India is a highly aspirational consumer market as it represents a growing middle-class population and a large young population. This favourable demographic dividend – together with an increasing smartphone user base – has transformed the country into an attractive market for most multinational organisations.

As per studies, the information and communication technology (ICT) investments into India have shifted from information technology (IT) services for global companies to a fast-growing digital ecosystem. Most of the deals recorded in India in 2020 were in the digital sector, thereby making it one of the most sought-after digital economies in the world.

In recent years, India has become the breeding ground for start-ups and international businesses because of advancing technological infrastructure, cheap and efficient human capital, and a non-restrictive regulatory market. Data localisation norms might negatively impact these as organisations rely on the free flow of data across borders for their business

In 2018, the Reserve Bank of India (RBI) introduced data localisation norms requiring all payments ecosystem entities to store data pertaining to local transactions in servers located only in India. These norms posed extensive challenges to multiple organisations as payments ecosystems are tightly linked with their location-agnostic approach. In order to comply with these regulations, most of these organisations rearchitected their payments ecosystems and set up their data stores in data centres in India. Several downstream processes like revenue assurance or fraud monitoring, which were earlier carried out outside the country, migrated to India to comply with the RBI’s requirements.

These actions had a positive impact on our economy as it aided the growth of data centres and the cloud computing industry in India, created employment opportunities, encouraged technology advancements, and combated financial frauds in the payments industry.

Data localisation norms could bring in more benefits. They may help monitor and/or restrict organisations around the globe from capturing sensitive personal data via digital footprints. They would also ensure that a nation’s data is quickly available when required, thereby minimising the conflict of jurisdiction due to cross-border data sharing, preventing delay in the delivery of justice in case of data breaches, and maintaining citizens’ data within the country’s territorial borders. Localisation would also help in combating surveillance by foreign powers and other spying agencies.

Keeping these benefits in mind, policymakers implement data localisation regulations that help in protecting consumers’ fundamental right to privacy. However, the implementation of data localisation regulations and restricting the free flow of data may never allow the digital ecosystem to grow to its full potential. The impact would be more pronounced in some of the high-growth sectors such as e-commerce and financial services where increased digitisation of services aided with high internet penetration has contributed to India’s story of economic growth.

A balanced data localisation regulation could play an important role in protecting the Indian consumer’s privacy and the country’s national and economic interests. Maintaining data locally may provide competitive advantage to local organisations. However, it is equally important for the Government and regulators to roll out adequate measures so that setting up barriers for data privacy does not deter global organisations from investing in India. models to work efficiently.

Data localisation may become a deterrent for such organisations as it would entail higher investment costs and more set-up time. A lesser-regulated market might become more lucrative for them.