Will the India-US Tech Handshake Foster Digital Trade and Policy Convergence?

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Will the India-US Tech Handshake Foster Digital Trade and Policy Convergence?

As the relationship between New Delhi and Washington matures, the two sides have found new levels of trust while acknowledging where their interests diverge.

Will the India-US Tech Handshake Foster Digital Trade and Policy Convergence?

President Joe Biden and Prime Minister Narendra Modi of India walk along the Colonnade of the White House, Thursday, June 22, 2023, to the Oval Office following the State Arrival Ceremony on the South Lawn.

Credit: Official White House Photo by Cameron Smith

Boosted by much fanfare and bonhomie, Prime Minister Narendra Modi’s state visit to the United States in June “affirmed a vision of India and the United States as among the closest partners in the world,” as reflected in the subsequent joint statement. Driven by new levels of trust and mutual understanding, the India-U.S. relationship is clearly overcoming the oft-quoted “hesitations of history” and scripting greater strategic convergence. 

A “high-tech handshake” is at the core of this new convergence. Unsurprisingly, this was the title of an event involving the two leaders and CEOs of leading Indian and U.S. technology companies. Acknowledging revitalized convergence in high-tech, defense, climate, and overall strategic ties, what does this handshake mean for digital trade and the regulatory environment for businesses going forward?

Catalyzed high-tech ties in the strategic and defense sector have not and will not automatically lead to domestic policy convergence and a frictionless digital trade relationship. Ongoing forums for collaboration and dialogue such as the U.S.-India Trade Policy Forum and the U.S.-India Commercial Dialogue have to iron out a number of issues before concretely impacting the policy and digital trade landscape. Technology companies that desire a long-term presence in the Indian market have begun to realize the need to separate digital trade policy and high-tech strategic cooperation when building on or deriving value from the rejuvenated technology relationship.

What Is a Tech Handshake?

“Charting a technology partnership for the future” was placed first on the list of issues covered in the India-U.S. joint statement following Modi’s visit. This segment of the joint statement is built on the U.S.-India Initiative on Critical and Emerging Technologies (iCET) that was announced by the two leaders in May and kicked off by delegations led by the respective national security advisers. 

Concrete avenues for cooperation referenced in the joint statement included cooperation in research and development on critical technologies such as artificial intelligence, quantum computing, semiconductors, and 5G. Avenues for implementation included a memorandum of understanding on the semiconductor supply chain and the announcement of a massive $800 million investment by Micron in Gujarat.

Much media attention focused on a memorandum of understanding between GE Aerospace (a subsidiary of General Electric) and Hindustan Aeronautics Limited (HAL) to manufacture GE F414 jet engines in India for use in the Tejas Light Combat Aircraft. A point to note is that India and the United States had previously suspended the transfer of jet engine technology in 2019, and even called off the working group under the Defense Trade and Technology Initiative owing to U.S. domestic legislation impeding technology transfers. In addition, an “innovation handshake” for start-ups working on defense technology through the India-U.S. Defense Acceleration Ecosystem (INDUS-X) was incorporated into the readout.

The recent joint statement further includes exploratory overtures on a holistic range of issues intrinsic to the strategic interests of both countries. This includes the Digital Public Infrastructure (DPI) and a U.S.-India Digital Development Partnership, collaboration on cybersecurity, and plans for joint research collaborations. In particular, the acknowledgment of DPIs in the joint statement is a win for India, whose digital diplomacy push has attempted to promote homegrown digital infrastructure like India Stack as a model for digital development around the world.

But what does the all-expansive tech handshake say about digital trade ties and the consequent creation of a more favorable policy climate for U.S. companies?

U.S. Industry Lobby Concerned With India’s Trade and Digital Economy Policies

On trade writ large, the two delegations agreed to waive six ongoing trade disputes at the World Trade Organization (WTO) and inserted some cursory language on lowering barriers and harmonizing standards and regulations where feasible. However, on digital trade issues specifically, the joint statement was conspicuously silent.

That said, independently of the Biden-Modi summit, India and the United States have maintained a  dialogue at the Cabinet level through the U.S.-India Information and Communication Technology Working Group, the U.S.-India Trade Policy Forum, and the U.S.-India Commercial Dialogue that has involved Indian Commerce Minister Piyush Goyal, U.S. Commerce Secretary Gina Raimondo, and United States Trade Representative Katherine Tai. Readouts from the meetings of these forums have acknowledged the importance of digital trade and cross-border data flows but are yet to suggest any concrete clear roadmaps for policy convergence.

Industry associations from the United States continue to express concerns. In February this year, an industry-driven Washington D.C.-based advocacy group, Computer & Communications Industry Association (CCIA), which represents, among others, Google, Amazon, Meta, Intel, and Yahoo in Washington, released a report titled “Digital Trade Barriers in India.” The report alleged that the bilateral trade relationship between the two countries is “misaligned” and “imbalanced” owing to three factors couched as perceived failings on India’s part: protectionist tendencies favoring domestic players; a move away from longstanding democratic norms; and a desire to chart its own path in global forums on digital trade. Twenty digital trade barriers were identified to substantiate these claims. 

