The concerns about India-U.S. digital trade

General Studies Paper 3

Context

• During Prime Minister Narendra Modi’s U.S. state visit, cooperation on technology emerged as a prominent talking point and yielded some of the most substantive outcomes, according to Foreign Secretary Vinay Kwatra.

The current status of India-U.S. technology trade

• Notably, in FY2023, the U.S. emerged as India’s biggest overall trading partner with a 7.65% increase in bilateral trade to $128.55 billion in 2022-23.
• However, digital or technology services did not emerge as one of the sectors at the forefront of bilateral trade.
• The Computer & Communications Industry Association (CCIA) headquartered in Washington DC points out in its report that “despite the strength of the U.S. digital services export sector and enormous growth potential of the online services market in India, the U.S. ran a $27 billion deficit in trade in digital services with India in 2020”.
• In the recent past, however, the two countries have been ramping up their tech partnership through moves like the Initiative on Critical and Emerging Technology (iCET) announced by President Joe Biden and Prime Minister Narendra Modi last year.
• Additionally, under the iCET, India and the U.S. also established a Strategic Trade Dialogue with a focus on addressing regulatory barriers and aligning export controls for smoother trade and “deeper cooperation” in critical areas.

Concerns of U.S. tech firms

• The CCIA, while appreciating the reinvigorated efforts to ramp up trade through bilateral initiatives, has flagged in its note, the “significant imbalance” and “misalignment” in the U.S.-India economic relationship.
• They also addressed that the S.’s extension of market access, trade and openness to Indian companies to operate and succeed in the U.S. has not been reciprocated by the Indian side.
• Adding that the Indian government has deployed a range of tools to champion their protectionist industrial policy tilting the playing field away from U.S. digital service providers in favour of domestic players.
• To describe these discriminatory regulation and policies, it cites the example of India’s guidelines on the sharing of geospatial data, which it accuses of providing preferential treatment to Indian companies.
• It has also expressed discontent over India’s veering away from longstanding democratic norms and values, and seeking greater government censorship and control over political speech which it argues has made it extremely challenging for U.S. companies to operate in India.

Concerns of taxation measures

• One of the taxation tools that U.S. tech firms have long taken exception to is the expanded version of the “equalisation levy” that India charges on digital services.
• India in 2016, with the goal of “equalising the playing field” between resident service suppliers and non-resident suppliers of digital services imposed a unilateral measure to levy a 6% tax on specific services received or receivable by a non-resident not having a permanent establishment in India, from a resident in India who carries out business.
• The equalisation levy, when it was first introduced in 2016, led to double taxation and further complicated the taxation framework.
• Besides, it also raised questions of constitutional validity and compliance with international obligations. The 2020 amendment again led the levy to become sweeping and vague in its scope.

India’s IT Rules 2021

• The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, has been flagged by the consortium of foreign tech firms under the some of the most “problematic policies”.
• The IT Rules place compliance burden on social media intermediaries (SMIs) and platforms with five million registered users or more, which means several U.S. firms end up falling under the ambit.

Suggestions

• The IT Rules require intermediaries to take down content within 24 hours upon receiving a government or court order.
• The platforms are also required to appoint a local compliance officer.
• Moreover, with the amendments made to the Rules late last year, SMIs are now obligated to remove, within 72 hours, information or a communication link in relation to the six stipulated prohibited categories of content as and when a complaint arises.
• There is also major criticism against the government’s institution of the three-member Grievance Appellate Committees (GAC), which will hear user complaints about the decisions of SMIs regarding their content-related issues and have the power to reverse those decisions.
• The CCIA argues that instead of taking this “opaque” approach, the law could be strengthened by “proactively supporting cross-border data flows through certifications, standard contractual clauses and binding corporate rules”.

Conclusion

• India, with more than 759 million active internet users representing more than 50% of its population is a gold mine for data. The country is also planning to become a hub for data processing, wanting to host data centres and cloud service providers. This means that India’s policy on the flow of data across borders will impact the same on a global level, as was seen with the European Union’s landmark General Data Protection Regulation (GDPR).