Status of India-U.S. Technology Trade

What’s in today’s article?

• Why in News?
• What is the Current Status of India-U.S. Technology Trade?
• What are the Concerns of the U.S. Tech Firms?
• Discriminatory Regulation and Policies of India
• Other Policy Barriers to Digital Trade with India
• Recent Efforts to Ramp up their Tech Partnership

Why in News?

• During the Indian PM’s U.S. state visit, cooperation on technology emerged as a prominent talking point and yielded some of the most substantive outcomes.
• However, digital trade is the area where some of the biggest U.S. tech companies have recently flagged multiple policy hurdles, including “India’s patently protectionist posture”.

What is the Current Status of India-U.S. Technology Trade?

• 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.

What are the Concerns of U.S. Tech Firms?

• The Computer & Communications Industry Association (CCIA) flagged 20 policy barriers to trading with India in a note titled “Key threats to digital trade 2023”.
• The CCIA has flagged significant imbalance and misalignment in the US-India economic relationship.
• For example,
  • The US’s extension of market access, trade and openness to Indian companies has not been reciprocated by the Indian side.
  • The U.S. ran a $27 billion deficit in trade in digital services with India in 2020. This is despite the strength of the U.S. digital services export sector and enormous growth potential of the online services market in India.
• The Indian government has deployed a range of tools to champion their protectionist industrial policy tilting the playing field away from US digital service providers in favour of domestic players.

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Discriminatory Regulation and Policies of India:

• Guidelines on the sharing of geospatial data, providing preferential treatment to Indian companies.
• Greater government censorship and control over political speech, which has made it extremely challenging for U.S. companies to operate in India.
• Equalisation levy that India charges (since 2016) on digital services – a 6% tax on specific services received or receivable by a non-resident not having a permanent establishment in India.
  • Equalisation Levy 2.0 (from 2020) imposes a 2% tax on gross revenues received by a non-resident “e-commerce operator” from the provision of ‘e-commerce supply or service’.
  • The equalisation levy led to double taxation and further complicated the taxation framework.
  • It also raised questions of constitutional validity and compliance with international obligations.
• The IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021: They place compliance burden on social media intermediaries (SMIs) and platforms with five million registered users or more.
  • Some points of concern raised are the impractical compliance deadlines and content take-down protocols.
  • Recently, the MeitY added another layer of compliance, requiring platforms to prevent the publication of content fact-checked as fake or false by the Press Information Bureau (PIB).
• The Digital Personal Data Protection Bill, 2022: While there are notable improvements in the government’s new draft (4th iteration), ambiguities about cross-border data flows, compliance timelines, and data localisation still remain.
  • The data localisation requirements tend to significantly increase operating costs of companies and can be seen as discriminatory by foreign companies.
• The Draft Telecommunications Bill, 2022: It would redefine telecommunication services to include a wide range of internet-enabled services that bear little resemblance to the telephony and broadband services.
  • For example, the Bill puts both Telecom Service Providers (TSPs) and Over-the-top (OTT) communication services under the definition of “telecommunication services”.
  • The industry body contends that the law would impose a first of the kind global authorisation/licensing requirement for any digital firm.

Other Policy Barriers to Digital Trade with India:

• Digital Competition Act: The Parliamentary Committee on Finance, in order to address anti-competitive practices by big tech companies, proposed the adoption of the Act in 2022.
• The Competition Commission of India (CCI): It has imposed two successive fines on Google for “anti-competitive practices” in its Play Store policies.

Recent Efforts to Ramp up their Tech Partnership:

• Initiative on Critical and Emerging Technology (iCET):
  • Announced by the US President and Indian PM in 2022, India and the U.S. agreed (under the iCET) to cooperate on critical and emerging technologies in areas including
    • Artificial intelligence,
    • Quantum computing,
    • Semiconductors and wireless telecommunication.
  • Additionally, 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.
• Semiconductor Supply Chain and Innovation Partnership: It includes a combined investment valued at $2.75 billion.
• On the telecommunications front, two Joint Task Forces to focus on the Open RAN network and R&D in 5G/6G technologies.
• Quantum Coordination Mechanism (to harness future tech such as AI and Quantum Computing) and a joint fund for the commercialization of Artificial Intelligence.

Q1) What is the equalisation levy?

Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy: The payment should be made to a non-resident service provider; The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

Q2) What is the Competition Commission of India (CCI)?

The CCI was established in 2009 by the Government of India under the Competition Act, 2002 for the administration, implementation, and enforcement of the Act. It is the chief national competition regulator in India.

Source: Explained | Why are U.S. tech firms sceptical about digital trade with India?