Google faces up to $5B fine from Competition Commission of India

While retroactive applicability of Income Tax act is questionable, it is hard to argue for Vodafone or Hutchinson when they tried to avoid Tax by doing the transaction through a Cayman Island registered entity. To me, while it may be legal at that time, it sounds like pure corporate greed which Indian government is trying to fix. But that is not very different from other countries such as UK, Countries in EU trying to clamp down on Tax Haven exploits by Google etc.

Care to elaborate? I don't see the correlation between instability of a government and fining international companies for antitrust. Besides, the current United Progressive Alliance (UPA) government in India has been in power for 2 full terms (10 years). The second term is about to end now and the elections are due in April 2014.

Agreed.

India has implemented both command economy policies[1] and free market policies[2] in recent history. But today they definitely seem to be leaning more towards free market policies, though not to the extent of the Western democracies[3].

1: https://en.wikipedia.org/wiki/Five-Year_Plans_of_India

2: https://en.wikipedia.org/wiki/Economic_reforms_in_India

3: http://www.economist.com/news/books-and-arts/21576372-how-ge...

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/...

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?

That's an ad hominem that adds very little in terms of substance to your argument as you do not know anything about me or my background.

>>>You talk about a "historical precedent" that goes back to when India firmly identified itself as a socialist country. And from that distant, warped past, you fast forward 36 years to the present and to a country that in 1991 began its journey of economic liberation (which included jettisoning its socialist principles for all practical purposes), and expect us to believe that the two incidents are somehow related?<<<

Entity X has demonstrated a history of Y actions. Ignoring that day while analysing the probability of X doing something in the future is foolish.

Further, while the dialogue might have change. The individuals that hold power in India haven't changed over time. It's highly family oriented and it's reasonable to assume that they will act in a similar manner to preserve their interests.

>>>But what better examples to refute your ludicrous theory than Coca-Cola and IBM themselves, both of which came back to post-liberalization India. To the extent that India likely has IBM's largest global workforce [0], and Coca-Cola pours billions of dollars to maintain its leadership over Pepsi [1]<<<

It's a large market. They dropped the statutes is it unreasonable to presume that they won't capitalise on that? I don't see the point on attributing any emotional qualities to this. There is no profit in petty vendettas.

>>>Surely those companies would know a thing or two about "historical precedents", don't you think?<<<

I'm sure they do. Doesn't detract anything from my point or the analysis I've posted elsewhere. I fail to see the argument you're making over here.

>>>As for the most likely reason behind this $5 billion figure (sorry conspiracy theorists, it isn't extortion either as Indian politicians know Google's power isn't something to be messed with in the age of social/Internet savvy voters) is the old-fashioned plant. I'm guessing Microsoft (the primary shadow-backer behind all anti-Google cases in India) laid out the worst-case scenario off-the-record to a PTI journalist, along with the $5 billion figure. And the journalist was either too lazy to question/research it, or too taken in (journalists like throwing up "exclusives" like this with billions of dollars in the headlines) to reduce it to the decidedly unsexy $~33M.<<<

I've never mentioned anything about that. I merely pointed out that such fines and the Indian government being onerous towards entrepreneurial interests is something well established.

>>>It's just a theory mind you, but having been a business journalist in India for nearly 6 years (and having done stories severely critical of Google, lest you think I'm a shill for them), I think it's much more likely than some of the other fantastic theories in this thread.<<<

Okay. You still haven't refuted the core argument of what I had stated which is simply that there is a power base that would like to do such equity grabs and so on and it's not a convenient place to do business. Is that wrong?

It's a shakedown.