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Mains Articles

Data Localisation in India [Mains Article]

“Data is the new oil” also provides a backbone to much of the localisation drive. India is home of the largest open Internet market in the world, thus according to some proponents of Data localisation national wealth creation relies on in-house data storage.
By IT's Mains Articles Team
March 28, 2019

Contents

  • What is the meaning of Data Localisation?
  • Data Localisation around the world
  • Data Localisation in India
  • Why is Indian Government in favour of Data Localisation?
  • Who are opposing Data localising and why?
  • Can Data Localisation have negative impact on Indian Companies/Start-ups
  • Disadvantages of Data Localisation
  • Suggestions if any
  • Way ahead

Data localisation in India [Mains Article]

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What is Data Localisation?

  • Data localisation is a concept that the personal data of a country’s residents should be processed and stored in that country.
  • Some directives may restrict flow entirely, while others more leniently allow for conditional data sharing or data mirroring – in which only a copy has to be stored in the country.

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Data Localisation around the world:

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  • According to a 2016 study by the European Centre for International Political Economy, the EU’s GDP would gain €8 billion, the same amount as all EU free trade agreements, by abolishing data localisation measures.
  • With the enforcement of regulation of free flow of data, Data localisation will largely be abolished in the EU by mid-2019.
  • There are some countries like Russia, China, Vietnam and Indonesia that have adopted relatively broad-based localisation requirements, most others tend to apply differential standards based on the nature of the data and the sector to which it pertains.
  • Sectoral localisation norms are seen in Australia (health data), France (data relating to judicial proceedings) and Germany (telecommunications metadata and tax accounting data).

Data Localisation in India:

Four Important developments have brought the topic of data localisation in India to the forefront:

  • First, the issuance of the draft Digital Information Security in Healthcare Act, 2018 (DISHA) published by the Government of India on 21 March 2018.
  • Second, the Reserve Bank of India (RBI) issued a directive on 6 April, 2018 imposing stringent data localisation requirements on all players in the Indian payments ecosystem. The directive, simply put, requires all payment system providers and their suppliers and intermediaries to store the entire data related to payment transactions only in India.
  • Third, the release of the recommendations of an expert committee headed by former Supreme Court judge, Justice B.N Srikrishna that was tasked with the responsibility of proposing a new data protection framework for India (Srikrishna Committee, 2018). The Srikrishna Committee submitted its report and a draft Personal Data Protection Bill, 2018 to the government on July 27, 2018, with certain key recommendations on the localisation of personal data.
  • Fourth, shortly after the release of the Srikrishna Committee’s recommendations, reports about a draft e-commerce policy prepared by an inter-ministerial task force set up by the government also came to light.

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Why is Indian Government in favour of Data Localisation?

  • According to the Indian government localisation will help Indian law enforcement access data. The advent of cloud computing raises important questions on accountability of service providers who store Indian users’ data outside of the country’s boundaries, leading to a conflict of jurisdiction in case of any dispute.
  • The extensive data collection by technology companies, due to their unfettered access and control of user data, has allowed them to freely process and monetise Indian users’ data outside the country.
  • The government attributes the need for data localisation to various factors like: securing citizen’s data, data privacy, data sovereignty, national security, and economic development of the country. Proponents of Data Localisation also highlight security against foreign attacks and surveillance.
  • AS per a RBI circular data localisation will to ensure better monitoring and it is important to have unfettered supervisory access to data stored with these system providers.
  • In India, digital payments are primarily supported by foreign companies such as Visa, Mastercard, and American Express, which facilitate nearly half of Indian debit and credit card transactions, the dominance of foreign companies over this kind of growth and vast consumer base is what prompted the RBI to put in place security measures on a “continuous basis to monitor the digital payments ecosystem.
  • The GOI also intends to enact data localisation as India is also aspiring to be a global hub in terms of cloud computing data hosting and international data centres, which will accelerate its economic growth specially in digital sphere.
  • “Data is the new oil” also provides a backbone to much of the localisation drive. India is home of the largest open Internet market in the world, thus according to some proponents of Data localisation national wealth creation relies on in-house data storage.
  • The e-commerce policy took on a similar stance, championing domestic innovation, and the data protection report also mentioned harnessing India’s digital economy.

Who are opposing Data Localisation in India and why?

U.S trade groups, representing companies such as Amazon, American Express and Microsoft, have opposed India’s push to store data locally.

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  • The US-India Business Council (USIBC), the Information Technology Industry Council (ITI), DigitalEurope, and the Japan Information Technology Services Industry Association (JISA), among others.
  • These international companies especially condemn the large tax differences between international companies operating in India and those with a permanent establishment in the country.
  • Many argue that localisation would lead to a larger presence in India overall, such as local offices, and increase tax liability.
  • Technology firms worry the mandate would hurt their planned investments by raising costs related to setting up new local data centres.
  • According to critics Data localisation potentially makes government surveillance easier.
  • Technology firms worry the mandate would hurt their planned investments by raising costs related to setting up new local data centres.
  • Data localisation requirements would entail additional time and cost for setting up/ leasing local servers in India, which may become a cost centre for businesses.

Can data localisation have a negative impact on Indian companies and start-ups?

  • Many are concerned about a fractured Internet (or a “splinternet”), where the domino effect of protectionist policy will lead to other countries following suit.
  • Opponents say that this, in turn, may backfire on India’s own young start-ups that are attempting global growth, or on larger firms that process foreign data in India, such as Tata Consulting Services and Wipro.
  • Contrarily India’s home-grown ventures like Paytm and Phonepe have strongly endorsed data localisation.
  • Reliance Jio has strongly argued that data regulation for privacy and security won’t be effective without localisation, citing models in China and Russia.

Disadvantages of Data Localisation:

  • Critics not only caution against state misuse and surveillance of personal data, but also argue that security and government access is not achieved by localisation.
  • Even if the data is stored in the country, the encryption keys may still remain out of the reach of national agencies.
  • Widespread localisation norms will mean that businesses and other users – both domestic and foreign – will no longer have the flexibility to choose the most cost-effective or task-specific location to store their data.
  • These efficiency losses will ultimately be passed onto consumers in the form of higher costs of service.
  • The possibility of triggering a vicious cycle of data localisation requirements by other countries as a response to India’s possible data localisation mandate will be detrimental for the global data economy

Suggestions:

  • Adequate attention needs to be given to the interests of India’s Information Technology Enabled Services (ITeS) and Business Process Outsourcing (BPO) industries, which are thriving on cross-border data flow.
  • Policy makers should be cautious before they prepare adequate ground through holistic analysis, before mandating data localisation, especially on devising an optimal regulatory and legislative framework for data processors and data centres operating in the country.
  • Promoting confidence in users without sacrificing expectations of privacy, security, and safety must also be worked upon. Promoting confidence in users without sacrificing expectations of privacy, security, and safety must also be worked upon.
  • Adequate infrastructure in terms of energy, real estate, and internet connectivity also needs to be made available for India to become a global hub for data centres.

Way ahead:

  • The Indian government could cut red tape and legal uncertainty for businesses while providing an adequate protection of data in a global context.
  • Regardless of the actual location of data, the government should invest in legal frameworks and judicial oversight to provide clarity for law enforcement authorities, companies, and citizens alike because Data security and integrity is best provided through encryption and clear legal frameworks.
  • Enhanced cooperation between all stakeholders in the global arena, through prolific debates, may pave the way ahead for deciding the fate of cross-border data flows, without compromising on data privacy, security and sovereignty.
[Ref: The Hindu, Economic Times, Indian Express, etc.]

 

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