The concerns about India-U.S. digital trade

Source– The post is based on the article “The concerns about India-U.S. digital trade” published in “The Hindu” on 28th June 2023.

Syllabus: GS2- Bilateral groupings and agreements

Relevance- India and US bilateral relationship

News– During Prime Minister Narendra Modi’s U.S. state visit, cooperation on technology emerged as a prominent outcome.

What is the current status of India-U.S. technology trade?

In FY2023, the U.S. emerged as India’s biggest overall trading partner. The bilateral trade was $128.55 billion in 2022-23.

However, digital or technology services did not emerge as a prominent sector of bilateral trade. The U.S. had a $27 billion deficit in trade in digital services with India in 2020.

In the recent past, the two countries have been ramping up their tech partnership through moves like the iCET.

Under the iCET, India and the U.S. also established a Strategic Trade Dialogue. It is focused on addressing regulatory barriers and aligning export controls for smoother trade and deeper cooperation in critical areas.

What are the concerns raised by U.S. tech firms?

The CCIA in its note has talked about the “significant imbalance” and “misalignment” in the U.S.-India economic relationship.

The U.S.’s market access, trade and openness to Indian companies to operate in the U.S. has not been reciprocated by the Indian side. The Indian government has deployed a range of tools by their protectionist industrial policy.

It cites the example of India’s guidelines on the sharing of geospatial data. It provides preferential treatment to Indian companies.

It has also expressed discontent over India’s moving away from longstanding democratic norms and values, and government censorship and control over political speech.

What are US firms’ concerns over taxation measures in India?

U.S. tech firms have concerns related to the “equalisation levy” that India charges on digital services.

In 2020, the Centre came out with the ‘Equalisation Levy 2.0’. It imposes a 2% tax on gross revenues received by a non-resident e-commerce operator from the e-commerce services to Indian residents.

The equalisation levy led to double taxation and further complicated the taxation framework. Besides, there are questions about the constitutional validity and compliance with international obligations.

What are US firms’ concerns about India’s IT Rules 2021?

The IT Rules place compliance burden on social media intermediaries (SMIs) and platforms. several U.S. firms end up falling under the ambit.

Some points of concern raised are the impractical compliance deadlines and content take-down protocols. 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.

There is a major criticism against the government’s institution of the three-member Grievance Appellate Committees to hear user complaints.

What has been flagged in the new draft of the data protection law?

There are ambiguities about cross-border data flows, compliance timelines, and data localisation requirements.

Data localisation requirements by governments significantly increase operating costs of companies. These can be seen as discriminatory by foreign companies.

Foreign tech companies like Meta or Amazon operating in India find it convenient to store their data wherever they have their servers.

Section 17 of the draft Act says that cross-border flow of data will only be allowed for a list of countries notified by the Centre. On what basis will these countries be notified and what the terms for such transfers will be is not mentioned in the draft.

What have firms said about the Telecom bill?

As per CCIA, the draft Telecommunications Bill, 2022 would redefine “telecommunication services” to include a wide range of internet-enabled services. These services have little resemblance to the telephony services.

The current draft of the Bill puts both Telecom Service Providers (TSPs) and Over-the-top (OTT) communication services under the definition of telecommunication services.

The proposed law would subject a number of platforms to obligations such as licensing requirements; government access to data; encryption requirements, internet shutdowns, seizure of infrastructure, and possibly monetary obligations for the sector.

What are the other policy barriers?

Last year, the Parliamentary Committee on Finance Proposed the adoption of a “Digital Competition Act” to address anti-competitive practices by big tech companies.

The CCIA says that the proposal appeared to be largely targeted at U.S. tech companies.