It’s a move that has been termed as misguided. The latest draft put forth by the Srikrishna Committee says that all data generated by the payment systems in India must be stored locally. Not just India, but countries around the world are using legitimate concerns like cybersecurity or privacy as the reason for this old-fashioned policy.

Earlier in April, the Reserve Bank of India (RBI) ordered companies to store “the entire data relating to payment systems operated by them in a system only in India.” According to the central bank, this move was necessary to ensure its “unfettered supervisory access” for “better monitoring.” While India isn’t the only country to prevent companies from sending their data offshore, the RBI diktat was unusually strict. Now, global payment companies are opposing RBI’s 15 October deadline for storing data in India.

News reports indicate that the US trade groups which represent leading tech giants like Microsoft, Amazon and American Express are lobbying against India’s data localisation move, as it is bound to hurt their current investments. As countries across the globe implement stringent rules related to data privacy and restrict the flow of data, India too believes that localisation measure can help it get better access to data. The government also emphasised keeping the data locally would help safeguard the citizen’s data privacy.

Is Data Localisation The Solution To Privacy Woes?

Amidst a backlash from business leaders and companies, the move can be counter-effective for India. Venkatesh Krishnamoorthy, Country Manager India, BSA, The Software Alliance, spoke about the downside of imposing undue restrictions on the ability to securely transfer personal data outside of India.

Even then, can data localisation usher in an era of innovation? According to a report by Brookings, cross-border data flows in Asia creates new economic and trade opportunities. Pegged as the fourth industrial revolution, the report shows the Asia Pacific as one of the fastest growing regions in terms of data connectivity, home to the largest number of internet users, with 1.9 billion people online.

Simply put, access to cross-border data exchange is crucial to the growth of the ecosystem in the digital age, as it underpins the global supply chain. Today, most sectors including agriculture, manufacturing, services and retail rely on global data flow for insights.

According to a post in Mondaq, there are many questions swirling around the Indian government’s new data localisation measure which would significantly increase the cost on companies with regards to infrastructure to build data-centres. This, in turn, would increase the cost of land clearance, electricity and would overall increase the operational costs for companies. It would also require a greater need for data surveillance and protection.

Roadblocks In Setting Up Data Centres Locally

• Data centres need to comply with the country’s regulation and function under the law.
• They will also have to deal with jurisdiction issues. In other words, while India wants to promote a digital economy, the government will have to notify categories of personal data for which the data centres will have to be set up in India and will also have to comply with rules and regulations
• The post further reveals that the National e-Commerce Policy purports to grant “infrastructure status” to data centres and server farms in India. This will make it easier to enter into operations and get credit such as tax benefits.
• However, many experts have argued that moving the data from foreign data centres to India will only provide greater access to the Indian government
• Another viewpoint is that how will Indian companies, such as the now Walmart-owned Flipkart and the heavily Ant Financial-backed Paytm deal with these data localisation issues. These companies, even though Indian in nature, are largely trying to aim for a global market.

Can Data Localisation Actually Be Good For India?

1. As India moves to make data protection a wider public policy, data localisation can help fuel the growth of cloud computing in India. Surprisingly, there are a few industry backers too —  for example, digital payments behemoth Paytm reportedly wrote to the Internet and Mobile Association of India supporting the data localisation policy, terming it will be hugely beneficial for the startup ecosystem. It can possibly usher in an era of “data monopolisation” or “data sovereignty” a move followed by nations like China and Russia.
2. In the Indian context, government’s data localisation move has firmly divided the tech industry into two camps — new-age, data-intensive Indian companies that support the move and global players like Google and Amazon which are lobbying hard against it.
3. Another viewpoint is that the Government realises India’s worth as a user-base for international companies like Amazon, Google, Microsoft, Facebook and Facebook-owned Whatsapp. By asking foreign companies to set up data stores in India, the government will limit foreign competition in India, much like China and Russia. This will also, in a way, boost capital flow to India and result in economic gains.
4. India also plans to implement data localisation as a part of its broader data security strategy. In fact, Paytm and other digital payment companies like PhonePe emphasised the need to secure financial data of Indian citizens.  
5. Even though data localisation norm will come with its own cost, there is an upside for India. According to an in-depth analysis in Mondaq, data localisation will clearly reduce the exposure to malicious attacks, thereby mitigating security risk. Another key factor is that all the data collected will only boost the digital infrastructure and the upcoming development in AI will get a huge boost. It will also minimise the risk of foreign surveillance of data.  However, the data localisation move will hinder the growth of startups in India that mostly use cloud services for storing data.