The CCIA report highlighted a number of alleged trade barriers in no particular chronological order. First was the “equalization levy,” a tax charged by the government on non-resident companies (like e-commerce companies) for selling goods or providing services in India. Second, the report highlighted a range of measures that must be undertaken by intermediaries (platforms) to comply with India’s new Information Technology rules. These measures include strict timelines for takedown and law enforcement assistance that mandates tracing of first originators. Third were concerns regarding restrictions on cross border flows, including preferential treatment provided through India’s Geospatial Guidelines.

That said, the company lauded the less restrictive approach to cross-border flows in the latest iteration of India’s privacy legislation while highlighting further areas of uncertainty. The report also disagreed with the expansion of the phrase “telecommunication services” in India’s draft telecommunication bill. The extension to include a wide range of internet-enabled services would mean that entities would be subject to onerous obligations such as licensing requirements, government access to data, and encryption requirements.

Similar allegedly “trade restrictive” regulations have also been flagged by the United States Trade Representative in its 2021, 2022, and 2023 National Trade Estimate Reports on Foreign Trade Barriers, suggesting a convergence between U.S. industry and government. Digital trade challenges have been brought up at the political level as well by United States officials and elected representatives.

Not Budging on Digital Trade and Domestic Policy

Yet, this vigorous criticism from U.S. government and industry alike has done little to dramatically alter India’s approach to domestic policymaking or digital trade diplomacy. This has been underscored by a desire to preserve the domestic policy space in line with an assessment of strategic interests. For issues related to data governance, in particular, India is still firming up domestic regulation, which is already a high-stakes domestic political economy slugfest among key stakeholders. The government has attributed any policy changes made – such as the relaxation of data localization requirements across various iterations of  India’s personal data protection law – to the interests of Indian stakeholders, including start-ups. External pressure for policy changes has been acknowledged but rarely resulted in domestic digital policy alterations.

Accordingly, India has been wary of signing up for trade agreements that could constrain decision-making options on digital policy. India sat out of the plurilateral Joint Initiative on E-commerce at the WTO, which includes 87 of the organization’s 164 members. India also opted out of the trade pillar of the U.S.-brokered Indo-Pacific Economic Framework given a lack of clarity and uncertainty on the legal obligations India would have to take on with regard to digital trade as well as other issue areas.

Indian officials recognize that India’s domestic policy approach will impose costs on foreign businesses. In late 2022, while addressing concerns regarding India’s upcoming privacy law, the minister of state for electronics and information technology stated that “processing digital personal data of Indians will have to go for deep behavioral changes and it will not be business as usual for them”– referring to companies that are based outside India.

The absence of clearly defined digital trade or policy issues in the India-U.S. joint statement suggests that the high-tech partnership will not dramatically alter India’s approach immediately.

Reluctant Behavioral Change

For now, foreign technology companies accept this reality. For them, “behavioral change” in response to Indian regulations is an essential condition for their survival and a cost they are willing to bear. While continuing to press policymakers gently through industry associations and advocacy groups like the CCIA, they have publicly demonstrated an intent to comply both with existing and future regulations. The Indian market and demography provide an opportunity too vast to risk losing.

Take the Reserve Bank of India’s (RBI) Data Localization Norms for instance. In 2018, the RBI issued a data localization mandate named the “Storage of Payment Systems Data,” where the regulator required payment-related information from banks to be stored in India, and if processed outside India, to be returned to the country in 24 hours. In 2021, the RBI barred many payment services companies like Mastercard, American Express, and Diners Club from onboarding new domestic customers until they satisfactorily complied with this directive.

After pursuing protracted lobbying against India’s data localization mandates since 2018, companies appear to have adopted a more tepid stance. While acknowledging that localization is “not the best solution to address security concerns” companies have worked with regulators and auditors to ensure compliance with the requirements in order to remain in the Indian market. Further, several cloud service providers have started viewing the behavioral change as a business opportunity by relocating key infrastructure in India and providing “sovereign cloud” services that comply with India’s data localization requirements

Similarly, despite undertaking legal challenges against certain aspects of India’s intermediary guidelines or government issued takedown orders, companies have largely abided by requirements such as the publishing of monthly transparency reports or appointing local grievance redressal officers. Further, new Twitter (now X) owner Elon Musk has criticized the company’s lawsuit against India’s takedown orders, claiming that compliance with the law of the land is a better outcome than having employees potentially jailed.

An Evolving and Mature Technology Partnership

A far cry from the arm-twisting and mismatched expectations of yesteryear, the India-U.S. relationship is growing not just in its material aspects but also in maturity and mutual respect for each other’s strategic and policy thinking. Both sides have identified the domains and issues on which they agree and can pragmatically cooperate while acknowledging matters that domestic interests compel them to diverge on. Separating strategic high-tech cooperation from digital trade policy convergence is a sign of this maturity and calculated expectation-setting from both administrations as well as businesses and other stakeholders that are intrinsic to the partnership.