Data localisation: A giant leap backward

In April this year, the Reserve Bank of India (RBI) gave a terse one-page directive, asking payments entities operating in India to store all transaction data in India and make it available immediately on request. This was followed by the formation of a think tank by the Department of Commerce, purportedly to review the e-commerce laws and prepare India’s standpoint at the World Trade Organization. The unstated aim most probably was to hamstring American data companies by erecting a classic non-tariff barrier: Data localisation. The bias of this group was reflected not simply in the fact that American data companies operating in India for several years were not part of it; more importantly, some of the most important Indian start-ups in the data business were kept out of it. The final report and recommendations of the think tank are awaited. (The author was an invited member of this group, and is not free to disclose any part of the proceedings of these meetings.)

Then in August came the laboriously prepared Draft Privacy Bill by an expert group under the supervision of Justice B N Srikrishna. The expert group had limited representation from India’s data industry, or the Indian innovators most affected by a data regulation regime. This narrowed the values — and consequently the priorities — guiding its deliberations. The Draft Bill, so far as the issue of data localisation is concerned, allows a little leeway. According to the Draft Bill, personal data has to be stored in India but a copy can be taken out of the country. However, critical personal data, which helpfully included all financial transactions, can be taken out on a case-by-case basis. Both the processes of storing data and transferring it outside India in the Bill are so complicated that it takes one back to the licence-permit raj of the 1970s. Finally, at the end of August, another expert committee that has been working on cloud policy quietly proposed data localisation. The backbone of the data localisation argument rests on the woolly concept of data sovereignty.

Illustration by Ajay Mohanty
This mixing of vicarious nationalism and policymaking took me back to a certain episode in 1977, of which I only have indirect recollection. What happened that year? A new government, led by former Congressman Morarji Desai, took charge and embraced an insular and inward-looking economic policy that was vehemently anti-west. As a result, in 1978, 50 multinational companies (mostly American and some British, since Asian companies were too poor to invest in India at that time) applied to leave India. The non-tariff barrier raised this time was the instrument of FERA (Foreign Exchange Regulation Act).

The story of one of these companies that left India at that time is educative. Yes, I cite the famous case of Coca Cola leaving India. Coca Cola left India and we had the historical rise of Thums Up, an Indian brand. Coca Cola came back to India 15 years later, in 1993, and bought Thums Up, giving an Indian-owned company a very good exit. It was a global monopoly buying a local monopoly. What did India gain out of it? Or what did Indians gain out of it? Between 1978 and 1993, Indians continued to suffer aerated drinks. In fact, these drinks reached new markets in rural areas in those years and made Thums Up a coveted brand for Coca Cola to buy. India probably lost just as much groundwater, and gained just as much employment. 

Back to 2018, we have another non-tariff barrier being raised against American data companies to allow some “Indian” companies a few perceived advantages. 

(There is no British company this time, and the Japanese and Chinese companies are coming under the cover of investors, not owners.) 

The differences at least on the surface between the two episodes are quite a few. India is now economically more powerful and stable than it was in 1977, Coca Cola was pushing just aerated drinks, data companies are taking away a lot of real data of Indians, India is more aware of its sovereignty, and India is also very keen to make futuristic policies. But as said, these are superficial differences. The trajectory of policymaking is similar: Erecting a non-tariff barrier to benefit Indian companies by creating local monopolies rather than expanding competitiveness and competition; little or no concern for the country or its consumers; policies made without evidence or awareness of full facts of the case, and so on. Therefore, one can also guess with some amount of certainty the outcome of such policy.

Thus, after this policy has been successfully implemented, we would end up creating some local monopolies that would function exactly like foreign monopolies with little concern for Indian consumers and India. 

Interestingly, such inward-looking policies singly and collectively are being pushed at a time when investment, job creation, and building a data economy, shared economy and entrepreneurship are priority among policymakers. The demand for investment in all sectors, especially in new-economy sectors such as digital, telecom, and infrastructure, is the highest by the government’s own estimate.

The experience of the 1977 case clearly shows that neither India nor Indians are going to get anything much out of this. And who knows, in the next three or four years, many of these global companies may come back and buy “Indian” companies, following the same process that Coca Cola followed in 1993. India and Indians, who are so keen to use the word “leapfrog”, probably will be able finally leapfrog, albeit backwards. />

The author is president, Internet and Mobile Association of India. The views are personal