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Concerns About India-American Digital Trade


The main objections raised by American tech companies and the problems with India’s digital trade regulations.


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

Mains Question

Discuss the consequences and objections raised by foreign IT companies over India’s Digital Personal Data Protection Bill during discussions on digital trade between India and the U.S. (250 words)

Current state of technology trade between the US and India:

  1. The U.S. overtook China as India’s top trading partner in FY2023, with bilateral trade reaching $128.55 billion, an increase of 7.65%.
    1. This highlights the importance of their trade relationship as well as the strengthening economic links between the two nations.
  2. The sector of digital or technological services did not become a significant one in bilateral trade.
    1. Despite the enormous potential of the Indian online services market and the robust U.S. digital services export industry, cross-border digital trade encountered obstacles.
  3. In 2020, the United States and India had a $27 billion trade gap in digital services.
    1. The shortfall, despite overall trade growth, emphasises the need to resolve trade imbalances and improve digital sector coordination.
  4. The establishment of the Initiative on Critical and Emerging Technology (iCET), which focuses on fields like artificial intelligence, quantum computing, semiconductors, and wireless telecommunication, shows that both nations are committed to fostering cooperation and advancements in important technology sectors.
  5. A Memorandum of Understanding (MoU) between India and the U.S. launched the $2.75 billion Semiconductor Supply Chain and Innovation Partnership.
    1. The goal of this agreement is to support innovation and strengthen the semiconductor sector in both nations.
  6. To focus on the Open RAN network and research and development in 5G/6G technologies, Joint Task Forces were established. These task forces seek to foster cooperation, knowledge sharing, and technological improvements in these crucial areas.
  7. Efforts are being made to advance emerging technologies like quantum computing and artificial intelligence.
    1. The creation of the Quantum Coordination Mechanism and a collaborative fund for commercialising AI highlights the dedication to maximising the promise of cutting-edge technologies.
  8. Overall, despite the fact that commerce between India and the U.S. has grown significantly, there is still a need to further investigate and improve digital trade relationships, address trade imbalances, and promote cooperation in important technology industries for both parties’ mutual advantage.

Concerns Voiced by American Businesses:

  1. Policy Obstacles: Amazon, Google, Meta, Intel, and Yahoo are just a few of the 20 policy obstacles that the Computer & Communications Industry Association (CCIA), which represents these businesses, has identified, has listed as trade barriers with India. They contend that India’s protectionist policies skew the playing field against American digital service providers and in favour of domestic competitors.
  2. The equalisation levy, which levies taxes on digital services and has been expanded in India, has alarmed American tech companies. They contend that the charge results in double taxation, complicates the taxation system, and casts doubt on the constitutionality of the government and its compliance with international duties.
  3. IT Rules 2021: Foreign tech companies have deemed the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, to be troublesome. Social media intermediaries (SMIs) and platforms with a sizable user base, such as multiple U.S. businesses, must comply with the guidelines, which impose compliance requirements on them. Unreasonable compliance timelines, content take-down procedures, and the demand for local compliance officers have all drawn criticism.
  4. Data Protection Law: Foreign IT companies have praised the fresh draught of India’s Digital Personal Data Protection Bill while also expressing ongoing reservations. For businesses operating in India, the unresolved ambiguities surrounding cross-border data flows, compliance deadlines, and data localization standards are uncertain.

Critiques of the New Data Protection Law Draught

  1. Ambiguities in Cross-Border Data Flows and Compliance Timelines: Uncertainty is caused by a lack of defined regulations for cross-border data flows.
    1. Businesses are concerned when there are no clear deadlines for compliance.
  2. Data localization worries: The previous version enforced restrictions for data localization, which drew criticism.
    1. The new draught eliminates these clauses, but the absence of explicit instructions prompts concerns about de facto localisation.
  3. Impact on Operating expenses and Discrimination:
    1. Data localization rules may be perceived as discriminatory, limiting the capacity of international enterprises to store data outside of India.
    2. Such regulations may dramatically increase operating expenses, particularly for foreign companies.
  4. India’s Role as a Data Hub and worldwide repercussions:
    1. With a big population of internet users, India intends to become a hub for data processing;
    2. Policies on cross-border data flows would have worldwide repercussions, much like the GDPR’s effects.
  5. Justifications for Data Localization and Potential Drawbacks
    1. Governments offer numerous justifications for mandating data localization.
    2. However, these rules may result in higher expenses for businesses and may be seen as favouring domestic enterprises over foreign ones.
  6. These arguments emphasise the requirement for precise standards and fair policies with regard to international data flows, data localisation, and their possible effects on businesses and global data governance.
  7. Draught of the Telecom Act: The proposed Telecommunications Bill, 2022, has come under fire for its extensive regulatory reach. The definition of “telecommunication services” could include Over-the-top (OTT) communication services, which could expose different platforms to onerous duties such licencing restrictions, data access by the government, encryption requirements, and internet shutdowns.

Other Policy Barriers:

The CCIA mentions the “Digital Competition Act” plan and the imposition of anticipated taxes on important digital intermediaries as additional policy obstacles that could be put in the way of American tech companies. These issues are in addition to the ones raised above.


Despite bilateral initiatives between India and the U.S. to strengthen their tech collaboration, U.S. tech companies’ concerns about India’s digital laws emphasise the need for more discussion and resolution. To create an environment that is favourable for digital trade between the two countries, it will be essential to address these issues, provide equitable market access, and set clear and balanced laws.

December 2023