Structure:

Introduction: (up to 30 words) Explain what Data Localisation is and why RBI is pushing for Data Localisation

Body: (up to 100 words) Explain the need for Data Localisation and the challenges involved in implementing it.

Conclusion: (up to 30 words) Mention the importance of RBI’s initiative and that it is a move in the right direction

Supporting Points:

Data localization:

1. Data localization is a concept that the personal data of a country’s residents should be processed and stored in that country. It may restrict flow entirely or allow for conditional data sharing or data mirroring (in which only a copy has to be stored in the country)
2. There is a growing perception that data localization will aid countries asserting sovereignty in digital domain, ensure informational security of its citizens & fare better in governance (as it goes digital).
3. RBI issued a directive advising all Payment System Operators (PSOs) to ensure that the entire data relating to payment systems is stored within databases located in India.
4. Directives are applicable to Payment System providers authorized by RBI under Payment and Settlement Systems Act, 2007. This includes many companies from payment gateways like MasterCard and Visa to e-wallets like PayTM.
5. It includes end-to-end transaction details and information pertaining to payment or settlement transaction.
6. There is no bar on overseas processing of strictly domestic transactions, however in such cases, the data should be deleted from the systems abroad and brought back to India not later than the one business day or 24 hours from payment processing, whichever is earlier.
7. Data can be shared with the overseas regulator, if required, depending upon the nature/origin of transaction with prior approval of the RBI.

Need for data localization :

1. Economic development of the country: Data is the new oil, an economic resource, fueling the 4th Industrial Revolution.
2. Digital data in India to increase from 40,000 PetaByte (PB) in 2010 to 2.3 million PB by 2020 – twice as fast as the global rate. If India houses all this data, it will become 2 nd largest investor in the data centre market and 5 th largest data centre market by 2050. This will give significant push to AI led economy in India.
3. India has 2 nd highest FinTech adoption rate amongst major economies in the world. Data localization would give a push to domestic production of high value digital products.
4. Domains of cloud computing, data analytics etc. can become major job creators in future.
5. There is a push among government department to use AI tools and attempt a predictive approach to policy making. With data localization, there is a scope of greater access to ‘public data’ collected by companies

Increase India’s tax revenue:

1. Extensive data collection & processing by technology companies, and unfettered control of user data has allowed them to freely monetize Indian users’ data outside the country without paying any taxes.
2. Localization would lead to a larger presence of MNC’s in India overall, through local offices, and increase tax liability and open more jobs.

Maintain data sovereignty & citizens’ data privacy:

1. With data stored in remote servers, the accountability of service providers (like Google, Facebook etc.) reduces as it is outside the purview of
2. Indian regulatory authorities. With data localization, regulatory oversight on end-use of data will improve and business jurisdiction related loopholes will be plugged. E.g. Facebook shared user data with Cambridge Analytica to influence voting.

Issue of national security:

Data localization will help law enforcement agencies to get access to user data for investigation and prosecution

Challenges:

1. Security Concerns: Isolating payment systems from global data network would reduce their operational efficiency and make transactions prone to frauds, systemic risks or a single point of failure.
2. Economy and Business: Stringent localization norms could affect innovation & ease of doing business in India. Free flowing data is also necessary.
3. Protectionism in global trade: It might trigger a vicious cycle of data localization requirements by other countries. It hampers a globalized, competitive internet marketplace, where costs and speedsdetermine information flows, rather than nationalistic borders.
4. Privacy concerns: There is no evidence that data localization leads to better privacy or security. Threat of state surveillance and misuse of personal data of citizens by the Government will remain.

Way forward:

1. Before universalizing the policy of data localization, the Government needs to provide a push to local capabilities in data storage and processing
2. Infrastructure status to data centres/server farms
3. Adequate physical infrastructure (energy, real estate and internet connectivity) for setting up such centres
4. India should put in place in a cybersecurity law to ensure protection of private data of citizens.