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Watch: Why new FDI rules for digital media companies are regressive for the internet space in India

On August 28, the government of India decided to “permit” 26% FDI under the government route in digital media companies that upload or stream news and current affairs. Nikhil Pahwa, MediaNama’s founder and editor, however found it “not clarification” or “an opening up”, but “a restriction on funding”. “It is regressive for the internet space in India,” he said. Earlier, he clarified, digital media companies could raise funding without any restrictions. Thus, effectively, FDI has gone down from 100% to 26% – meaning that what is being passed of as “permission” is actually a restriction and a cap. Here are the key issues around this move:

It will increase red tape: Pahwa said that this funding can only be approved by the government, and thus, essentially an increase in red tape. Under earlier guidelines, restriction on raising FDI were placed only on sectors that were namechecked; every other sector was under an automatic route. “If you’re an e-commerce marketplace, you can raise funding; if you are a software service, you can raise funding, but if you’re an online media company, then there is a restriction,” he explained.

So, is the government looking to increase control over digital media? Yes. Pahwa explained that under the new guidelines, the government talks of 49% FDI for DTH and then talks about 26% FDI in digital in line with print media. “So, what’s the point of mentioning DTH?” he asked. He highlighted that today, when more people are consuming media and the economy is opening up, there is no harm in opening FDI in digital media to 100%.  “The reason is that the government wants to keep a control on digital media,” he reasoned.

This also affects the sustainability of several digital media companies: Earlier, the government used to control news print that newspapers could use, which in effect controlled their ability to add pages of advertising and impact their revenue sources, Nikhil said. Today, for many media houses, government advertising is a major source of revenue. Very few digital media companies make money and many of them rely on funding to first build a base and then start monetising. So, by controlling funding, the government is basically controlling sustenance. Most of these digital media companies won’t be able to survive without funding.

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Also, what happens to those companies that already have funding? There are companies that have foreign funding of 30-50%. Sites like Newslaundary (funded by Omidyar Network), Scroll.in, and The Ken have already raised funding. How will they reduce the funding from here on? “For me, this is a restriction on people’s ability to write news online,” Pahwa said.

Who is rejoicing at this news apart from the big media houses? The only reason why big media houses are rejoicing at this news is because they are facing competition from digital publishers, Pahwa said.

Well, whatever happened to the idea of having a public consultation? “When these guidelines were announced, Commerce Minister Piyush Goyal said that the media has asked for it. My question is, which media has asked for it? I run a digital media firm, many of my friends run digital media firms, none of us asked for this,” he said.

  • When FDI in e-commerce was being discussed back in 2014, DIPP, which is now DPIIT, had done a public consultation. “In this case, where is the consultation? Why weren’t digital media companies consulted? Why wasn’t every citizen who is a consumer of digital media content allowed to participate in consultations? This is, in a sense, dictatorial,” Pahwa said.

Some questions: “Companies that are registered in India will now go and register themselves in Singapore. What will you do then? Will you start blocking every site that isn’t registered in India and hasn’t raised funding?” Pahwa asked.

  • What happens to bureaus of foreign companies operating in India? What will they have to do? How do they get regulated? Will they leave the country? Will they stop covering the country? This is not a good move at all.

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