Overview
India’s digital economy is expanding rapidly, fueled by initiatives such as Digital India, Make in India, and Startup India. These programs focus on building digital infrastructure, promoting innovation, and empowering citizens. The National Digital Communication Policy (NDCP) 2018 further supports this growth by advancing digital infrastructure and expanding broadband access.
India’s digital landscape is thriving, thanks to its young, tech-savvy population. As of mid-2024, there are over 650 million smartphone users, and internet subscribers have surpassed 950 million. This widespread adoption is driving growth in e-commerce, digital payments, and fintech, along with significant investments in AI and blockchain technologies. The telecom sector is also evolving, with the expansion of 4G and the ongoing rollout of 5G networks. 4G has significantly improved internet speeds and connectivity in both urban and rural areas, while 5G is expected to further enhance network performance, support advanced applications, and propel future technological advancements. India has already begun rolling out 5G services in major cities, with plans for a wider rollout soon.
India’s digital economy boasts major players like Indian IT giants Infosys - US$19 billion in 2024, Tata Consultancy Services (TCS) - US$29 billion in 2024, and Wipro - US$11 billion in 2024, alongside U.S. companies such as Microsoft, Oracle, IBM, Google, and Amazon. In e-commerce, Flipkart (owned by Walmart), Amazon, and Reliance Jiomart are leading the way. Digital payments are dominated by Paytm, PhonePe, Google Pay, and BharatPe. Digital payment methods, supported by systems like the Unified Payments Interface (UPI), are gaining popularity due to government initiatives and a growing consumer preference for cashless transactions. In telecommunications, Reliance Jio, Airtel, and Vodafone Idea are key players in advancing 4G and 5G connectivity. India’s digital economy is projected to reach a trillion-dollar valuation in the coming years, fueled by expanding internet access, improved digital infrastructure, a focus on rural areas, data privacy regulations, and skills development. The National Artificial Intelligence Mission aims to position India as a global leader in AI and technology innovation, further encouraging entrepreneurship and technology-driven ventures.
India’s digital economy is poised for significant growth, propelled by robust government support, technological advancements, and rising digital adoption across various industries.
Market Challenges
Regulatory Environment
India has a complex and generally challenging regulatory environment. New regulations and industry promotion schemes keep evolving at the national level, and it affects foreign business competitiveness.
In June 2021, the Bureau of Indian Standards published India’s data privacy standards. Except for the Digital Personal Data Protection (DPDP) Act, the National Data Governance Framework Policy, the National Cyber Security Strategy, and the National E-Commerce Policy are all currently in draft form.
In August 2023, the DPDP Act became law, and it aims to protect the privacy of Indian citizens and safeguard personal data in the context of a globally interconnected digital economy. It sets obligations for entities that process data with an emphasis on individuals providing consent for data use and provides safeguards for children’s data. The Act allows for cross-border data transfers and adopts a more permissive approach than previous iterations, granting the government power to note specific countries where data transfers will not be permitted.
The Act clarifies that if any other Indian law provides for a higher degree of regulation on personal data transfers outside India, then that law will continue to apply. This will give priority to existing sectoral laws that limit cross border data transfers such as the Reserve Bank of India’s data localization mandate (the RBI serves as the official regulator for the banking and finance sectors). The Act defines the responsibilities and domain of the new upcoming regulatory body, the Data Protection Board, which will set financial penalties for data misuse and would create a grievance management system and outline exemptions to following the Act’s requirements. The Government of India is currently drafting implementation and regulatory guidelines that will provide additional details on how the Act will be implemented.
In December 2023, the Indian Department of Telecommunications, introduced the Telecommunications Bill. The bill seeks to replace the Indian Telegraph Act, 1885, the Indian Wireless Telegraphy Act, 1933. Per the bill, approval is required from the federal government to establish and operate telecommunications networks, to provide telecommunications services, and to possess radio equipment.
In 2019, the Indian government released an initial draft national e-commerce policy to regulate the sector. The policy focused on cross border data flows, intellectual property, and competition. The Indian government is working on an updated e-commerce policy draft and has stated that it plans to release it once it is ready. The Indian government allows 100 percent FDI in B2B e-commerce firms and 100 percent FDI in B2C e-commerce under the “automatic route,” which does not require prior approval from the RBI or the central government. Though the Indian government allows 100 percent FDI in the e-commerce marketplace model (ECM), it is not allowed in the inventory-based model. Under the ECM, vendors utilize online portals to sell their products in the e-commerce marketplace, but under the inventory-based model they both own and sell products in the e-commerce marketplace.
