Data localization refers to a set of policies that limit data flows by confining physical data storage and processing within a jurisdiction’s borders. The crucial question is whether any particular form of data localization would be able to assist the Indian government in meeting its various stated objectives for contemplating such a policy approach. To address several concerns about the free movement of data, a number of governments have implemented localization policies.
Localization variants can be divided into four categories. The first one is conditional localization, which requires local storage. The next category is unconditional local storage requirements for all personal data. The other categories are unconditional mirroring requirements for all personal data, and unconditional free flow of data with bilateral/multilateral data access and transfer agreements.
India’s Case for Data Localization
In the last decade, data localization has become a major policy concern in India. This is owing to the perceived economic benefits of processing Indian consumer data, as well as the challenges of accessing personal data for national security and law enforcement purposes. The Indian government submitted a data protection bill in the Indian parliament in 2019, which is still being discussed and debated. This bill proposes the country’s first data localization framework for the entire economy.
However, in many sections of the Indian economy, more specialized, sector-specific data localization policies have already been applied. For example, the telecommunications industry already mandates the storage and processing of subscriber data on a local level and prevents the export of subscriber account information. The Reserve Bank of India recently mandated that all payment data be held in India, even if it may be handled elsewhere.
Localization Method for Best Economic Growth in India
Many people believe that localizing Indian consumers’ data within India would be more beneficial to the country’s economic growth and innovation than allowing data to move freely. While there has been some research in India on the impact of localization requirements, none have looked at costs and the advantages of data localization across the economy.
Making data localization mandated in India may disadvantage foreign companies for two reasons. First, as a capital expenditure, these companies would have to pay for data storage and processing capabilities in India. Second, the costs of renting or operating data-related infrastructure would have to be paid on a long-term basis.
The cost of doing business in India would then be higher than the cost of doing business in other countries. Restricting access to data storage facilities in India, on the other hand, may result in higher rates for such services than they are now.
However, these ramifications would also affect Indian companies that currently store their customer data outside the country. Furthermore, while some believe that storing Indian data within India will stimulate domestic innovation, it is unclear how this will work in practice. While increasing data availability may have some economic benefits, sharing proprietary personal data would necessitate extra legislative restrictions. Even if such safeguards are considered, it is uncertain whether data localization is required to put them in place. Furthermore, data localization has no bearing on jurisdictional data access claims.
Data Localization for MSMEs
According to IBEF, there are roughly 6.3 crore MSMEs in India. According to data from the MSME Ministry, the Udyam Registration platform registered 5,767,734 MSMEs as of November 26, 2021, replacing the previous method of registering for an Udyog Aadhaar Memorandum (UAM). Data localization may give rise to the concept of local clusters providing cloud services as MSMEs adopt cloud computing. It’s similar to the CETP (Common Effluent Treatment Plant) concept developed by industry groups for their members. They can also build or outsource infrastructure to store and provide cloud services for their members’ data in clusters. It has the potential to be extremely cost-effective for MSMEs.
CAs, Hospitals, Pathology Labs, Ecommerce, Share Brokers, Commodity Brokers, Co-operative Banks, Coaching Classes, and Schools are amongst the MSME verticals that will be required to maintain the privacy of their clients’ data as well as comply with data localization. This approach will alter how they conduct business. Hence, it is now more important than ever to ensure the privacy of personal data held by consumers.
There will have to be a self-declaration of data localization compliance. Authorities may lack the necessary tools to enforce and monitor compliance. Data flow audits may be time-consuming and expensive for MSMEs because they are naturally data-local due to their aversion to cloud computing. Simultaneously, when they cross the bridge and use cloud computing, companies must make a conscious decision, organize themselves, and consider data as a valuable digital asset.
Summing Up
The best option for enabling better economic growth in India looks to be a localization framework incorporating local data storage and global processing. Measures demanding data mirroring and, alternatively, an unconditional, hard localization requirement are closely followed by this choice. The predicted increase in demand for goods and services as a result of forced localization is the main driver of these alternatives. The extent to which this has an impact on India’s net GDP growth is contingent on the trade imbalance pattern continuing. Data localization offers a plethora of benefits for MSMEs and will prove to be a game-changer for them.
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