India’s digital trade compact with the United Kingdom breaks new ground. Chapter 12 of the India-U.K. Comprehensive Economic and Trade Agreement (CETA) sets out a bargain that trades some oversight tools for access, credibility and scale. The trade-off has sparked a policy debate. Supporters call it a strategic step into the global digital economy. Critics call it a retreat from digital sovereignty. Such agreements rarely produce winner-take-all outcomes. They usually end in negotiated compromises. On balance, the gains look real, but they signal a need for guard rails that keep pace with evolving risks.

The digital wins

The digital wins are clear. The agreement recognises electronic signatures and contracts and commits both sides to work towards mutual recognition. That trims paperwork for software-as-a-service firms and also lowers barriers for small and medium enterprises. Paperless trade and electronic invoicing make cross-border documentation and payments easier. And policy continuity on zero customs duties for electronic transmissions protects a software export pipeline that the Commerce Ministry estimates at $30 billion a year.

Cooperation on data innovation can help too. The text encourages pilot projects that use regulatory sandboxes where required. That gives payments and other data-driven firms a way to test and scale tools under supervision, which builds credibility abroad. Beyond the digital chapter, the broader India-U.K. deal is expected to improve day-to-day commerce. Industry expects that as the agreement is implemented, close to 99% of Indian merchandise exports could enter the U.K. duty-free, with textile tariffs falling sharply, including from 12% to zero on key lines, increasing growth prospects in textile export hubs such as Tiruppur (Tamil Nadu) and Ludhiana (Punjab). Analysts also point to more doors opening in British public procurement for Indian IT suppliers. Employers say social-security waivers for short assignments could cut payroll costs by roughly one-fifth. These moves promise a wider and more predictable trade corridor.

The digital costs

Nevertheless, the possible digital costs deserve attention. Critics have contended that India has stepped back from source-code checks as a default regulatory tool, as there is a ban on code-inspection under the agreement. Regulators can demand access on a case-by-case basis, tied to an investigation or a court process.

Government procurement is excluded from the scope of digital trade. Hence any access to source code in products procured by government is not restricted. While the agreement aims to enhance business trust, it does not sacrifice essential interests. A general security exception exists. It preserves national supervision of power grids, or payment systems and other critical infrastructure, even if privately owned. The restriction is only of good governance, ensuring that action is not taken in a manner which would constitute a disguised restriction on trade. Should additional reassurance be required, a practical step could be to accredit trusted labs for reviewing sensitive code, under tight safeguards.

On government data, the posture is voluntary. There is no legally binding commitment. India decides what to publish and in what form. When it does open a dataset, it should be machine-readable and easy to reuse. This is not a blank cheque for anyone to demand access. India could also seek clear audit trails for cross-border data intermediaries so that accountability follows the data.

There is no “automatic MFN (most favoured nation)” for cross-border data flows. Instead, the agreement creates a forward review mechanism. If one side later signs a trade pact with tougher data rules, the two sides consult on whether to extend equivalent terms. There is a promise to talk; not an autopilot extension.

A formal review is stipulated within five years. As multiple versions of ChatGPT in under three years show that AI is developing rapidly, future pacts should have a review every three years to align rules with risks.

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Aligning with modern trade norms marks a departure from past Indian practice, but this makes sense for a country that is seeking a larger role in the global digital economy. It reflects India’s shift from trade scepticism to strategic engagement.

Domestic foundations usually anchor external commitments. The Digital Personal Data Protection Act of 2023 still needs notification of final rules. For future trade texts to build on that framework, the rules need to institutionalise open consultations before deals are closed so that inputs are sought and concerns surface early and can be addressed in time.

Steps to take

Digital treaties decide what governments can regulate, what companies can expect, and what citizens can protect. Chapter 12 of the India-U.K. agreement is a milestone in terms of a first step. In future, India should integrate market-openness with regulatory oversight. It could accredit trusted labs to review sensitive code under strict safeguards and also mandate audit trails for cross-border data flows. It could also institutionalise broad-based pre-negotiation consultations and schedule regular three-year reviews of digital treaties. Together, these steps show that sovereignty and global engagement need not pull in opposite directions but, instead, can power the modern Indian economy.

Syed Akbaruddin is a former Indian Permanent Representative to the United Nations and, currently, Dean, Kautilya School of Public Policy, Hyderabad. Shivangi Pandey is Executive Assistant to the Dean, Kautilya School of Public Policy, Hyderabad