Customs duties and tax regimes are also important factors in the Indian market, and U.S. companies should consider consulting experts regarding tax issues, data localization, and broader compliance requirements in India. Over the past eight years, India has applied customs duties ranging from 2.5 to 20 percent on imported ICT goods to protect domestic suppliers across and to bolster indigenous production. The various duties on the ICT goods is considered to be in violation of the 1996 World Trade Organization (WTO) Information Technology Act, which commits signatories to eliminate duties on identified ICT products.
When doing business in India, U.S. exporters and investors often encounter non-transparent or unpredictable regulations and tariffs. Likewise, U.S. goods and services in some sectors have limited access to the market. India has the highest average applied tariff of any G20 country, and some of the highest bound tariff rates among WTO members. Indian companies and consumers are quite price sensitive. U.S. companies must evaluate whether they can sell at prices that Indians are willing to pay and may need to adjust their pricing models accordingly.
Strategic planning, due diligence, consistent follow-up, patience, and commitment are prerequisites for doing business successfully in India. The Indian market necessitates multiple marketing efforts that address differing regional opportunities, standards, languages, cultural differences, and levels of economic development. Penetrating India’s market requires careful analysis of consumer preferences, existing sales channels, and changes in distribution and marketing practices. India is a face-to-face society, and in-person meetings are typically required before formalization of work partnerships or agreements. The Directorate General of Supplies and Disposal is the Indian government’s primary procurement organization.
To improve the transparency of decision making in public procurement processes and to reduce malpractice, in August 2016 the Ministry of Commerce and Industry set up an online marketplace for public procurement, known as the Government e-Marketplace (GEM). GEM is a government online platform hosted by the Directorate General of Supplies and Disposal. The portal has largely supplanted human interaction for vendor registration, order placement, and payment processing. India’s central and state governments collectively procure goods and services worth $71 billion annually through GEM. Currently, over 34,000 sellers are registered on the portal, selling over 191,000 products.
India is not party to the WTO Agreement on Government Procurement and does not have a free trade agreement with the United States. Indian government procurement accounts for nearly 30 percent of India’s $3 trillion GDP, and in June 2020 the Indian government instituted guidelines stating that no procurements under approximately $27 million could be globally tendered unless the nodal agency could demonstrate that the product or service is unavailable in the Indian domestic market. The Public Procurement Order (Preference to Make in India) gives priority to companies with products containing 50 percent or more local content. Products with less than 20 percent local content are categorized as “non-local suppliers” and cannot participate in Indian government tenders.
The Indian government plans to integrate its Central Public Procurement Portal with GEM to improve buying and selling processes for ministries, departments, and other Indian government agencies. The Indian government is developing a unified procurement system that will consolidate all government procurement into a single platform leading to economies of scale, better price discovery, and sharing of best practices.
Digital Trade Barrier
India is estimated to have over 800 million internet users. However, it continues to have the largest number of unconnected people that includes women, rural population, differently abled, children, and the aged. According to Connect, Harness, Innovate, Protect and Sustain (CHIPS) user score, in terms of level of digitalization of users, India is ranked 12th among the G20 nations. This is attributed to low per capita income, as there is a direct correlation between the consumption of digital goods and services and per capita income of a country. In addition, the fixed broadband internet service quality in India doesn’t match up to other countries in the G20 group. While all these pose general challenges, there are some other barriers that continue to hamper digital trade in India. This includes:
i. Data Localization: The Reserve Bank of India (RBI) notification of 2018 requires that all payment service suppliers, including foreign banks operating in India store all information relating to electronic payments by Indian citizens on servers within India.
ii. Market Share Limitation: In November 2020, state-owned National Payments Corporation of India (NPCI) issued a circular restricting a market share limitation of 30 percent, measured by transactions, for foreign electronic payment service suppliers processing online payments made through India’s UPI. UPI is owned and operated by the NPCI. This mandatory compliance is expected to go into effect, January 1, 2025.
iii. Restrictive IT Rules: The Indian Government’s 2021 Information Technology Rules (IT Rules) govern a wide range of internet-based service providers, particularly those that operate social media, messaging, and news and entertainment content in India with five million registered users or more. For example, the IT Rules impose personal criminal liability on individual employees in cases where a firm is not in compliance with the rules. The IT Rules also include imposition of impractical compliance deadlines and take-down protocols. Since 2021, U.S. firms have been subject to an increasing number of takedown requests for content and user accounts related to issues that appear politically sensitive.
iv. Restrictions on Digital Content Aggregation: The Telecommunications Regulatory Authority of India (TRAI) regulations on content aggregation and distribution do not allow bundling of channels or certain types of distribution partnerships, causing difficulties for small and international content providers.
v. Mandatory Domestic Proprietary QR Code Standard: The adoption of a National Common Mobility Card (NCMC) mandates a domestic proprietary QR code standard, disadvantaging foreign suppliers. India has not yet shared the domestic quick Specification for Payment Application of RuPay Chip (qSPARC) card standard, effectively prohibiting foreign firms from participating in the roll-out of the NCMC.
