Data Localisation India's Double-Edged Sword

October 5, 2021

The role and significance of data have evolved over the years for industries and countries alike. The advent of ever-changing technologies, has transformed businesses operations, processes, contribution to global data value chains and participation in international trade.

Lately, recognising its economic value, data has often been called as the new oil. With the increasing reliance on advanced data driven technologies such as artificial intelligence and machine learning, the debate has advanced from discussing the potential benefits of data analytics to realising the value of data and its commercial use and/or surveillance by foreign agencies and social intermediaries/ data fiduciaries.

In this context, countries around the world have been gradually introducing data protection policies to regulate the use of data and to promote data privacy and security. In doing so, countries are looking to build new data industries, restrict foreign surveillance and improve data access for law enforcement agencies, by restricting cross border flow of data. However, on the flip side, such data restriction measures could potentially impact domestic businesses, foreign trade partners and consumers.

Thus, it becomes significantly imperative to analyse the cost and benefits of implementing such policy measures. This is even more relevant for India since it is recognised as a global leader in digital services exports. The IT-BPM industry in India has grown progressively over the years, contributing significantly to the GDP of the country and is an integral part of the digital economy growth objective of the Government of India, including making India self-reliant.

The industry availed the opportunity of an uninterrupted flow of data across borders and favourable policies, which have been available domestically as well as in its major export markets. Similarly, India is at a vantage point to incentivise private industry to set up data parks across the country.

In this light, this report by CUTS International is an enlightening resource in informing the discussion about the impact of cross border data flow restrictions on India’s digital services exports and its impact on the country’s GDP. A very peculiar aspect of this study is its novel analysis of the IT-BPM industry and its significance to the Indian GDP and thus bringing a very important perspective in the discussion around data localisation. The report takes the readers through the significance of digital trade for the world and India, and the emergence of data protection and restrictions on data flows across the countries.

The report then clearly illustrates the importance of India’s IT-BPM Industry, specifically through focusing on the digital services exports and its statistical significance with the GDP. It employs econometric analysis to comprehensively inform the correlation between digital services exports, GDP, foreign direct investment and innovation at the national and state level. Ultimately, the 10 Data Localisation: India’s Double-Edged Sword? report estimates the likely impact of cross border data flow restrictions on India’s digital services exports and GDP through building seven hypothetical scenarios and what it would mean for India while it is targeting to become a US$5 trillion economy by 2025.

The scenarios include varied degrees of data localisation, and reciprocal actions by trade partners. The report does not take a one-sided approach to understand the impact, however, has rightly engaged various industry stakeholders to construct evidence on the potential drawbacks and benefits of implementing data localisation in India.

Overall, the astute analysis highlighted in the report leaves a thought-provoking impact on its readers, for which CUTS should be congratulated. I wholeheartedly encourage the regulators and policymakers across the globe, particularly India, to be guided and inspired by the findings of the report in regulating cross border data flow, particularly at a time when the whole world needs to come together to leverage the potential of digital economy in moving forward while dealing with Covid-19 pandemic.