement as broad as India is just not a good place for anyone
(other than its citizens perhaps) to do business.<<<

So a country where you have to get a permit for doing every small thing and
there's a bribe associated with each permit is a good place to do business?

~~~
bushido

       That sounds like an equity grab to me.
    

That sounds more like a subset of protectionism. Its a simple economic concept
where policies or doctrines are implemented which protect businesses and
workers within a country by restricting or regulating trade with foreign
nations.

I prefer free markets and am generally biased against protectionism, but at
times its required.

The most common argument for Protectionism is the "infant industry"
justification. Considering in 1973 India was 25 years old. The infant theory
can be given some merit.

Also note the "Indicators of foreign direct investment regulation in 87
economies"[0] study by world bank, which gives more insight into this.

    
    
       The protections were enshrined elsewhere.
    

Please find me one economic law that was repealed anywhere due to being
restrictive, where the sections of laws that worked or were still needed were
not enshrined elsewhere.

Actually I know of one that was not enshrined elsewhere i.e. Glass–Steagall
Act. But that's a whole different story.

    
    
       such shenanigans aren't out of the ordinary from the Indian power players.
    

Such shenanigans aren't out of the ordinary from power players in ANY country
that has ever implemented or enacted protectionism.

    
    
       So a country where you have to get a permit for doing every small thing
    

I must be missing something here, I think procedures and permits are a sign of
a developed or developing economy. Can you tell me a business in North America
or EU where a Foreign Corporation or even a citizen could do business without
getting any permits or licences? Some may have more streamlined systems to get
the licenses, but I doubt the streamlined process was version 1 of the system.

    
    
       There's a bribe associated with each permit
    

Finally something I agree on. I find the whole business with bribing extremely
morally challenging. And I'd try and stay away from businesses and countries
where this is required by default.

But I have to ask, from a capitalist point of view, if a corporation wants to
do business in such an atmosphere, could this atmosphere be concluded as the
cost of doing business?

Also read up on this a bit further, turns out Coke was the largest contributor
to the previous government's political campaign in the early 70's which
resulted in the opposition party exerting extra pressure on Coke when the
opposition came into power in India.

    
    
       I've said nothing about the amount or the complaint
    

Thank you for stating this. The topic is a discussion on Google being
potentially fined for anti-competition and anti-trust behavior similar to the
one's pursued and later settled by the FTC and EU. The complaints have been
around for a few years, and not necessarily a money grab. Also as
their(India's) current law does not have a provision for settlement or
withdrawal, the country has no choice but to investigate the original
complaint.

The alternative solution would be to make nudge-nudge-wink-wink type of
settlement with a bribe or just letting it slip between the cracks and do
nothing.

[0] [http://iab.worldbank.org/~/media/FPDKM/IAB/Documents/IAB-
rep...](http://iab.worldbank.org/~/media/FPDKM/IAB/Documents/IAB-report.pdf)

------
bushido
Here are the only words that people should pay attention to in the article "a
complaint filed with CCI cannot be withdrawn". Also there is no source for the
$5 billion in fine.

With a bit more digging I was able to find extracts from the original
complaint/concern.

 _CUTS believes that Google can potentially engage in anticompetitive
activities to the possible detriment of these markets in India and that
therefore such activities in this regard need to be thoroughly investigated by
the CCI._

This is further explained using the following example:

 _CUTS conducted a thorough study on Google and we have come across instances
where the firm is abusing its dominant position.CCI had asked us to further
investigate. For instance, if you search for Facebook founder Mark Zuckerberg
on Google, the first five results are on his Google Plus pages. His Facebook
page was the 8th result._

This case may have been inspired by those filed in other countries:

1\. In Canada: [http://business.financialpost.com/2013/12/13/google-inc-
abus...](http://business.financialpost.com/2013/12/13/google-inc-abusive-
competition-bureau/?__lsa=a702-ed81)

2\. EU: [http://www.spiegel.de/international/business/eu-
commission-i...](http://www.spiegel.de/international/business/eu-commission-
investigates-how-anti-competitive-is-google-a-680259.html)

3\. United states: [http://www.ftc.gov/news-events/press-
releases/2013/01/google...](http://www.ftc.gov/news-events/press-
releases/2013/01/google-agrees-change-its-business-practices-resolve-ftc)

------
r0h1n
The article is bylined to the news agency Press Trust of India, so expect even
less rigour and fact-checking than you would from the newspaper that's
carrying the report (Times of India).

While I can't comment on what the CCI will or won't do, I do find it silly the
journalists think CCI can impose a fine which is a function of Google's global
revenues (over which it has no jurisdiction).

Google India's revenue was around $330M last year, 10% of which will be $33M.

~~~
linux_devil
Just to add: Google in India is Google India Pvt. Ltd.

~~~
seshagiric
That does not matter. The fines will apply over global revenue and not just G'
revenue in India.

