New Delhi isolated

India seeks to block global e-commerce rules, but has few allies

E-commerce and digital trade are likely to be among the biggest value creators in economies — and particularly for the Indian economy. In fact, much of the recent investment in India is in this or related space. The Indian government has also been active in drafting and enacting rules in this space, many of which have greatly upset foreign players. However, it appears that India is an outlier in global terms when it comes to its attitude toward the regulation of e-commerce and digital trade. In particular, there is a strong move afoot to create a multilateral mechanism to govern the international regulation of e-commerce and digital trade. The United States, the European Union, and Japan — three of the four largest trading entities — have come together more than once over the past year to affirm their commitment to the creation of such a mechanism. They are united in seeking to prevent domestic regulations that restrict the free flow of data across borders. There is also a move to prevent domestic governments from bullying transnational companies from handing over source code or proprietary software. The People’s Republic of China has also declared its openness to multilateral discussions on what a future World Trade Organization pact on data flows and storage, as well as digital products and services, would look like. Beijing is, of course, considerably more protectionist than the West on these matters, but it also would like to see global trading rules that allow its own multinationals like Alibaba or Tencent to flourish. 

India, is, however, determined to try and block any international framework on e-commerce on digital trade. This reflects its own recent moves to force data localisation, which restricts the free flow of data generated by Indian consumers across borders. Multinational companies operating in the e-commerce space have also been subject to increasingly restrictive — and even arbitrary — rules. (The latter is one major irritant that led to the recent coldness in trading ties between the US and India.) India also wants to make sure that the needs of its IT service sector are met. However, it is far from clear whether Indian IT services would be harmed or benefited from a global architecture that opens up these services. After all, Indian companies provide low-cost and competitive solutions in this sector. The question of data localisation is more fraught, and is not settled domestically in spite of recent government efforts. While large Indian companies may benefit from data protectionism and the government has legitimate questions about national security, Indian consumers and smaller companies and start-ups stand to benefit greatly from a free flow of data.

Either way, it is unwise for India to find itself isolated in this manner. Plurilateral agreements that leave India behind would not be to its benefit. It is necessary therefore to seek more allies for its viewpoint. Unfortunately, many countries, including less developed ones, do not have as harsh a view on these issues as the Indian government is adopting. A combination of compromise and outreach will be necessary.