Explained: The need of boosting the localization of Data Centers in India

Over the last two decades, data consumption and generation have grown exponentially in India with the transition toward a digital economy. For example, India’s average data consumption per user per month increased from 0.8 GB in 2015 to 17 GB in 2022. Although the massive amount of data can be processed and analysed for immense benefits to the public, the controversy surrounding its gathering leaves many questions to be answered. Data gathering practices are often opaque and complicated, with users having little control over them. In addition, misuse of sensitive data such as personal information, Government and defence-related data has pushed the debate around data localization.

In this article, we will discuss the concepts of data localization and how it can benefit a country like India.

What is Data Localization

It can be defined as implementing various policy measures that limit the free flow of data across geographic boundaries. There are multiple ways in which data flows are restricted. In a few instances, companies are required to store a local copy of data with the relaxation of analyzing the data outside the country. However, in many cases, governments do not permit any data to be taken outside the country’s jurisdiction.

The Need for Localization of Data Centres in India

With the acceleration of the digital economy in India, there are four crucial concerns over the seamless flow of data. These are as follows:

Data storage on foreign servers, which curtails access for domestic national security agencies.
The loss of economic benefits as data are more meaningfully exploited by foreign firms.
Fear of foreign surveillance.
Personal data misuse in violation of privacy rights.

To overcome the above challenges, the Indian Government and other autonomous institutions have enacted many legislation – sector specific – curtailing free data flow based on certain conditions. For example, The Reserve Bank of India makes it mandatory for all payment data to be stored in India. However, it can be taken outside for processing. Another sector-specific legislation has been in the Telecom industry. The legislation requires local storage and processing of subscriber information and forbids the transfer of subscriber’s account information. Table 1 below shows (chronologically) some of the sector-specific localization policy already in effect:

S. NO.	ACT/ INITIATIVE	YEAR of IMPLEMENTATION	MANDATE
1	Public Records Act	1993	Bar the transfer of any “public records” outside India
2	Information Technology	2000 and 2011	Prohibits the transfer of sensitive personal data by a body corporate outside the country
3	Unified Access License for Telecom Service Providers	2004	Requires local storage and local processing of/subscriber information and prohibits the transfer of i) accounting information related to the subscriber and ii) user information
4	Companies Act	2013	Requires local storage of the books of accounts of Indian companies (including books and papers stored in electronic modes)
5	MeghRaj Initiative	2014	Requires that all empanelled cloud service providers store “the data centre facilities and the physical and virtual hardware”41 only in India
6	Reserve Bank of India, Storage of Payment System data	2018 and 2019	Mandates local storage of payments data; the clarification issued in June 2019 mentions that the processing of data may be done abroad, but the final copy will be stored in India

Table 1: Sector-Specific Localization Policy Implemented in India

Various policy enacted by the Government of India has boosted the data localization measures and reaped many benefits for stakeholders. In the next section, we will discuss India’s various advantages of data localization measures.

Benefits of Localization of Data Centres in India

Increased Demand for Goods and Services: Data localization is expected to accelerate the demand for developing new data centres across India. Consequently, it will lead to increased orders for data storage and infrastructure. Some of the overall needs are anticipated to be fulfilled locally.

Competitive Advantage for Indian Domestic Firm: Mandatory data localization policy will place foreign companies at a disadvantage as they will have to bear the cost of data storage and processing capabilities. These massive capital investments can erode the initial competitive advantage they have over Indian companies.

Better Security and Law Enforcement: Localized data centres will help law enforcement agencies collect sensitive data on anti-social elements and take punitive action to bolter security and enforce the rule of law.

Physical Availability: When servers are located inside the country, the physical availability of the data also increases for many practical uses. Local storage also enables easy maintenance.

Accessibility: Data is more accessible once stored inside a country’s jurisdiction. Access to data can be for many valuable purposes and solve day-to-day challenges such as tracing the origin of data or detecting an anomaly in a consistent stream of data

Conclusion

Localization of data centres in India can produce many tangible benefits, provided the policies are framed considering the socio-economic changes happening inside and across the globe.