A last-minute effort to dilute the Reserve Bank of India (RBI) directive on data localisation by American global payment companies has triggered direct intervention by US lawmakers urging Prime Minister Narendra Modi to soften tough stand taken by the country’s monetary authority.

Key points

  • The US companies want Donald Trump administration to put pressure on Indian authorities in a bid to seek relaxation on the RBI order of ensuring implementation of data localisation by 15 October.
  • US companies have been lobbying with the Finance Ministry and the RBI over the issue.
  • S trade groups, representing companies such as Amazon, American Express and Microsoft, have opposed India’s push to store data locally.
  • That push comes amid rising global efforts to protect user data but is one that could hit planned investments by the firms in the Indian market, where the companies currently have limited data storage.
  • Goals set in the Draft National Digital Communications Policy 2018, along with various government notifications and guidelines such as Reserve Bank of India’s notification on Payment Data Storage 2018, and the Guidelines for Government Departments for Contractual Terms related to Cloud Storage 2017, show signs of data localisation.
  • The rationale behind such mandates has been attributed to various factors, such as: securing citizen’s data, data privacy, data sovereignty, national security, and economic development of the country.
  • The extensive data collection by technology companies, due to their unfettered access and control of user data, has allowed them to freely process and monetise Indian users’ data outside the country.

Data Localization

  • Data localization is the act of storing data on any device that is physically present within the borders of a specific country where the data was generated.
  • Free flow of digital data, especially data which could impact government operations or operations in a region, is restricted by some governments.
  • Many attempt to protect and promote security across borders, and therefore encourage data localization.
  • Greater use of digital platforms in India for shopping or social networking have made it a lucrative market for technology companies, but a rising number of data breaches have pushed New Delhi to develop strong data protection rules.
  • Also, minimal or deregulated governance on critical data, due to absence of localisation requirements, could be detrimental to India’s national security as data would be outside the purview of existing data protection legislation. The ineffectiveness of Mutual Legal Assistance Treaties (MLATs) in this realm aggravates such government fears.
  • In addition to these, India also aspires to become a global hub for, among others, cloud computing, data hosting and international data centres, all of which are prompting the government to enact data localisation requirements for accelerating the nation’s economic growth, especially in the sphere of digital technologies.

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