Data Localization Mandate is an Opportunity for Indian Companies to Evolve from Services to Products Mindset
This Analyst Note analyses the data localization mandate and recommendations being proposed by various bills in India, evaluates its need and it's impact on various global companies operating in the country.
Data Localization – The mandate by a sovereign government for initial collection, processing and storage of all data occur first within its own national boundaries – is gaining significant momentum in India. Recently, four key pronouncements in quick succession have positioned Data Localization as a potential solution for protection of Indian consumers’ privacy and securing the nation’s economic interests - These include recommendations by the Reserve Bank of India (RBI), the committee of experts led by justice B.N. Srikrishna, the draft e-commerce policy and the draft report of the cloud policy panel.
Data localization is a global phenomenon. Many sovereigns and national governments have implemented or are in the process of implementing data localization laws, including the top four countries by population – China, India, US & Indonesia. And, Europe has recently banned restrictions by its individual states to create a single market for data storage and processing services for its entire region.
Need For Data Localization Mandate
We have evolved from the Industrial era through the Information age and are entering the Intelligence era. And, data is the oxygen for powering the new-age solutions and adding value to every organization’s existence and growth. Going forward, every company will be a data company – it will either collect, need, use or generate data. And, digital technologies, primarily led by Advanced Analytics, Machine Learning (ML), Artificial Intelligence (AI) and Internet of Things (IoT) can generate tremendous value out of various data attributes. And, like all technologies, these too can go overboard and turn disastrous if not contained within certain boundaries.
In such a scenario, where collation, quantum and processing of data is leading to new, improved and differentiated offerings, along with giving birth to new monetization and business models, and is capable of re-writing the existing playbooks for many industries, the state takes the responsibility for the need to secure the data of its citizens. And, local hosting and processing of such data is a step in the direction of data privacy and regulation.
What Does It Mean for Global and Indian Companies?
There is a reason why countries with large populations are thinking ahead regarding Data Localization. These countries already are or are evolving as big markets, and global companies are focusing of them. And, the mining of data about these countries’ citizens provides the extra edge for these companies to sell their products and services and grow their businesses much better, making the data in these countries that much more valuable. Many global companies operating in India and catering to Indian consumers including Amazon, Google, Facebook, IBM, etc have announced building local data centers. Although this might increase the cost of operations of these companies, the Indian market dynamics and potential more than compensate for the investments made.
Cloud Computing and Data Center industries are expected to witness a spike due to the Data Localization mandate. And, there is an opportunity for supporting IT and telecom infrastructure players to grow as well. In Europe, we witnessed global technology companies setup their data centers in big cities and then partner with domestic players to establish smaller centers deep within the countries to reach and cater to tier-2 & tier-3 markets. A similar model is expected to evolve in India as well, thereby creating an opportunity for local, Indian data centers to mushroom all over the country. Apart from infrastructure and data center players, there exist opportunities for analytics companies to start and grow catering to the Indian market. And, all these have the opportunity to partner with global companies with an eye on the Indian market. This is an opportunity for Indian technology companies to evolve from services mindset to products mindset. And, with the exclusion of global, American technology companies from China resulting in their missing out on that market will only ensure their focus and investments in India in order to not miss the boat here. And, coupled with collaboration mindset, will only lead to the growth of the local ecosystem.
Despite all the opportunity and potential of Indian market, and available support in form of foreign VC and CVC funds, we have not seen many young Indian companies (with the exception of the likes of PayTM, Flipkart, Big Basket, and Bounce) rise to the occasion and capitalize on it. And, our companies’ product mindset and business capabilities are yet to be proven, at scale.
Also, one big issue with the current propagation of Data Localization mandate through multiple policies is the number of different agencies (RBI, MeITY, TRAI, UIDAI, CCI, etc.) that are driving various aspects of these recommendations. And, some of these are overlapping, over-reaching and competing. Data mining and processing cuts across and adds value to almost every industry, including BFSI, Telecom, E-Commerce, Healthcare, Logistics, Retail, etc. In such a scenario, there is an urgent need to have a consolidated, integrated long-term strategy as a nation for policy creation, especially for Data Localization. The vision, intent and objective of this move by the Indian government is right, but the current execution needs a lot of leveling up. And, one can only hope the proposed Data Protection Authority will be able to play that single, centralized vigilante role in an all-encompassing manner.
This Analyst Note has been published as an Op-Ed in MoneyControl on 27th September, 2018.