India’s Digital Trade Policy

India’s Digital Trade Policy and Cross-Border E-Commerce Regulations

India’s digital trade and e-commerce sector is witnessing rapid transformation in 2024 and 2025, driven by rising internet penetration, increased consumer engagement with online platforms, and the growing participation of multinational companies (MNCs) in the Indian market. The Indian government is strategically shaping its digital trade policy to protect domestic businesses while encouraging foreign investment.

Growing concerns over data privacy, market competition, cross-border trade regulations, and digital taxation mark the policy landscape. With India becoming a major player in global digital trade, the government is aligning its domestic policies with international frameworks such as the OECD-G20 Two-Pillar Framework and the World Trade Organization's (WTO) Joint Statement Initiative (JSI) on e-commerce.

This detailed analysis explores India's current digital trade policy, proposed changes for 2024 and 2025, the implications for domestic and international players, and the challenges ahead.

Background and Context

India's digital trade landscape is evolving due to several macroeconomic and technological trends:

Growth of India’s Digital Economy

• India’s digital economy is expected to grow from $200 billion in 2022 to over $1 trillion by 2030.
• The share of the digital economy in India’s GDP is forecasted to increase from 8% in 2023 to over 20% by 2025.
• Over 800 million internet users in India drive e-commerce growth, with mobile-first platforms accounting for more than 60% of online sales.
• The government’s Digital India program aims to provide universal internet access and digitize the rural economy, thereby increasing the base of digital trade participants.

Expansion of Cross-Border E-Commerce

• Cross-border e-commerce in India is growing at a rate of 20% annually.
• Major international platforms like Amazon, Walmart-Flipkart, Alibaba, and Shein have established a significant presence in India.
• India's domestic e-commerce giants such as Reliance's JioMart and Tata Digital are increasing their share in the cross-border market.
• In 2023, India exported over $60 billion worth of digital services, with key markets being the US, EU, and Southeast Asia.

Policy Shift Towards Protectionism

• India has adopted a protectionist stance to safeguard domestic businesses from foreign competition.
• New e-commerce regulations and digital taxation measures aim to create a level playing field for Indian startups and traditional businesses.
• India’s government has been critical of the WTO's moratorium on customs duties for electronic transmissions, arguing that it disproportionately benefits developed nations at the expense of emerging markets.

Key Components of India’s Digital Trade Policy

India’s digital trade policy is structured around four key pillars:

E-Commerce Regulations

India’s e-commerce framework is defined by the following regulations:

1. Consumer Protection (E-Commerce) Rules, 2020
   • Prohibits flash sales that limit consumer choice and distort market competition.
   • Requires e-commerce platforms to display country of origin for products.
   • Mandates the appointment of a grievance officer for consumer complaints.
   • Platforms must prevent misleading advertisements and price manipulation.
2. Draft E-Commerce Policy (Expected 2024)
   • Proposes strict limitations on foreign direct investment (FDI) in multi-brand retail.
   • Mandates that e-commerce firms should not own inventory or directly sell products.
   • Promotes the creation of a domestic e-commerce ecosystem through incentives for Indian startups.
3. Competition Law (Amendment) Act, 2023
   • Strengthens India's anti-monopoly framework to curb predatory pricing by foreign e-commerce platforms.
   • Grants the Competition Commission of India (CCI) greater powers to investigate digital platforms.

Cross-Border Data Flow and Localization

Data localization remains a contentious issue in India’s digital trade policy:

1. Data Protection Act, 2023
   • Requires sensitive personal data to be stored on servers located in India.
   • Cross-border data transfer is only allowed under bilateral or multilateral agreements.
   • Non-compliance can result in fines up to ₹250 crore ($30 million).
2. Data Sharing Agreements
   • India is negotiating data-sharing frameworks with the EU and US.
   • Data localization requirements are seen as barriers by US-based tech firms, including Google, Facebook, and Amazon.

Digital Taxation and Equalization Levy

India’s digital taxation framework is designed to capture value created by foreign firms operating in the Indian market:

1. Equalization Levy
   • Introduced in 2016 at 6% on online advertising revenue.
   • Expanded in 2020 to cover all e-commerce sales by foreign firms at 2% of gross revenue.
   • Applies to firms with annual turnover exceeding ₹2 crore ($250,000).
2. OECD-G20 Two-Pillar Framework
   • Pillar 1: Reallocation of taxing rights to market jurisdictions.
   • Pillar 2: Minimum corporate tax rate of 15%.
   • India supports Pillar 2 but has resisted Pillar 1 due to concerns about reduced tax collection.

WTO and Global Trade Engagement

India’s participation in WTO’s Joint Statement Initiative (JSI) on e-commerce has been cautious:

• India opposes the permanent moratorium on customs duties for electronic transmissions.
• India seeks more flexibility for developing nations in negotiating cross-border e-commerce rules.
• India’s position aligns with that of other emerging economies like South Africa and Indonesia.

Insights from Key Reports and Studies

A New Frontier (2024)

Author: SAWTEE

• India’s Ministry of Commerce is expected to present its digital trade strategy at the WTO General Council in December 2024.
• The report discusses India's strategy to balance market liberalization with protectionism.

Digital Taxation and the OECD-G20 Framework (2024)

Authors: A. Paul, N. Ramalingam

• India is expected to modify its equalization levy to align with the OECD-G20 framework by 2025.
• India’s potential tax revenue from the equalization levy is estimated at ₹6,000 crore ($720 million)

Cross-Border Data Flow and India’s Data Policy (2024)

Author: Vasanth B

• India's strict data localization policies could deter foreign investment.
• Estimated compliance costs for multinational firms are around ₹15,000 crore ($1.8 billion)

WTO and Global Trade Implications (2024)

Author: A. Mukherjee

• India’s position on digital trade may cause friction with the US and EU.
• India advocates for higher tariffs on digital services.

Challenges and Risks

India’s evolving digital trade policy reflects a strategic shift toward greater regulatory control and domestic market protection. The policy changes in 2024–2025 will have significant implications for foreign firms, domestic players, and global trade relations.