~~~
ZoF
Do have a source for that, because it would make very little sense and seems
highly unenforceable.

~~~
rmbe
India is a sovereign country, their laws don't need to make sense.

EU antitrust fines are also capped at 10% of the total turnover.
[http://ec.europa.eu/competition/cartels/overview/factsheet_f...](http://ec.europa.eu/competition/cartels/overview/factsheet_fines_en.pdf)

~~~
r0h1n
I will grant you your first point if you can point me to a specific Indian law
that says cartelization fines are a function of a multinational's global
sales?

As to your link on EU fines, it very clearly states that fines are a
percentage of "relevant sales", defined as "usually the sales of the products
covered by the infringement". I don't know how you came to the conclusion that
means global sales?

------
goombastic
Elections are around the corner. This seems like an indirect request for
donations or other favors by parties and groups in power. Or it could just be
arm twisting to make it disclose user information. India's politicians are
beginning to believe that there is too much freedom online and would like
control.

India's politicians and crony capitalist class are India's worst enemies.

------
devx
This seems a little extreme? I wonder if they're doing this because they want
something else from Google that they know are not going to give as easily,
such as helping them build the surveillance state in India:

[https://www.youtube.com/watch?v=9A91idibgT0](https://www.youtube.com/watch?v=9A91idibgT0)

Then again, I remember reading about Google, Facebook, Microsoft, Blackberry
and others already giving in to their surveillance requests a couple of years
ago, so they might've already done that.

------
bertil
I’m surprised by Hacker News’ apparent general distaste of anti-trust
authorities in this thread. Starting a company is about changing the _status
quo_ established by dominant players; if you can’t do that because they use
their market share to price you out of any revenue stream, poach your
engineers, threaten anyone carrying ads for your service, or in Google’s case,
simply put their service ahead of yours no matter what the CTR and retention
of your offers are… Well, there is no investor who’s going to look at you.

From a community that was hailing Duck Duck Go’s success a week ago, you seem
barely concerned by allowing an Indian equivalent to emerge. Yes, the FTC is
satisfied for the efforts in the US market -- but Google is not just in the
US. Even if many of your decisions don’t reflect that, your service impact
other cultures. Google realised that early on, and considers how Indians
search (in several languages) write (with many alphabets) give directions
(using visible facades rather than map-inspired cardinal points); LibertyMail,
Duck Duck Go, Open Street Map don’t take that into account nearly enough, and
if you want a billion person to have the luxury of not facing a ‘take it or
get off the internet’ monopoly… That decision, as imperfect as it is or
excessive as it might come of, needs to be defended.

Corruption? Do you really think that’s a point to be made without proof? Just
because… you don’t know of India but you have prejudice about that?

Threats of leaving? Really? Because that’s exactly what all Google engineers
of Indian descent want to say to their family in India: you know, there are
commenters on Hacker News who think that the country where I received the
education that lead me to be SVP is such a backward cesspool that they’d
rather strike out the entire sub-continent where I grew up and where the
people I love and for whom I work all live… Google invests in incredibly
creative ways to offer connexion to remote places, ethnographers to understand
what services they need and how to design them, because having more people on-
line is their only hope of growth, and you’d think they would react out of
spite, and throw that away? What you are projecting on them is your own
blatant racism, stefan_kendall3, and no one here has failed to notice.

------
beautybasics
Indian here

\- Indiatimes is a hype machine

\- They write stories for headlines with little or no depth

------
danmaz74
"Under competition regulations, an entity found violating the norms could be
slapped with penalty of up to 10% of its three-year annual average turnover"
Surely they don't mean their annual GLOBAL turnover, but only that in India?
$5B just for their activity in India looks largely overstated to me.

------
petrel
What I know is, India is the most corrupt country. If you want to do business
in the best ethical way, this is not the place. Try something else, or learn
dirty politics and exploit peoples before you enter..... I am Indian..

------
saosebastiao
It would be nice if we could do that here with comcast.

------
stefan_kendall3
I hope they try to fine Google and they pull out of India entirely.

~~~
signa11
ok i will bite: why ?

~~~
seanmcdirmid
There is no reason for them to hang around with such a big fine, since they
make so little money India. This is like how google mostly pulled out of
china, the costs and risks just were not worth the benefits.

~~~
pycassa
can you provide any sources to how they make so little money in India?

as far as I know, India is one of the countries where google dominates in
search. Which is not the case in China, google is not a major search engine in
China. I just can't imagine they pulling out of India.

They just recently had heart warming google advertisements in TV which is very
rare for google to do.

~~~
seanmcdirmid
I think they made only 300 or so million revenue in the last 3 years, and as
for profits much less, which completely out of proportion with the proposed
fine (no sources for this, just word of mouth). India is still a developing
market, advertisers don't pay as much as in the developed world.

The ad is probably ran because of the government...they want to build some
support with the people so they are treated better.

