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VC money shifts to India as Xi’s dragon continues to breathe fire

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You’d think Chinese President Xi Jinping is hell-bent on crippling his country’s much-heralded IT sector, which accounts for over 40% of China’s GDP. His government’s crackdown on some of China’s largest internet enterprises has already devalued the stock market by $1.5 trillion. This comes at a particularly difficult time for China’s economy. Even as it deflates the IT sector, Beijing must contend with a bursting bubble in the country’s famously inflated real estate sector. These issues have now been exacerbated by an energy crisis, which has resulted in power outages and may eventually affect production. 

As a result, investors that rushed into China are forced to go elsewhere until the situation improves. India has been one of such alternate options, particularly for businesses looking to diversify away from developed countries. 

Of course, India has its own set of attractions. It is the world’s second-largest digital market, with over 900 million mobile phone users estimated by 2023, outnumbering China’s population by 2026. 

Indian consumers—even those in the rapidly expanding middle class—are used to low prices. Although consumers can be drawn in with discounts, costs mount as companies try to scale up, making it hard to find a pathway to profitability. 

The pandemic affected India too, just like other countries. To overcome the country’s core challenges exposed by the pandemic, India urgently needs patient money, qualified talent, and appropriate technology. When a bubble breaks, the last thing the country wants is for all three to take flight, even if only briefly. 

Xi’s tough stance ensures that the music will be heard elsewhere, but for India Inc., it is music to their ears. Given the inevitability of the tech market’s boom-bust cycle, Indian policymakers must ensure that there are enough seats in the room when the music stops. 

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