vi. Satellite Communication: India’s Ministry of Information and Broadcasting maintains a preference for Indian satellites to provide capacity for direct-to-home (DTH) subscription television services. All foreign satellite service providers compulsorily must route their services via the Indian Space Research Organization (ISRO), which in turn permits only if it does not have available capacity on Indian satellites. ISRO then resells the capacity to the end-users with a surcharge.
vii. Digital Services Taxation (DST): In 2017, India introduced a six per cent “equalization levy”, a withholding tax on foreign online advertising platforms.
viii. Import Curbs on Laptops and IT Hardware: On August 3, 2023, the Indian government announced an immediate restriction on imports of certain information and communications technology products, including laptops, tablets, and servers classified under the harmonized system (HS) heading 8471 (5). However, implementation of these import curbs has been put on hold until November 2024 and the Indian government requires that companies interested in importing IT hardware register with their Directorate General of Foreign Trade (DGFT), furnishing details of the value and volume of their imports, domestic manufacturing activities, and disclosing the country of origin of their imports.
ix. Lack of a Government Procurement Policy: India lacks an overarching government procurement policy and, as a result, its procurement practices and procedures vary among different ministries within the central government. While India has been an observer to the WTO committee on government procurement since 2010, it is not a party to the WTO agreement on government procurements.
x. Domestic Production Requirement: In April 2020, the Ministry of Electronics and Information Technology’s (MEITY) issued a notification requiring entities procure cellular mobile phones only from local suppliers that meet the domestic production requirement of 50 percent, irrespective of purchase value.
3. Digital Trade Opportunities:
Digital Trade Opportunities
Cross-Sector Enabling Technologies
Digital technologies are instrumental in boosting productivity, efficiency, and functionality across various industries. For U.S. companies, aligning these technologies and understanding the supportive policies and ongoing projects in India can unlock substantial business opportunities.
i. Communications and Networking Technologies: India’s progress in 5G and future 6G technologies presents substantial opportunities for U.S. companies specializing in network infrastructure, equipment, and services. The National Digital Communications Policy (NDCP) 2018 supports the deployment of 5G and ORAN technologies, leading to significant investments in digital infrastructure. U.S. companies can capitalize on these developments by providing cutting-edge technologies and services, meeting the increasing demand for high-speed broadband, and contributing to the expansion of India’s digital capabilities.
ii. Advanced Computing: India’s growing digital infrastructure offers significant opportunities for U.S. companies specializing in advanced computing, particularly in cloud and quantum computing. As businesses and government agencies in India migrate to cloud solutions, U.S. firms can provide essential cloud infrastructure, platforms, and services, further supported by the Digital India Program’s focus on enhancing digital infrastructure.
In quantum computing, the National Quantum Mission creates opportunities for U.S. companies to engage in collaborative research and development. By participating in these initiatives, U.S. firms can contribute to advancements in quantum technology while establishing a strong presence in an evolving and high-growth market.
iii. Advanced and Networked Sensing and Signature Management: The rapidly growing Internet of Things (IoT) sector in India, projected to reach $9 billion by 2025, offers significant opportunities for U.S. companies specializing in IoT solutions and sensors. The Smart Cities Mission in India, with over 8,000 multi-sectoral projects, provides an ideal platform for deploying advanced IoT technologies in urban management, creating numerous avenues for U.S. firms to contribute their expertise.
In the field of signature management, the DPDP Act of 2023 introduces stringent data protection requirements, driving the demand for advanced technologies to secure data transmission and enhance cyber defense. U.S. cybersecurity companies can engage in global initiatives aimed at improving data protection and safeguarding critical infrastructure, addressing the growing need for sophisticated security solutions.
iv. Human-Machine Interfaces: The increasing adoption of Augmented Reality (AR) and Virtual Reality (VR) in education, training, and entertainment presents significant opportunities for U.S. companies specializing in these technologies. India’s National Education Policy (NEP) 2020 supports the integration of AR/VR technologies into educational settings. As AR/VR becomes increasingly prevalent in educational and professional environments, U.S. firms have a prime opportunity to supply AR/VR hardware and content, capitalizing on India’s commitment to modernizing its education system and expanding digital learning resources.
