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The Curious Case of Facebook + Reliance Jio

As the rising influence of Covid-19 is pushing the global economies towards a recessionary phase, India is fighting sternly under these distressing conditions. Despite being so densely populated, the Indian economy has been better off as compared to various developed countries. The appreciation by the World Health Organisation (WHO) proves the same. Moreover an interesting news stirred the newspapers and the internet recently. The investment by Facebook in Reliance Jio uplifted the status of Indian stock market implying that the international corporations have a faith in the future of the Indian economy.

Facebook purchased 9.99 per cent of the stake in Reliance Jio, amounting to $5.7 billion dollars. This is the largest minority stake investment in India till date. This news stirred the speculative market which resulted into a rise in the value of Reliance Industry stocks by 8 per cent. This does seem to be a glorious news to be celebrated but before that it is important to ponder over some facts and understand the economic impact of the Facebook+Jio deal on the telecom industry as a whole.

Beginning with the story of Reliance Jio. While Jio was founded in 2007, it experienced a high growth in the past three years, becoming one of the largest telecom networks. Thanks to the introduction of low priced data and calling plans, the company pushed the major telecom networks like Bharti Airtel, Vodafone Idea to the point of collapse with them hanging on to the cliff.

At present, the two giants, Facebook and Reliance Jio, own a substantial market share in Indian digital and telecom industry respectively. The following chart states the statistics regarding the number of users.

Data source: https://economictimes.indiatimes.com/tech/internet/how-facebook-is-logging-into-the-reliance-jio-ecosystem/articleshow/75302242.cms

The figures above cause a sense of worry for the businesses as well as consumers. Firstly, the combined market share of both Facebook and Reliance Jio will have access to a considerable amount of private data which can be used for various commercial purposes. This can put the privacy of the user at stake due to the presence of the activity asymmetric information performed by companies and also ignorance on the part of the consumer.

Secondly, the wide access to data can be used by the two giants collectively for their advertising. This leads to the possibility of unfair market practices, giving the two companies an upper hand to drive out their competitors. In other words, the merging of Facebook and Reliance Jio implies handing over the majority of the Indian market and their needs to one party. It is here that the role of the Competition Commission of India (CCI) comes into picture. While the investment deal still needs to be approved by CCI, the primary responsibility of the organisation in this aspect is to ascertain the transparency of the objective behind the FDI. Before approving the deal, it has to assure that the market power is not concentrated in one organisation which can hamper the consumer as well as producer interest.

Nonetheless, the deal has its own positives and negatives. Let’s start with the positive aspect of the ‘Facebook + Reliance Jio’. An inflow of FDI at the time of global recession will help the Indian economy to revive itself and attain the level of normalcy. India was already experiencing a high unemployment rate prior to the lockdown period. The situation worsened when the unemployment rate reached 24 per cent during lockdown 2.0 resulting from the spread of Covid-19. At such distressing times, the FDI only shows a ray of hope for future to boost employment rates in the economy.

The negative side is the risk of leaking private data for commercial use. In today’s digital economy, data is the biggest asset owned by giants in the consumer market. A high consumer base of both Facebook and Reliance Jio in India implies a collectively humongous coverage amongst Indian population. The data can be used to drive out the existing competitors and create a monopoly situation which can hamper the consumer interest in the long run.

Therefore, the role of CCI becomes highly crucial for this deal to go forward. The deal involves the risk of predatory pricing, violation of Right to Privacy Act, possibility of monopoly situation, high prices for consumers, etc. A transparency in the deal needs to be assured and proper conditions and restrictions need to be put in place to protect the interests of the consumers and the telecom industry which is already facing a slump in the Indian economy.

Source: https://economictimes.indiatimes.com/tech/internet/how-facebook-is-logging-into-the-reliance-jio-ecosystem/articleshow/75302242.cms

https://www.businesstoday.in/current/corporate/fb-jio-deal-facebook-investment-values-jio-platforms-at-record-rs-46-lakh-crore-5th-largest-in-m-cap/story/401659.html

https://www.thehindu.com/business/facebook-jio-deal-a-reflection-of-faith-in-indian-economy-says-usispf/article31411734.ece

https://indianexpress.com/article/explained/what-the-jio-deal-means-for-reliance-facebook-6374686/

https://www.business-standard.com/article/opinion/unemployment-rate-touches-26-per-cent-120042001081_1.html