Data Localisation

By : Neha Dhyani

Updated : Mar 24, 2022, 10:50

Data Localization refers to the various policies that require data pertaining to a nation's citizens to be stored within the country's border. It also includes the measures that encumber the cross-border movement of data.

Several governments worldwide have adopted Data Localization policies to combat the concerns arising from the free movement of data. India has also taken steps to protect its citizens' privacy and data through Data Localization laws.

Data Localization in India

  • In April 2018, RBI directed payment system operators to store all data related to payment systems on servers in India. RBI gave the firms a deadline of six months to comply with the directive.
  • While firms like Google, Paytm, and Amazon complied with the direction, some like Visa and Mastercard missed the deadline due to confusion over rules.
  • RBI subsequently gave clarifications in June 2019. It stated that if the processing is done abroad, data should be deleted from the overseas system and stored only in India. This should be done within 24 hours.
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Where is Data Generated in India Currently Stored?

Most data generated in India is held in foreign servers. For instance, Amazon India stores India-generated data in foreign countries. The most popular hosting location is the US. The US has 42% of host servers of the world's top 1 million sites, followed by Europe with 31%.

Advantages of Data Localization

  • Economic Growth

It is well-known today that 'data is the new oil.' Companies use data to analyze customer behaviour and personalize their products and services accordingly. New product development becomes easier when businesses understand customer requirements. So data has enormous economic importance today.

Many developed countries have already sensed the opportunity and are utilizing it for their benefit. There is also a chance that countries that hold data can misuse it in their favour. Since India has massive consumer data, the country's economy can benefit by storing and utilizing the data locally.

  • National Security and Effective Law Enforcement

Access to payment data is crucial while solving crimes. However, when data is stored abroad, it isn't easy to gain permission to access it. Holding the data locally will give law enforcement agencies 24*7 access to it. It will help avoid delays in solving crimes.

  • Data Sovereignty

Localizing data also protects it from foreign surveillance. When the foreign country storing data turns hostile, it becomes a matter of concern.

  • Boost in Employment

India needs to set up multiple data centres for Data Localization to be successful. This will give rise to job opportunities for locals. Besides, it will also fuel innovation for bringing out cost-effective solutions.

Challenges of Data Localization

  • India does not have a well-developed infrastructure to ensure data security at present. This may make the data prone to cyber-attacks.
  • Forced Data Localization increases the operational cost of payment services provided. The cost may ultimately pass on to consumers.
  • There is no certainty that the service providers will delete the data in other countries. They might continue to hold and utilize the data to their advantage.
  • Even if the data is stored in India, the national agencies may still not have access to encryption keys.
  • Data Localization may lead to government surveillance of data.
  • Currently, the internet runs on a free flow of data. Data Localization policies can hamper the worldwide connectivity provided by the internet.

Data Localization can have many benefits in India in terms of the privacy and security of its citizen. However, India needs an effective data strategy and an optimal regulatory framework to achieve this objective.

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FAQs on Data Localization

Q.1. What is Data Localization?

Data Localization refers to the various policies that require data pertaining to a nation's citizens to be stored within the country's border.

Q.2. What is RBI's direction on Data Localization?

In April 2018, RBI directed payment system operators to store all data related to payment systems on servers in India.

Q.3. Where is data generated in India stored for Data Localization?

Data generated in India is stored in foreign servers, mainly in the US and Europe.

Q.4. What are the advantages of Data Localization?

Data sovereignty, national security, employment, and economic growth are some of the advantages of Data Localization.