Overview

Contributing over 13 percent to India’s GDP, the ICT sector and the Digital Economy are major economic drivers for the country. India aims to grow the ICT sector to $1 trillion by 2025, or 20 percent of predicted GDP. According to the National Association of Software and Services Companies (NASSCOM), India’s technology industry is expected to cross $245 billion in 2023 based on an 8.4 percent annual growth rate. All subsectors of the technology industry, including IT and business process management, IT-enabled services, engineering research and development, hardware, software products, and e-commerce recorded double digit growth in 2022. India imported nearly $3 billion in computer and electronic equipment (NAICS code 334) from the United States in 2022. Gartner estimates that IT spending in India will increase by 2.6 percent to over $112 billion in 2023.

The major ICT centers in India are Bengaluru (also known as the Silicon Valley of India), Hyderabad, Chennai, New Delhi, Gurugram, Mumbai, and Pune. India has a well-organized distribution system and several established, global ICT distributors. ICT companies can sell their products directly and through local partners, including system integrators and value-added resellers.

The Indian telecommunications sector is the second largest in the world by subscribers, with 1.2 billion wireless and fixed-line subscribers. India’s mobile economy has been driven by widespread adoption, with wireless subscriptions representing 98 percent of telephone use. According to Deloitte, India is expected to reach 1 billion smartphones by 2026, from 770 million currently. India has also emerged as the second largest manufacturer of mobile handsets in the world. India also has 856 million broadband subscribers. India scored 51.19/100 in the Portulans Institute’s Network Readiness Index, improving its ranking from 67 in 2021 to 61 in 2022 out of 131 countries surveyed.

To advance India’s 5G telecom infrastructure, in July 2022, the Department of Telecommunications auctioned 51,236 MHz out of 72,098 MHz spectrum across 10 different bands (600 MHz, 700 MHz, 800MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, 2500 MHz, 3300 MHz and 26 GHz). In October 2022, the Indian Prime Minister launched 5G services in India to enhance digital connectivity and improve network infrastructure and access to high-speed internet. The rollout of 5G in India has been the fastest in the world.

Policy and Regulatory Environment

India has a complex and often challenging regulatory environment. New regulations and industry promotion schemes are announced frequently at the national level. The Digital Personal Data Protection (DPDP) Act which became law in August 2023, 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 existing Indian law provides for a higher degree of regulation on personal data transfers outside India, then existing 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 Act defines the responsibilities and domain of the new upcoming regulatory body, namely 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.

In September 2022, Indian Department of Telecommunications, released a draft Indian Telecommunication Bill, 2022 for comments from the stakeholders. The bill seeks to replace the Indian Telegraph Act, 1885, the Indian Wireless Telegraphy Act, 1933, and the Telegraph Wires (Unlawful Possession) Act, 1950. It provides that the federal government may prescribe rules for the grant of license, registration, authorization or assignment, their terms and conditions and payments.

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. In March 2021, India instituted a digital tax, known as the Equalization Levy (digital services tax) at the rate of two percent of the amount of consideration received or receivable by an e-commerce operator from its supply of goods or services. The levy became effective in April 2020, and India will transition from the existing Equalization Levy to a new international tax framework by March 2024. In October 2021, India and the United States joined 134 other countries on a two-pillar agreement crafted by the OECD to address tax challenges arising from the digitalization of the global economy. Under this agreement and in certain circumstances, the liability from India’s digital services tax (DST) that American companies accrue in India during the interim period will be creditable against future taxes accrued under Pillar 1 of the OECD agreement. The period during which the credit accrues will be from April 1, 2022, until either the implementation of Pillar 1 or March 31, 2024, whichever is earlier. In return, the United States committed to terminate the Section 301 trade action on goods of India and not to impose further trade actions against India with respect to its existing DST until the earlier of the date the Pillar 1 multilateral convention comes into force or March 31, 2024. USTR, in coordination with the U.S. Department of the Treasury, is monitoring the implementation of the political agreement on the OECD/G20 Two-Pillar Solution as pertaining to DSTs.

In December 2020, the Indian government crafted a National Security Directive on the Telecommunications Sector to maintain supply chain security and avoid unsecure equipment in the country’s telecom network. Per this directive, the Indian government declared a “Trusted Source/Trusted Product” list for Telecom Service Providers (TSPs). In June 2021, the Indian government launched a portal for the registration and submission of required documentation by TSPs and their vendors. U.S. telecom equipment and product suppliers must contact TSPs for supply and approval from the government on this portal to sell their products and services in India.

