India-UK trade pact: A new paradigm for the digital economy

How we got here: For two decades, India avoided binding commitments in services and advanced technology markets. Protection of domestic regulatory space kept us outside the WTO’s plurilateral Trade in Services Agreement and the second Information Technology Agreement. That caution let India nurture its export-oriented information technology (IT) services, while retaining industrial-policy levers such as today’s performance-linked incentives for smartphones.

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The burgeoning digital market, however, has precipitated a shift. Apps, devices and network infrastructure now grow faster than traditional IT services. During the data protection rule-making process, thousands of submissions were made, most from small app developers and cross-sector associations rather than the IT services lobby. Such a broad constituency merits predictable digital economy regulations as well as state-support for international expansion.

The emergence of a new set of technology stakeholders explains why India has signed FTAs with dedicated digital chapters. The India-UAE Comprehensive Economic Partnership Agreement of 2022 contained mainly best-efforts language. By contrast, the India-UK FTA contains hard commitments. Although its final legal scrub is still underway and tariff quotas are yet to be finalized, some aspects are near certain.

Open internet: Both governments are expected to pledge that users can access and distribute information, applications and devices of their choice on a non-discriminatory basis, subject to security or public-interest exceptions. This will restrain arbitrary blocking and cement a corridor of trusted connectivity at a time when many jurisdictions are flirting with fragmentation—what’s known as the ‘splinternet’ phenomenon.

Non-discriminatory, technologically neutral regulations: The agreement will hold that regulatory compliance obligations, like in the case of data protection, may not treat a supplier less favourably because of its origin. This matters in a world thick with disguised non-tariff barriers. The result is clearer compliance planning and lower legal risk for businesses, from software-as-a-service to fintech. This may attract more capital and encourage localization.

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Both sides accept that regulatory standards should be framed such that they continue to apply even as technologies evolve—today’s large-language models may look primitive in five years, yet baseline principles on safety and transparency should endure. Agreeing on a technology-neutral approach pushes India’s standard-setting bodies and sectoral regulators to participate more actively in international standard-setting and rule-making processes, or risk domestic regulations drifting out of alignment with trade partners.

Source-code safeguards: Proprietary source code and algorithms are key to digital competitiveness. The agreement will allow authorities to examine code for legitimate testing, yet oblige them to protect it against disclosure or unauthorized use. A practical way to ensure this is through source code escrow facilities. Greater source code protections call for upgraded laboratories, trained examiners and auditable handling protocols. These would ease concerns of intellectual property (IP) leaks.

Next steps: Our immediate priority should be a standalone bilateral investment treaty (BIT) that embeds a credible dispute-resolution mechanism. India prides itself on the rule of law. Yet, in practice, only a handful of benches are equipped to deal with technical disputes and most tribunals are stretched. 

When disagreements involve complex aspects such as source-code disclosures or cross-border data flows, parties need adjudicators fluent in both commercial law and digital standards. A BIT would let British and Indian firms escalate cases to international forums staffed by specialist arbitrators, ensuring that treaty obligations are more than aspirational. UK investors would gain certainty and Indian companies exporting digital services to the UK would enjoy the same procedural comfort.

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A BIT is not a substitute for domestic reform, but it buys time to build institutional capacity. India should use the treaty window to expand commercial courts, prioritise specialized benches in high courts and train a cadre of technical experts who could assist courts and tribunals. As those institutions mature, dependence on external ones would recede. Regulatory coherence at home also means levelling the playing field between foreign and domestic firms. Inventory restrictions on foreign e-commerce operators, for example, clash with the non-discrimination principle we now espouse in the FTA.

India’s digital ecosystem and its tech diplomacy are now mature enough to seek market access abroad in return for domestic regulatory stability. The UK-India FTA marks a turn from defensive caution to strategic ambition. If we rise to the challenge, the pact will safeguard Indian digital exports and position our firms to deliver applications, devices and infrastructure to the world.

The authors are, respectively, a public policy expert and a former trade negotiator.