How India’s data policies are undermining its economy

New laws may make e-commerce more difficult in India
Image: Make in India

There has been a new development in India’s recent trend of rewriting its international online data and e-commerce laws. The nation’s government is now finalizing a new wave of stricter internet regulations which were first proposed in February.

These new rules are designed to control how foreign websites, applications, internet providers, and all other online services operate in the country. New Delhi has directed special attention to social media companies. The Indian government has stated the recent reforms have been made to protect national integrity and sovereignty. However, critics disapprove of the move and compare these changes to the internet censorship and suppression methods seen in China.

Ironically, it wasn’t so long ago that India was eagerly opening its arms to online businesses from around the world. To understand why we’re seeing these changes now, we first need to go back a few years.

A Warm Welcome to Digital Business

India is home to one of the planet’s largest concentration of Internet users, second only to China. The South Asian Republic also has the world’s highest Internet user growth rate. Consequently, the Indian market has appealed to overseas internet businesses for years.

For instance, Amazon launched a version of its website in India in 2013. Soon after, CEO Jeff Bezos visited the country in traditional Indian wedding attire with a giant $2 billion check representing Amazon’s investment in the region. Bezos’ publicity stunt reflected the enthusiasm shared by most of Silicon Valley.

Initially, India reciprocated that enthusiasm. In 2014, the Bharatiya Janata Party assumed power and almost immediately pushed incentives to entice more foreign digital investors. The Indian government was even suspected of ignoring Amazon’s e-commerce violations to keep relations warm.

Amazon isn’t the only big tech company with its eyes on India either. In the current global marketplace, China and India are the two biggest emerging markets. Currently, China is keeping most foreign online entities out. But India has been much more inviting.

Accordingly, multiple U.S. companies have spent billions of dollars over the years to reach Indian consumers. So far, Silicon Valley’s investments in India have reaped major rewards. For instance, both Google and Facebook currently have over 250 million active users in the country.

A Shift in Indian Data Policies

In the last year, industry experts have noticed India has shifted away from its once welcoming trade policies. Suddenly, the South Asian Republic has adopted an aggressively defensive posture.

As in many other regions, a wave of nationalism has recently taken hold in Indian politics. Tech industry pundits have attributed India’s recent paradigm shift to right-wing lobbies that are riding that momentum.

Now, India is making drastic regulation revisions quickly, without warning or room for negotiation.

Localizing Indian Financial Data

The South Asian republic’s hostile approach to international regulation enforcement first appeared last April, just before the nation’s general elections in May. The government’s first signaled its shift in priorities by adopting a new cybersecurity policy. As of October 2018, online payment firms were required to locally store the financial data of Indian users. New Delhi argued the changes were made to protect Indian consumers.

Both Visa and Mastercard staunchly opposed the new law for months. Two U.S. senators also voiced their opposition to the policy. The Congressmen claimed such attempts at localization would not improve data security for Indian citizens. Instead, the Senators argued the change would negatively impact digital transactions vital to economic trade between the two nations.

Indian officials refused to budge in spite of the opposition and the U.S.-based financial services companies eventually complied with the new law.

Government Intervention into the Indian E-Commerce Marketplace

Next, India revised its e-commerce regulations in December. The government’s new policy forced global giants like Walmart and Amazon to rush to become compliant to keep doing business in the country.

New Delhi added restrictions on how foreign e-commerce companies manage their Indian operations and product distribution. For example, foreign e-commerce companies are no longer allowed to sell products directly to Indian customers. Now, overseas firms must facilitate sales through third-party distributors. The new law greatly complicates major international business deals such as Walmart’s $16 billion buy into Indian e-commerce platform Flipkart.

India’s December e-commerce reforms have prompted members of the U.S. government to intercede on behalf of American industry. In February, a U.S federal official asked an Indian counterpart to consider protecting the interests of American companies for the sake of bilateral trade. The Indian official’s response was “non-committal.”

The Effect of India’s New E-Commerce Rules

New Delhi’s latest regulations require foreign online entities with at least 5 million local users to establish offices in the country. Overseas-based platforms will be rendered inaccessible to Indian users if they don’t comply with the new rules. The directive also calls on foreign companies to assign executives locally for accountability purposes.

The Indian government also wants outside technology firms to establish automated content monitoring tools that can block “unlawful information or content.” Essentially, these new rules will grant Indian officials broad authority over Facebook, Twitter, Google, and other platforms. New Delhi will be able to demand the removal of any content it finds to be hateful, a violation of privacy, or libelous.

The new rules will also effectively invalidate international safe harbor laws. Previously, India law protected Silicon Valley companies operating domestically from being held accountable for user content. The government’s new rules remove those protections.

At the moment, New Delhi’s e-commerce and data regulations are heavily criticized. Moreover, there is not an established timeframe for the Indian government’s new law to be implemented.

Though foreign governments and corporations are staunchly against the Indian government’s apparent market interventions, some domestic service providers feel differently. In a recent statement, Indian telecom Reliance Jio lauded the new regulations as a necessary step to crack down on “miscreants.” The company even went so far as to urge its government to ignore local free-speech protests.

However, the South Asian republic’s recent steady stream of online restrictions makes one thing clear. If Indian leaders feel more internet legislation is necessary, they won’t hesitate to enact it.

The Appeal of the Indian Market Moving Forward

Considering the incredible and ever-increasing number of active internet users in India, it isn’t hard to see why foreign businesses are fighting to stay in the country. The potential financial rewards make putting up with frustrating policy changes worthwhile.

Notably, some major corporations like Netflix have moved fast enough to comply with the new rules. However, New Delhi’s continued volley of disruptive regulations could make doing business in India more trouble than it’s worth.

India has transformed from being a place that invites foreign corporations to make major domestic investments to one who punishes those same companies. Ultimately, the country’s transition could deal severe damage to reputation in the global market.