Concerns with India-U.S. Digital Trade : Daily News Analysis

Date : 30/06/2023

Relevance : GS Paper 2 :Bilateral relations, GS Paper 3 : Digital economy

Key Words : Initiative on Critical and Emerging Technology, Digital data protection bill, OTT, semiconductor supply chain

Context -

The key concerns flagged by U.S. tech firms and the issues surrounding India's digital trade policies.

Current Status of India-U.S. Technology Trade:

1. In FY2023, the U.S. became India's largest trading partner with bilateral trade reaching $128.55 billion, representing a 7.65% increase.

This demonstrates the growing economic ties between the two countries and the significance of their trade relationship.

2. Digital or technology services did not emerge as a prominent sector in bilateral trade.

Despite the immense potential of India's online services market and the strength of the U.S. digital services export sector, digital trade between the two countries faced challenges.

3. The U.S. experienced a trade deficit of $27 billion in digital services with India in 2020.

Despite the overall trade growth, the deficit highlights the need to address trade imbalances and enhance collaboration in the digital sector.

4. The Initiative on Critical and Emerging Technology (iCET) was established, focusing on areas such as artificial intelligence, quantum computing, semiconductors, and wireless telecommunication.

This initiative demonstrates the commitment of both countries to fostering cooperation and advancements in crucial technology sectors.

5. The Semiconductor Supply Chain and Innovation Partnership, valued at $2.75 billion, was launched through a Memorandum of Understanding (MoU) between India and the U.S.

This partnership aims to strengthen the semiconductor industry and promote innovation in both countries.

6. Joint Task Forces were established to focus on the Open RAN network and research and development in 5G/6G technologies.

These task forces aim to promote collaboration, knowledge sharing, and technological advancements in these key areas.

7. Efforts are being made to advance future technologies such as AI and Quantum Computing.

The establishment of the Quantum Coordination Mechanism and a joint fund for AI commercialization underscores the commitment to harnessing the potential of emerging technologies.

Overall, while the bilateral trade relationship between India and the U.S. has shown significant growth, there is a need to further explore and strengthen digital trade ties, address trade imbalances, and foster cooperation in key technology sectors for mutual benefit.

Concerns Raised by U.S. Companies:

Policy Hurdles: The Computer & Communications Industry Association (CCIA), representing companies like Amazon, Google, Meta, Intel, and Yahoo, has identified 20 policy barriers to digital trade with India. They have criticized India's protectionist stance, which they claim tilts the playing field against U.S. digital service providers in favor of domestic players.
Equalisation Levy: U.S. tech firms have expressed concerns about India's expanded version of the equalization levy, which imposes taxes on digital services. They argue that the levy leads to double taxation, creates complexity in the taxation framework, and raises questions about constitutional validity and international obligations.
IT Rules 2021: The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, have been flagged as problematic by foreign tech firms. The rules place compliance burdens on social media intermediaries (SMIs) and platforms with a significant user base, including several U.S. companies. Concerns have been raised about impractical compliance deadlines, content take-down protocols, and the requirement to appoint local compliance officers.
Data Protection Law: The new draft of India's Digital Personal Data Protection Bill has been met with both appreciation and lingering concerns from foreign tech firms. Ambiguities regarding cross-border data flows, compliance timelines, and data localization requirements remain unresolved, leading to uncertainties for companies operating in India.

Criticisms of the New Draft of the Data Protection Law:

1. Ambiguities in Cross-Border Data Flows and Compliance Timelines:

Lack of clear guidelines on regulating cross-border data flows creates uncertainty.
The absence of specified compliance timelines raises concerns for businesses.

2. Concerns about Data Localisation:

The previous version imposed data localization requirements, which received criticism.
New draft removes these provisions, but the lack of clear guidelines raises speculation on de facto localization.

3. Impact on Operating Costs and Discrimination:

Data localization requirements can significantly increase operating costs, particularly for foreign companies.
Such requirements may be seen as discriminatory, limiting foreign companies' ability to store data outside India.

4. India's Role as a Data Hub and Global Implications:

With a large number of internet users, India aims to become a data processing hub.
Policies on cross-border data flows will have global implications, similar to the impact of the European Union's GDPR.

5. Arguments for Data Localisation and Potential Drawbacks:

Governments present various arguments supporting data localization requirements.
However, such requirements can impose increased costs on companies and may be perceived as discriminatory against foreign firms.

These criticisms highlight the need for clear guidelines and balanced policies regarding cross-border data flows, data localization, and their potential impact on businesses and global data governance.

5. Telecom Act Draft: The proposed Telecommunications Bill, 2022, has drawn criticism for its broad regulatory scope. The inclusion of Over-the-top (OTT) communication services under the definition of "telecommunication services" could subject various platforms to onerous obligations, including licensing requirements, government access to data, encryption requirements, and internet shutdowns.

Other Policy Barriers:

In addition to the above concerns, the CCIA highlights the proposal for a "Digital Competition Act" and the imposition of estimated taxes on significant digital intermediaries as potential policy barriers aimed at U.S. tech companies.

Conclusion:

While India and the U.S. have made efforts to enhance their tech partnership through bilateral initiatives, concerns raised by U.S. tech firms regarding India's digital laws highlight the need for further dialogue and resolution. Addressing these concerns, ensuring fair market access, and establishing clear and balanced regulations will be crucial to fostering a conducive environment for digital trade between the two nations.

Probable questions for the Mains exam -

What are the key concerns raised by U.S. tech firms regarding India's digital trade policies during Modi's state visit to the United States? (10Marks,150 Words)
Discuss the implications and criticisms surrounding India's Digital Personal Data Protection Bill, as flagged by foreign tech firms during the discussions on digital trade between India and the U.S.(15 marks, 250 Words)

Source: The Hindu