Earlier this month, the United States Trade Representative (USTR) report highlighted significant concerns regarding India’s digital policy framework. Key issues raised included takedown orders, internet shutdowns, and data localisation requirements, emphasizing their potential impact on global trade and digital operations. The report has sparked a broader debate on the balance between national security and economic openness in India’s digital ecosystem.
Data Localisation Debate
Among the critical points of contention is the Reserve Bank of India’s (RBI) 2018 mandate requiring all payment service providers to store data related to electronic payments by Indian citizens on servers located within India. Initially implemented without stakeholder consultation, the rule was later extended to banks in 2019. The USTR report argued that this policy hampers foreign service providers’ ability to detect fraud and ensure the security of global networks.
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“Data localisation requirements create operational challenges for global companies, adding complexity and limiting their capacity to innovate,” the report noted. This stance aligns with concerns from international firms that argue the policy undermines cross-border data flows critical for a thriving global digital economy.
Addressing Internet Shutdowns and Takedown Orders
The USTR also raised issues regarding takedown orders and internet shutdowns, which have occasionally drawn criticism for their impact on free expression and economic activity. Gaurav Sahay, Practice Head – Technology & General Corporate at Fox Mandal & Associates LLP, acknowledged the dual-edged nature of these measures.
TAM: In view of the objections raised over the takedown orders, internet shutdowns or data privacy concerns in the USTR report, do you think USTR’s assessment is correct of the above?
Gaurav Sahay: To prevent the spread of misinformation, curbing activities of anti-social elements and to maintain law and order, internet shutdowns in its own merit is an effective tool. By restricting digital communication, authorities aim to disrupt the coordination of extremist groups and prevent inflammatory content from inciting violence. While national security is a legitimate concern, a more balanced approach, such as targeted restrictions on specific platforms or content, greater transparency in decision-making, and judicial oversight, could mitigate the negative impact on citizens and the economy. Instead of blanket shutdowns, leveraging AI-driven monitoring systems and controlled slowdowns (throttling) may offer a middle ground that addresses security concerns without entirely cutting off digital access.
TAM: Is US via USTR trying to pressurize India into coming to the negotiation table so it could align with US’s interest?
Gaurav Sahay: India has been assertive in shaping its digital policy landscape based on national security and economic priorities. From a geopolitical standpoint, India as a critical partner in counterbalancing China’s influence in the digital and economic space. However, India’s firm stance on data sovereignty, stringent content moderation rules, at times, do not fully align with the expectations of a free and open destination for countries having economic interests in the Indian market. The use of trade and regulatory reports, and repeated critiques of India’s digital policies, may appear or be read as a diplomatic strategic move to nudge toward policies that favour businesses and into aligning more closely with interests of competing economies.