India’s IT Sector Spending and Industry Growth ($ billion)

Source: Gartner (November 2022)

Note: Total Spending refers to capital expenditure (procurement + investment)

Leading Subsectors

Digital Transformation: According to NASSCOM’s Annual CXO Outlook Survey 2023, Indian enterprises continue to prioritize digital transformation, with a focus on cybersecurity, cloud computing, artificial intelligence, and data analytics. The industry has set itself an ambitious target of $350 billion in revenue by 2026, growing at a rate of 11-14 percent. Major drivers of this growth include digitalization and the modernization of services. The banking, financial services, and insurance, manufacturing, retail, consumer packaged goods, media, and entertainment industries are all adopting digital innovations to transform their business models.

E-Commerce: India’s e-commerce market is one of the fastest growing in the world, and according to Bain & Company, it is expected to reach $1 trillion by 2030 from $175 billion in 2022. The e-commerce market includes business-to-consumer, business-to-business, software as a service, online travel, online media, online food delivery, edtech, health-tech, online ride hailing, and others. India has emerged as a preferred destination for e-commerce due to its large consumer base, diverse demographics, low-cost digital infrastructure and services, and supply chain ecosystem.

Cybersecurity: With a score of 97.5/100, India ranked tenth in the International Telecommunication Union’s Global Cybersecurity Index 2020. According to Gartner, India’s security and risk management spending is expected to reach $2.65 billion in 2023 from $2.44 billion in 2022, an increase of 8 percent. Security and risk management products and services include application security, cloud security, consumer security software, data privacy, data security, identity access management, infrastructure protection, integrated risk management, network security equipment, and security services. Leading industry sectors driving cybersecurity growth are banking, healthcare, insurance, capital markets, and critical information infrastructure such as energy, oil and gas, defense, transportation, and telecommunications.

FinTech and Digital Finance: India has one of the world’s fastest-growing financial technologies markets. Digital payments are the primary driver of growth in this sector, followed by digital lending and other tech-enabled financial services. According to InvestIndia, the Indian FinTech market is expected to grow to $150 billion by 2025 from $50 billion in 2021. According to India’s central bank and regulator of payment systems, the Reserve Bank of India, total digital payments were recorded as 11.9 billion in volume and $2.4 trillion in value in June 2023. The regulator has taken several measures contributing to the evolution of the FinTech ecosystem in India, recognizing its importance to the growth of the Indian economy.

Opportunities

In December 2019, the Indian government rolled out the National Broadband Mission to enhance digital communication infrastructure with an investment of $100 billion, including $35 billion for telecom towers, $30 billion for optical fiber infrastructure, and $35 billion for spectrum and research and development. India plans to use optical fiber infrastructure for the rollout of 5G services, which offers opportunities for U.S. companies to supply optical fiber cable, 4G/5G radio equipment, radio frequency frontends and antenna sub-systems, small and large 5G cells, wireline and radio access network solutions, and transmission links.

As part of the National Policy on Electronics 2019, the Indian government launched several schemes for the promotion of electronics manufacturing under its “Make in India” strategy. With an investment commitment of $30 billion, India aspires to become a global hub for Electronics System Design and Manufacturing as the country’s demand for electronics hardware is expected to reach $400 billion by 2025. The Indian government allocated $7 billion in incentives for electronics manufacturing, $10 billion for a semiconductor and display ecosystem, and $13 billion for allied sectors, including advanced chemistry cells, auto components, telecoms and networking, and solar modules. India’s production of electronics grew from $49 billion in 2016-17 to $87.1 billion in 2021-22 and is projected to reach $300 billion by 2026. India’s semiconductor market is projected to reach $109 billion in 2030 from $15 billion in 2020. Revenue from the sale of mobile handsets is expected to triple in 2025 over 2020 levels. The government wants suppliers to provide affordable 5G handsets and mobile devices to further its Digital India initiative, presenting an opportunity for U.S. exporters to supply electronic components, semiconductor/display fabrication units, assembly/test/marking/packaging units, specialized subassemblies, and capital goods.

In November 2020, India launched a draft data center policy and aspires to become a global hub for the data center industry with investment of $4.9 billion by 2025. India’s leading companies have announced plans to set up data centers, though many U.S. cloud service providers already serve Indian enterprises. Indian businesses are rapidly digitizing their operations and adopting cloud services to minimize costs. This opens the door for U.S. companies to supply data center hardware, computing resources, data storage systems, network infrastructure equipment, and submarine cable networks.

For more information, contact United States & Foreign Commercial Service Senior Commercial Specialist Sudhir Kesharwani.