Walmart’s acquisition of Flipkart demonstrates both Indian e-commerce’s coming of age and a repetition of history.

US giants will spend billions in India because they see huge opportunities, and this will produce a short-term boon for Indian consumers.

When the dust settles, though, prices will rise and consumer choices will become more limited than they had been. Foreign companies will mine data and manipulate consumer preferences. They will have once again colonised India’s retail industry.

Protectionism for physical goods and services is usually a bad thing, as it limits the incentive to innovate and evolve, stifling a country’s competitiveness and productivity. India’s protected domestic companies became lethargic, offered substandard products and services at high prices, and hobbled India’s economy.

In a digital economy, though, things are very different. The value resides in the ideas, which spread instantaneously via the internet. Entrepreneurs in one country can easily learn of the innovations and business models of another country and duplicate them.

As core technologies advance, they become faster, smaller and cheaper — and accessible to everyone, everywhere. Startups constantly emerge, putting established players out of business. So, speed and execution are key to business survival and competitiveness.

Valuable competition and innovation can arise from within the domestic economy itself, without having to invite foreign companies to the table.

Technology-based industries, such as retail, electronics, and distribution that require large capital investments, handicap the small players, since money provides an unfair advantage to the larger ones.

The latter can use capital to put emerging competitors out of business — or to acquire them. It is what US technology giants do as a matter of course.

Amazon, for example, has been losing money, or earning razor-thin margins, for more than two decades. But because it was gaining market share and killing off its brick-and-mortar competition, investors rewarded it with a high stock price.

With this inflated capitalisation, Amazon raised money at below-market interest rates and used it to increase its market share. It also acquired dozens of competitors — just as it tried to do with Flipkart.

Having become the dominant player in the US e-commerce industry, Amazon has its eye on India. A company that it left in the dust, Walmart, is desperate not to also lose the Indian market. Both are doing whatever they must in order to own Indian retail and then split the spoils between them.

That is why controls are desperately needed on this kind of capital dumping. And such controls won’t reduce competition or throttle innovation. As they did in China, they will stimulate competition and, through that, innovation.

Chinese technology companies are now among the most valuable and innovative in the world. In addition to having a valuation that rivals Facebook’s, Tencent’s WeChat e-commerce platform is far more advanced than any rival in the West.

Baidu is building highly advanced artificial intelligence (AI) technologies as well as self-driving cars. And DJI (Dà-Jia ng Innovations) has become a global leader in drone technologies. Had China not imposed controls, these companies may not have survived at all.

It is probably too late to save Indian e-commerce from modern-day East India Company style colonisation. But there are many other industries in which Indian startups can still lead the world.

With the exponentially accelerating advances occurring in technologies such as sensors, AI, robotics, medicine and 3D printing, practically every industry is about to be disrupted, and there are opportunities for India entrepreneurs to create solutions that benefit India and the rest of the world.

GoI urgently needs to wake up and protect its entrepreneurs from foreign-capital dumping. And it needs to provide incentives for Indian — and foreign — companies to invest in its startups, just as China did for its own.

The article has been reprinted here with the author’s permission.

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