Data Localisation - Importance, Challenges and Protection Rules

Data localisation is the practice of storing data on physical servers located within the borders of a specific country where the data was generated. This process ensures that the data is processed and regulated within the confines of the country's laws.

Notably, India's stance on mandatory data localisation has gained traction and support from entities backed by the United Nations. The United Nations Conference on Trade and Development (UNCTAD) in its Digital Economy Report 2019, highlighted that governments might opt to restrict data flow to protect the privacy of data and safeguard their citizen's interests in terms of security and development.

The report further emphasized that the only feasible way for developing countries to maintain effective economic control over the data generated within their territories could be to limit cross-border data flows. It suggested that data localisation could be crucial in the absence of a global agreement that recognizes the ownership of community data.

In this article, we will delve into the concept of data and explore various debates and perspectives related to the constitutional rights of citizens, national interest security efforts, and other significant dimensions. This discussion is particularly relevant to those preparing for the preliminary and main examination of the IAS Exam .

Why is Data Localisation a Hot Topic?

Recently, there have been many discussions about data and the necessary steps to follow government guidelines issued to social media giants, payment solution providers, agencies, and intermediary MNCs storing data. For instance, the Reserve Bank of India issued a directive stating that payment system operators should store all financial data within India's territorial jurisdiction.

What Makes Data Localisation So Crucial?

Protection of Personal Data

Personal and financial data stored on the cloud are vulnerable to foreign surveillance.
Data localisation can mitigate issues like data harvesting threats and misuse of data for influencing public opinion, similar to the case of Cambridge Analytica.
It allows for better control over the use and extent of data usage.

Economic Benefits

Localised data can provide a competitive advantage for local companies.
The availability of information capital to the domestic market can be profitable for local businesses.
The government can tax the revenue generated from this data, similar to taxation on goods and services.
It can lead to job creation in the data analytics sector, contributing to economic development.

Law Enforcement Benefits

Local storage of data facilitates easy access to information for authorities when needed.
It aids in smooth law enforcement without the need for additional measures.

National Security Concerns

Law enforcement agencies often need information for crime investigation.
Local storage of data can aid these authorities in accessing it promptly.
If data is not stored locally, agencies have to access it through Mutual Legal Assistance Treaties (MLATs), which can delay investigations.

Addressing Asymmetry in a Level Playing Field

The regulatory landscape in the tech sector is different for developing and developed countries, often putting the former at a disadvantage.

What are the Challenges Associated with Data Localisation?

Storing data within the country requires the government to ensure the effectiveness of payment system operators, which can lead to higher operational costs.
There may be a lack of sufficient infrastructure for collecting and managing data.
While data localisation can address foreign misuse, the risks associated with domestic data management are valid concerns.
Small-scale firms and startups might find it difficult to scale their operations for creating local storage infrastructure.

Data Protection Rules in Operation

RBI's Role

The RBI, in its First Bi-monthly Policy of 2018, specified the type of data that needs to be stored in India, such as customer names, payment sensitive data, and transaction data.

It observed the considerable growth in the country's payment ecosystem.
The systems are highly dependent on technology, necessitating the adoption of continuous safety and security measures.
To ensure better monitoring, it advocated for unrestricted supervisory access to data stored with these system providers and their service providers/intermediaries/third-party vendors.

Personal Data Protection Bill

The Ministry of Electronics and Information Technology, Government of India, formed a committee under the chairmanship of retired Supreme Court judge, Justice B.N.SriKrishna.
The committee aimed at understanding and formulating data protection laws and drafted the Personal Data Protection Bill .
The bill applies to the processing of personal data by companies registered in India, foreign companies dealing with personal data of individuals in India, and the Indian Government.

Conclusion

As we move towards a global digital economy, data has become a valuable asset. The protection of personal data, national security concerns, and issues of privacy have become increasingly relevant. Hence, the need for comprehensive data protection legislation has been emphasized. Data localisation is a step towards this goal.

It's essential to develop a global standard procedure to maximise the benefits of a digitized economy, create more jobs, and foster international cooperation. A standard procedure that protects the interests of developing nations and gives due credit to developed nations for their technological contributions is necessary. However, the right of individuals and the risk of violation of fundamental rights, theft of crucial financial and personal data should push us to invest in a system where data localisation is prioritised.

This article is relevant for the sections of Polity, Economy and Current Affairs part of the UPSC Syllabus prescribed for Preliminary and Main Stages of Civil Services Exam.

National Payment Corporation of India	Monetary Policy
Puttaswamy Case and the Right to Privacy	New E-Commerce Rules in India
Committees and Their Purposes for UPSC	World Intellectual Property Organisation