Additionally, the growing interest in health and fitness wearables creates opportunities for U.S. companies to innovate and collaborate on wearable tech projects as well.
v. AI: India’s push to become a global AI leader presents valuable opportunities for U.S. firms to offer AI solutions, consulting services, and engage in R&D collaborations. The IndiaAI mission intends to develop a robust AI infrastructure, including over 10,000 Graphics Processing Units (GPUs) and indigenous AI models. U.S. companies can participate in initiatives like AI4Bharat and Digital India AI Research Labs to collaborate on cutting-edge AI projects and leverage India’s growing AI ecosystem for business expansion and market entry.
vi. Other Technologies: U.S. companies can also find opportunities within India’s ICT sector, which is supported by the National Information Technology Policy that promotes IT infrastructure development. There are opportunities in expanding fiber optic networks and improving internet connectivity, where U.S. firms can contribute to projects focused on increasing broadband access.
Specific Industry Sub-sectors
i. Quantum Technologies
a. Research and Development (R&D): India is investing heavily in quantum computing research to foster domestic expertise and innovation. Collaborative R&D projects with global tech firms can open new trade channels.
b. Quantum Cryptography: As quantum technologies advance, the demand for quantum-safe encryption methods is increasing. Companies offering quantum cryptography solutions have significant market potential in India.
c. Skill Development: With a focus on education in quantum sciences, there is a growing demand for training programs and platforms to up-skill the workforce in quantum technologies.
ii. Financial Technologies (Fintech)
a. Digital Payments: India’s Fintech sector is a global leader, driven by digital payments and the UPI. The digital economy is expected to contribute to one-fifth of GDP by 2026. Companies offering advanced payment solutions, cross-border platforms, and blockchain-based financial services can tap into this market.
b. Lending and Credit Scoring: The rise of digital lending platforms creates opportunities for companies specializing in AI-driven credit scoring and risk assessment tools.
iii. Cybersecurity
a. Data Protection: With increased digital transactions and cloud services, data protection is critical. Companies providing solutions for data encryption, threat detection, and incident response have substantial opportunities.
b. Cybersecurity-as-a-Service: Indian SMEs are increasingly outsourcing their cybersecurity needs, creating opportunities for global managed security service providers.
c. Compliance Solutions: New regulations like the DPDP Act create a growing need for tools and services ensuring compliance.
iv. Internet of Things (IoT)
a. Smart Cities: The Smart Cities Mission drives IoT adoption, offering opportunities for companies providing smart infrastructure, traffic management, and energy efficiency solutions.
b. Agritech: IoT in agriculture focuses on precision farming, supply chain management, and monitoring solutions. Companies specializing in IoT for agriculture can benefit from partnerships and market entry.
c. Healthcare: The rise of IoT in healthcare, particularly remote monitoring and telemedicine, presents opportunities for companies with expertise in IoT-based healthcare solutions.
C. Digital Economy Trade Events
i. Digital Bharat Economy Conclave, August 29, 2024, New Delhi, India will showcase AI potential in Fintech, HealthTech, EdTech, Logistics and supply chain. driving economic growth.
ii. Future Fintech Forum and Exhibition, India Edition, November 8, 2024, Bengaluru, India will highlight the evolution of Fintech in India
iii. Infocom 2024, December 5-7, 2024, Kolkata, India is one of the largest congregations of ICT professionals, buyers-sellers, corporate leaders, and policymakers South Asia.
iv. 33rd Digital Transformation Summit, February 5-6, 2025, Mumbai, India aims to bring together 500+ C-Level Executives, Directors, and Heads of Technology to discuss the potential of AI, Robotics, Blockchain, Data Center, Quantum Computing, and Cloud Computing.
v. India Digital Summit, January 16-17, 2025, New Delhi, India, the flagship event of the Internet and Mobile Association of India (IAMAI) will focus on digital architecture and its ecosystem.
vi. Carnegie Global Technology Summit Feb 2025 brings together industry experts, policymakers, scientists, and other stakeholders from all over the world to deliberate on the changing nature of technology and geopolitics. Its aim is to create a new framework of engagement that addresses concerns of all stakeholders without hindering technological progress and innovation.
vii. Global Diversity Export Initiative (GDEI) Trade Mission to India, Singapore, and Hong Kong from March 2-8, 2025 is focused on expanding export opportunities for U.S. businesses that are founded, led, operated, or owned by members of underserved communities from industries with growing potential in India, Singapore, and Hong Kong, but is open to all export-ready U.S. companies. This mission is open to all sectors and best prospect sectors are: Information and Communication Technology (ICT) sector and subsectors; Cybersecurity; Smart City Infrastructure and Technology Solutions; Artificial Intelligence and Cloud Computing; Finance and FinTech; Healthcare & Biotechnology; Clean Energy; Environmental Technology; and Critical and Emerging Technologies.
viii. IoT India Expo / 32nd Convergence India Expo, March 19-21, 2025, New Delhi, India showcases organizations leading the way in IoT adoption, Blockchain, AI, Big Data, Cyber Security and Cloud; enabling them to propel into new world of business with more accurate data and better technology adoptions.