Bridging India-US trade with security

India is erecting barriers to trade in general and digital trade in particular. That's not a good idea

India’s ambitious aim to derive $1 trillion worth of economic value from its digital economy by 2025 has been stifled by barriers to digital trade. Such barriers lead to difficulties in reaching a trade agreement between the US and India. Differences on how the internet should operate places the two countries at odds. The US seeks to preserve an open and global internet while India has made steady efforts to shift towards a more fragmented internet regime. This fundamental difference has derailed free trade negotiations between the two in the past as digital trade encompasses a substantial part of such negotiations. Any hopes of establishing a trade agreement would require both countries to look beyond economic arguments and bridge the gap with a common security goal.

The US believes in an inclusive internet, with free flow of data between countries. But other major powers such as China and Russia envision a fragmented internet. India has joined the ranks of countries that each have a variant of internet protection including ‘data localisation’. Data localisation requires that any data collected on citizens of a certain country should remain in that country unless approval is granted for its removal to another country. The European Centre for International Political Economy ranks India third, after Russia and China, in having the most restrictive digital policies. Although India’s internet restrictions are nowhere close to China’s ‘Great Firewall’, it is still perceived by the US as opposing the conventions of a free-flowing and liberal internet. While China and Russia seek to isolate and monitor the internet for political power, India’s vision is focused on economic gains.

New Delhi launched Atmanirbhar Bharat (self-reliant India) policy in mid-2020 to build digital infrastructure across a wide range of sectors, including healthcare and information technology (IT). Analysts Arvind Subramanian, the former economic adviser to the government, and Shoumitro Chatterjee succinctly framed the policy as “abandoning two core principles of the post-1991 consensus: export-orientation on the macro-economic side, and slow but steady liberalisation on the trade side.” The policy has alarmed the US that India will adopt anti-trade or protectionist policies.

India has hitherto opposed foreign e-commerce behemoths such as Amazon and Walmart from establishing a significant foothold in the country by tightening business and data restrictions. Fear of foreign competition has also affected trade agreements such as the Regional Comprehensive Economic Partnership (RCEP). India had to withdraw from the agreement due to overwhelming domestic pressure. Losing favour with farmers’ unions and local enterprises was untenable for a government keen on maintaining its political capital. Furthermore, India exited because it was unsuccessful in lobbying to add a provision on data localisation within the e-commerce section of the agreement. India emphasises that its “data should be used for the country’s development and Indian citizens and companies should get the economic benefits from the monetisation of such data.” However, opponents to the proposition argued that the provision would hinder the functioning of regional e-commerce and provide opportunities for governments to mishandle data. Moreover, India adopted a slew of policies including the draft Personal Data Protection Bill, perceived as protectionist by potential trade partners.

Given the focus of Atmanirbhar Bharat, it is unlikely that India and the US will arrive at a mutually beneficial trade agreement soon. The Biden administration’s priorities most likely will be to undo some of the domestic policies the previous government undertook. Kinks in trade negotiations affect expectations that trade between India and the US should grow in parallel to their strategic relationship.

Nevertheless, there is potential to resolve them if both countries realise the importance of security. Placating significant domestic players in India or in the US would be difficult when it involves a significant voting bank or a lobby group. But no agreement would be a tough sell if the value derived from it would be greater security. Currently, security for economic wealth might not sound as an optimal option when the focus is on recovering from a pandemic. But national security threats do not merely dissipate, especially when it concerns a larger and formidable neighbour — China. Trade negotiations can pick up if India engages with more defence opportunities with the US, commensurate to its status as a ‘Major Defence Partner’. If national security threats can be used as de facto reasons to tear apart economic trade agreements, then it should also be true for the inverse — trade can be established to safeguard national security. An option either country can consider.

India has started to re-examine export-oriented policies and adopt more inward-looking economic policies, which may be a natural response to a pandemic that has slowed the global economy’s growth. Barriers to digital trade is but one gordian knot that needs untangling for trade negotiations to proceed. Working out the kinks in trade negotiations should not be the only approach. Opportunities for closer defence ties should be taken up to engage closely on trade as well.

(The writer is a researcher at a private security consultancy in Singapore)