Foreign investment in India is up as big tech firms pursue what Google calls its “next billion users,” but those without local partners may fall short.

Facebook accelerated the trend when it announced in April that it would invest $5.7 billion for a 9.9% stake in Jio Platforms, the digital arm of Indian conglomerate Reliance Industries and the country’s biggest mobile and internet firm. Other foreign investment deals with Jio followed, totalling $15.2 billion from investors wanting access to India’s millions of underserved digital consumers. This number continues to climb. This month Google announced that it will invest up to $4 billion in Jio as part of a $10 billion overall investment in India.

Other conglomerates have attracted big foreign investments this year as well. Adani Group received $450 million from the government of Qatar, and another $900 million from France’s Total for stakes in its power and gas operations.

The enthusiasm of some foreign investors is being tempered by mixed results, however, as they come to realize that success in India can hinge on having a powerful local partner. Connections to big Indian firms and major players like Mukesh Ambani or Gautam Adani, the billionaire bosses of Reliance and Adani Group, are the golden ticket. Going it alone may not be for the faint of heart.

Much of challenges foreigners face doing business in India can be attributed to a recent change in the political climate, fanned by Prime Minister Narendra Modi. While Modi ran on a pro-business platform in 2014 and has loosened regulations, of late he has taken a quasi-protectionist stance. Some India watchers see history repeating itself.

After India broke free from Britain in 1947, business was deeply enmeshed in politics, and most foreign firms gained access exclusively through partnerships with politically connected local firms. There has since been an ebb and flow to the openness of India’s economy. Its borders grew more porous later in the twentieth century, particularly after the 1991 economic crisis. Tariffs were cut and industries opened to competition, but many rules remained and new ones were enacted. By the end of the decade, foreigners were losing patience and bowing out.

In the 2000s a fresh wave of foreign firms rolled in, including Marks & Spencer and Starbucks – but it was only a matter of time before the British company and the American one formed partnerships with Indian conglomerates. In 2019 Ford announced that it would become a minority shareholder in a joint venture with Mahindra. Most foreign firms have either partnered up or called it quits.

The message seems to be, as The Economist describes, that “foreign money may be welcome but foreign competition is not”. Companies that operate independently, such as Amazon and Walmart, have had to wrestle with targeted taxation, regulations, restrictions and other obstacles. So while it can be said that collaboration between Western and Indian firms is seeing a revival, it remains to be seen whether westerners and other foreign investors will see worthwhile returns.

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