Future Of Indian Tech Depends On The Indo-US Trade Deal

However, the main focus of New Delhi will be on efforts to reduce tariffs on goods and services exports of IT and IT-enabled services (ITeS) from India. Data localisation is another key area which has cropped up in trade negotiations with the United States Trade Representative's Office. 

Officials told The Seretariat that "thrashing out differences and defending India’s interests in IT will play a crucial role in the ongoing BTA negotiation, and a totalisation deal, which allows our companies to pay social security payments in India instead of in the US for temporary H1B visa holder techies sent to the US, is crucial for the industry's wellbeing."

They explained that there is a lot more at stake than just ensuring a relaxed H1B visa regime for Indian IT professionals in the US, which will help in turning Indian IT companies’ fortunes after recent setbacks.

From India’s point of view, the ongoing negotiations for an Indo-US bilateral trade agreement (BTA) crucially hinge upon discussions and consensus-building around the IT sector.

India’s IT companies, in a way, ushered in and later powered the Indian growth story. The success of leading Indian companies, in turn, is largely dependent on work deals inked with American giants like JP Morgan Chase, Citibank, Boeing, Harley-Davidson, Nike, and Lockheed Martin.

As artificial intelligence (AI) is almost constantly rewriting the IT playbook, access to the American market will decide the immediate future of Indian IT majors.

The Secretariat takes a deep dive to identify four core issues related to digital and information technology-related negotiation for the Indo-US BTA.

Totalisation Agreement In Social Security

India’s long-standing demand for a totalisation agreement in social security is going to crop up industry experts who have held discussions with India's trade negotiators said.

Indian negotiators have to bring their best game to the table to ensure a bilateral totalisation agreement which would exempt short-term visa holders from mandatory contributions to American social security.

US officials however have not agreed to this demand as yet and "the fight over this will probably result in  some kind of a via media, whereby social security contributions will continue to be deducted but perhaps by a lower margin depending on the duration of the technical personnel's stay in USA," officials close to the negotiations said,

Indian IT professionals, even on short-term tenure on American soil, have to pay for the social security system of the USA, in addition to the usual deduction towards the Indian social security, like the EPF (employee provident fund).

However, no person is eligible to claim social security in the US unless that person has stayed there for 10 years. This results in a huge unused amount in the US social security coffers, paid by these short-term Indian IT professionals.

India is arguing that only one set of social security needs be paid. In case both sides do agree, then this can help Indian IT companies save an estimated US$ 4 billion. 

The US government remains unconvinced about the compatibility of India’s social security model with the US system. Last year, at the American government’s request, India supplied comprehensive data related to EPFO, NPS and ESIC (Employees’ State Insurance Corporation).

"So far US Trade Representatives have refused to accept a totalisation deal on social security payments pointing out that Indian social security pay-outs are meagre compared to that of the US and a ttalisation pact based on that would be of little use," officials said.

Tech Access Parity

India is certainly going to open dialogues on relaxed export controls and enhanced access to advanced technologies, including AI, quantum computing, data storage and semiconductors. The outcome of the discussion in this vertical is going to affect all Indian IT companies.

India will be striving for concessions similar to those granted by the US to historically close allies like Australia, the UK, and Japan.

The US, on the other hand, has expressed concerns around intellectual property (IP) rights being violated in South Asia. India’s continued trade with Russia is also likely to come up in the discussion.

Americans are visibly not too keen on granting universal technology access to India. Rather, the US government will prefer to take a project-by-project approach to technology transfer, particularly in the IT field.

The outcome on this issue will impact India’s future progress in tech innovation. If India manages a breakthrough, then it will increase the global reach of Indian IT companies and startups.

Reciprocal Tariff Concessions

The bedrock of India’s IT negotiation at the BTA, however, will be the effort to reduce tariffs on goods and services exports of IT and IT-enabled services (ITeS).

In response, the US trade negotiation team is certain to raise the issue of greater market access for its digital and e-commerce firms in India. The US side will try to bargain for companies like Walmart and Amazon.

Currently, India restricts foreign e-commerce companies from operating as marketplaces. These companies operate like inventory-based retailers. In simple words, unlike in many other countries, companies like Amazon cannot directly own and sell goods in the Indian market. 

It will be interesting to see how far Indian negotiators will be able to protect India’s local supply chains. But in return, if they can extract concessions for Indian IT exports, then that will translate into a competitive edge for Indian IT majors in the US market.

Data Localisation

India has generally revealed its preference for storing sensitive data in local servers. The USA, on the other hand, wants no strict data localisation norms.

India’s justification for data localisation is based on data sovereignty, national security, law enforcement requirements, and economic growth. Indian policymakers also feel that data localisation has the potential to develop the local data storage market. That way, domestic innovation can also be nurtured.

However, the lion’s share of data storage servers is located in the US. The country also knows that data will be very important in the age of booming AI. So, the American negotiators will try their best to remove the Indian data localisation norms.

India, in any case, has diluted its hard position (as enshrined in the initial 2018 Personal Data Protection Bill draft) over the years. The 2023 draft, for example, allowed cross-border data transfers except to the countries blacklisted by the Indian government.

Some amount of data localisation will certainly help Indian IT companies to innovate and develop. It needs to be seen to what extent India will be able to defend its quest to keep domestic data safe.

"These four core issues are likely to be the fundamental pillars of Indo-US BTA negotiation, on which the Indian IT industry’s fate will be decided," officials said.