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India's Chinese app ban may hit their valuations

By Peerzada Abrar and Sai Ishwar
July 01, 2020 11:21 IST
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The banned Chinese apps, which include TikTok, Shareit and UC Browser, earn revenue mainly from online advertisements, subscriptions, and commissions for selling products. India is the biggest driver of these Chinese apps due to the population.

The ban on the 59 Chinese apps will negatively affect the valuations of the companies, especially those going for IPO. 

After India decided to ban 59 Chinese apps, these apps may now be asked to voluntarily delist themselves from the play stores in line with the government’s order. 

Experts also said that the government would likely direct Google and Apple to expunge these apps from their platforms. 

Furthermore, following government guidelines that are yet to be notified, it is expected that Internet Service Providers (ISPs) will block these apps from being downloaded and the existing downloaded ones will not receive updates. This ban somes as a security measure after the India-China face-off in the Galwan Valley in Ladakh. 

 

This ban will impact the applications which require an active internet connection. However, it is unclear as to how the government will regulate the ban on the apps which do not require an active connection. 

Once these apps are taken off from the platforms, they are required to comply with Indian privacy laws and data protection statutes to ensure minimal intrusion in privacy. 

“According to Indian data protection laws, if a body corporate is found negligent in implementing and maintaining reasonable security practices resulting in wrongful loss or wrongful gain to any person then that body corporate may be held liable to pay damages to the person so affected,” said Sumit Kochar, corporate commercial lawyer and transaction advisory partner at advisory firm Dolce Vita Trustees. 

“Thus, the data controlled and stored in servers of Chinese entities would be required to comply with the Indian laws even when those entities are not working,” said Kochar. 

Salman Waris, managing partner at TechLegis Advocates & Solicitors said as far as data of the users was concerned, since the same is hosted on servers outside India, it would reside there and “not much can be done about it.” 

“This is the reason why going forward the government should insist servers of the apps should be located in the country of app use so the data is locally based,” said Blaise Fernandes, director at foreign policy think tank Gateway House. 

These banned Chinese apps, which include TikTok, Shareit and UC Browser, earn revenue mainly from online advertisements, subscriptions, and commissions for selling products. India is the biggest driver of these Chinese apps due to the population. The ban on the 59 Chinese apps will negatively affect the valuations of the companies, especially those going for IPO. 

“This digital retaliation step by Indian government against Chinese (firms) may end up putting a dent into their valuation by 15-20 per cent as this step will lead to a stoppage of exposure to 130 crore Indians,” said Kochar of Dolce Vita Trustees. “The message is clear for the Chinese -- if you want growth, conquer India,” he said. 

Fernandes of Gateway House said the ‘Digital India’ story was on the radar of any global investors and anticipated 850 million smartphone users by 2025 is attractive for any app developer. “Not being present in India will impact valuations on any bourse,” said Fernandes. 

TikTok, the short video app backed by Beijing-headquartered firm Bytedance, has more than 100 million active users on the platform in India. According to a Sensor Tower report, India has been the biggest driver of TikTok installs, generating 611 million to date or 30.3 per cent of the total. 

TikTok, earned revenues of around Rs 25 crore in the October-December 2019 quarter and was targeting Rs 100 crore revenue in India by September 2020. Its parent ByteDance was expected to attract a valuation of between $150 billion and $180 billion in an initial public offering (IPO). 

Experts said that if the existing battle between the militaries of both the countries subsists for a longer period, then this will adversely affect the future of these Chinese apps and these entities may resort to winding up their businesses in India. 

“Due to their long term presence, they have provided direct and indirect employment to thousands of people in India, and hence, closure of businesses would affect employment in India,” said Kochar of Dolce Vita Trustees.

However, Fernandes of Gateway was of the view that the government has focussed on “vanity, strategic and service” oriented apps. He said these apps have a low employment base in India. Hence there will be minimal impact. 

The government banned the Chinese apps by invoking 69A of the IT Act, 2000 and the relevant provisions of the Information Technology (Procedure and Safeguards for Blocking of Access of Information by Public) Rules 2009 by citing security threats over the data breach. 

“In the present case, the Indian intelligence agencies had red-flagged usage of over 50 China-linked apps as being a threat to national security,” said Waris of TechLegis. 

Experts said it was suspected that these Chinese origin apps were siphoning Indian users’ data to the Chinese government. Similar reports were received by the US government too. America’s Federal Trade Commission recently filed a complaint against Tiktok claiming that it illegally collected information of minors. Researchers at cybersecurity firm Check Point Research had also pointed out security glitches in Tiktok. 

“Misuse of the apps for anti-India propaganda cannot be ruled out but the government is in the best position to answer this,” said Fernandes of Gateway House. 

However, TikTok on Tuesday said that it had not shared information on Indian users with China or other foreign governments. 

Tripti Jain, lawyer and researcher at the Internet Democracy Project said there is an absence of explicit reason on how these

Chinese apps are a threat to national security and sovereignty. “India does not have a formal national security and data protection policy,” said Jain "Banning of the apps affects the fundamental right to freedom of speech and expression of citizens,” said Jain.

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Peerzada Abrar and Sai Ishwar in Bengaluru
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