SDG 9: Industry, Innovation and Infrastructure | SDG 17: Partnerships for the Goals
Ministry of Commerce and Industry
The United Nations Conference on Trade and Development (UNCTAD) ‘International Investment in the Digital Economy’ Toolkit provides a comprehensive framework for policymakers to attract and leverage foreign direct investment (FDI) in high-growth sectors. While the digital economy is expected to represent over two-thirds of new value creation in the next decade, investment remains highly concentrated, with developing countries attracting $531 billion in greenfield projects between 2020 and 2024—80% of which went to just 10 countries. The toolkit emphasizes that realized benefits require forward-looking policies that balance investor needs for predictability with broader developmental goals like digital inclusion and environmental sustainability.
Core Pillars of the Digital Investment Framework
Foundation Shaping: Governments are urged to adopt multi-layered strategies at the national and regional levels to enhance interoperability and signal long-term regulatory commitment.
Data Governance & IP: Establishing independent data protection authorities and updating intellectual property (IP) laws for AI-generated content and software is critical for building investor trust.
Investment Facilitation: Leveraging digital one-stop shops, e-government tools, and regulatory sandboxes can significantly reduce administrative burdens for global tech firms.
Sustainable Growth: The toolkit advocates for mandatory environmental standards for data centers and robust e-waste management to align digital expansion with climate goals.
Fostering Linkages: Policies like tech visas and diaspora engagement are recommended to ensure that FDI leads to genuine knowledge transfer and domestic skill development.
Top Sectors and Regulatory Trends
Priority Subsectors: Investment promotion agencies (IPAs) are increasingly targeting software development, Fintech, and AI, alongside core infrastructure like data centers.
Taxation Shifts: There is a global trend toward implementing indirect taxes (VAT) on digital transactions and Significant Economic Presence (SEP) rules to ensure fair revenue collection.
Market Competition: New frameworks, such as the EU’s Digital Markets Act, are being adapted globally to prevent dominance by large “gatekeeper” platforms.
What is ‘Significant Economic Presence (SEP)’ and why is it replacing physical presence as a tax nexus? It is a tax principle that allows a country to tax the profits of a non-resident digital business if it has a substantial and systemic digital engagement with that country’s economy, even without a physical office or permanent establishment. In the digital age, companies can generate immense value from a domestic market through online services, data collection, and user engagement without ever having a physical footprint. SEP rules enable governments to broaden their taxable base by focusing on digital activity—such as revenue thresholds or user counts—ensuring that global digital firms contribute fairly to the public finances of the regions where they derive their profits.
Policy Relevance
As a top 10 global destination for digital greenfield projects, India is uniquely positioned to transition from an outsourcing hub to a global leader in high-value digital manufacturing and R&D.
Strategic Impact:
Scaling Sectoral Strategies: India can refine its AI and Semiconductor missions by integrating the toolkit’s guidance on “Vertical Integration” to attract specialized, long-term FDI.
Standardizing Data Privacy: Implementing the Digital Personal Data Protection Act with clear breach notification rules aligns with the toolkit’s “foundational” requirements for investor confidence.
Enhancing Facilitation: Expanding the National Single Window System (NSWS) to include specific “fast-track” approvals for data centers can bridge the existing infrastructure gap.
Leading in ‘Blue Carbon’: Integrating sustainability standards into India’s growing data center clusters could make the nation a premier destination for “Green Digital” investment.
Leveraging Diaspora Networks: Formalizing programs to link the global Indian tech diaspora with domestic startups can accelerate knowledge transfer in frontier technologies.
Follow the full report here: International Investment in the Digital Economy: A Toolkit for Policymakers