INDIA-US DIGITAL TRADE

1. 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.

2. Current Status of India-US technology trade

In FY2023, the United States became India's largest overall trading partner with a bilateral trade increase of 7.65% to $128.55 billion in 2022-23.
Digital or technology services did not play a prominent role in bilateral trade between the two countries.
The US ran a trade deficit of $27 billion in digital services with India in 2020.
The US and India have been strengthening their tech partnership through initiatives like the Initiatives on Critical and Emerging Technology (iCET) announced by President Joe Biden and Prime Minister Narendra Modi.
The iCET led to the establishment of a strategic Trade Dialogue between India and the US, focusing on addressing regulatory barriers and aligning export controls for smoother trade and deeper cooperation in critical areas.

3. CCIA's Concerns in U.S.-India Economic Relationship

The CCIA (Computer & Communications Industry Association) acknowledges the efforts to enhance bilateral trade but raises concerns about the "significant imbalance" and "misalignment" in the U.S.- India economic relationship.
According to the CCIA, the Indian government has implemented protectionist industrial policies that favor domestic players over U.S. digital service providers, resulting in a tilted playing field.
One example highlighted by the CCIA is India's guidelines on sharing geospatial data, which allegedly provide preferential treatment to Indian Companies.
The CCIA also expresses dissatisfaction with India's departure from democratic norms and values, citing increased government censorship and control over political speech, making it challenging for U.S. companies to operate in India.

4. India's Expanded Equalisation Levy on Digital Services

In 2016, India introduced an "equalization levy" of 6% on specific digital services received by non-residents without a permanent establishment in India from Indian residents.
In 2020, the "Equalisation Levy 2.0" was implemented, imposing a 2% tax n gross revenues received by non-resident e-commerce operators from providing e-commerce supplies or services to Indian residents or non-resident companies with a permanent establishment in India.
The initial introduction of the equalization levy in 2016 resulted in double taxation and complexity in the taxation framework. It raised concerns about constitutional validity and compliance with International obligations.
The 2020 amendment expanded the levy's scope, making it sweeping and vague.
In 2021, instead of introducing an amendment, the Indian government issued a "clarification" stating that the expression "e-commerce supply or service" includes the online sale of goods, online provision of services, and facilitation of online sales or services.

5. Concerns Regarding India's IT Rules 2021

The IT (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 have been flagged by a consortium of foreign tech firms as "problematic policies".
The rules impose compliance burdens on social media intermediaries (SMIs) and platforms with five million or more registered users, affecting several U.S. firms.
Points of concern include impractical compliance deadlines and content takedown protocols. Intermediaries are required to remove content within 24 hours of receiving a government or court order.
The rules also require platforms to appoint a local compliance officer.
Amendments made to the rules oblige SMIs to remove information or communication links related to prohibited content categories within 72 hours of receiving a complaint.
Criticism is directed at the establishment of three-member Grievance Appellate Committees (GAC), which have the power to hear user complaints about content-related decisions by SMIs and can overturn those decisions.

6. Ambiguities in India's Digital Personal Data Protection Bill

Foreign tech firms appreciate improvements in the fourth draft of the Digital Personal Data Protection Bill released in November 2022.
However, uncertainties remain regarding cross-border data flows, compliance timelines, and data localization.
India, with over 759 million active internet users, holds significant data and aims to become a hub for data processing.
India's policy on data flow across borders will have global implications, similar to the impact of the European Union's GDPR.
Data localization requirements can increase operating costs for companies and may be viewed as discriminatory by foreign firms.
The new draft has minimal information on cross-border data flows, stating that it will only be allowed to countries notified by the Indian government.
The basis for country notifications and the terms for data transfers are not specified, raising questions about the potential backlisting of non-notified countries.
The CCIA suggests a proactive approach supporting cross-border data flows through certifications, standard contractual clauses, and binding corporate rules instead of an opaque approach.

7. CCIA's Concerns about the Draft Telecommunications Bill, 2022

The CCIA argues that the draft Telecommunications Bill has an expansive regulatory scope that would redefine "telecommunication services" to include internet-enabled services that differ significantly from traditional telephony and broadband services.
The current draft includes both Telecom Service Providers (TSPs) and Over-the-Top (OTT) communication services within the definition of " telecommunication services."
OTT communication services, such as messaging platforms (WhatsApp, Telegram, Signal, and Google Meet) utilize TSP's network infrastructure to offer features that compete with traditional telecommunication services like voice calls and SMS.
If passed in its current form, the proposed law would impose burdensome obligations on platforms, including licensing requirements, government access to data, encryption requirements, internet shutdowns, infrastructure seizure, and potentially monetary obligations.
The CCIA argues that the law would introduce a global authorization/licensing requirement for digital firms, which is unprecedented.

8. Proposed "Digital Competition Act" and Estimated Taxes

The Parliamentary Committee on Finance proposed a "Digital Competition Act" last year to tackle anti-competitive practices by big tech companies.
The proposed act includes the implementation of estimated taxes specifically for significant digital intermediaries.
The CCIA suggests that the proposal seems to be primarily aimed at U.S. tech companies.
The details and specifics of the proposed act and estimated taxes are not provided in the given information.

For Prelims: Critical and Emerging Technology (iCET), CCIA (Computer & Communications Industry Association), Equalisation Levy 2.0, Double taxation, IT (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021, Social Media Intermediaries (SMIs), Grievance Appellate Committees (GAC), Telecom Service Providers (TSPs) and Over-the-Top (OTT).

For Mains: 1. Discuss the recent trends and developments in India-U.S. digital trade, highlighting its significance for both countries. Examine the key sectors and areas of cooperation in this domain. (250 Words).

Previous year Question

1. Recently, the USA decided to support India's membership in multilateral export control regimes called the "Australia Group" and the "Wassenaar Arrangement". What is the difference between them?

1. The Australia Group is an informal arrangement that aims to allow exporting countries to minimize the risk of assisting chemical and biological weapons proliferation, whereas the Wassenaar Arrangement is a formal group under the OECD holding identical objectives.

2. The Australia Group comprises predominantly Asian, African, and North American countries, whereas the member countries of Wassenaar Arrangement are predominantly from the European Union and American continents.

Which of the statements given above is/are correct?

A. 1 only

B. 2 only

C. Both 1 and 2

D. Neither 1 nor 2

Answer: D

Source: The Hindu

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