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Data Localization: A SWOT analysis from an Indian IT ecosystem perspective



Key Highlights
- India is currently the world’s fastest-growing market for Technology and IoT applications.
- In the last 4-5 years, India has seen an up market boom in terms of entry of Fintech startups.
- New data storage guidelines may need many MNC's to change their conventional business models.

On February 24, 2019, the Government of India released a national ecommerce and technology policy draft with better focus on securing critical personal data arising in India and treating it as a ‘National Asset’. The draft suggested that every bit of data originating from India has to be stored within the country securely. While these guidelines can be seen as stepping stones towards the nation’s data sovereignty, it will also lead to some inherent technology and business challenges. Here’s how different industries/segments will be impacted by the implementation of the new policy.

- Boom of Application Developers and Data Centers
India is evidently the world’s fastest-growing market for technology and mobile based applications. There is an abundance of talent and intense competition among infrastructure providers to offer best in class services at the most competitive prices sometimes overlooking the need for reskilling or cross training. While the regulatory requirements to store data on-soil would mean that the developers, instead of choosing the best, fastest, and cheapest providers to store and compute data will now hunt for domestic providers. Traditionally, the domestic IT infrastructure and storage providers have been laggards in terms of pricing, tech specifications and an end to end support which will create more mistrust than faith. Hence, their services are often viewed as less agile enterprises. With the changes in regulation the mandate for high quality and cost-effective services could be reduced due to the lack of competition. On the other side, there is an opportunity for Indian IT companies to set-up their own data centers which will further lead to an increase in employment and investment at the domestic level.

- Boom of Fintech Startups
In the last 4-5 years itself India has seen an absolute boom in terms of entry of Fintech based startups. The PM himself has vouched that ‘India is the best destination’ for Fintech establishment and operations. However new data storage guidelines could hamper potential of Fintech companies starting or operating in India to scale up globally. This is because earlier, they did not have to bother much while choosing cloud service providers and could simply choose the one with the best pricing and flexibility. However, with reduced competition, cloud services by domestic providers could create a competitive disadvantage for Fintech startups in case they are looking to build their machine learning on Indian and global data. Similarly, for startups from other parts of the world, data localization regulations could be a big dampener and a reason not to scale up in India. Further it’s often not easy for small startup teams to manage product re-engineering based on complex regulations especially while factoring in any possible revenue advantages that may arise. The government should lay down some regulations to balance pricing else they are at the potential risk of losing genuine business opportunities while they figure out a way to comply to adapt with Cloud best practices and vendors. For example, at the onset of GDPR regulations, many IT infrastructure providers had blocked all EU originated incoming requests to their platform until they were sure that they could comply with the same.

- Multinational Companies should expand their paradigm on Technology
While the technology boom in the ’90s opened the door of the Indian market for several global tech giants. Over the years, these companies have not just interacted with a lot of Indian consumers but have also accumulated zettabytes of data. A large chunk of this data might be stored overseas due to different techno-commercial reasons. The new data storage guidelines may need many of these companies to change their business model as they look for on-soil storage. This is because if their data cannot leave the shores at any point of time, many value-added services provided by such companies will have to be stopped. Think of a payments network that compares millions of transactions flowing through their system, around the world to detect any fraudulent activities. If the payments data originating within India will have to remain within the country, it cannot be compared against global cybercrime trends. As a result, Indian consumers will not have the advantage of being safeguarded against any future threats regarding the safety of their multi country payments.

- How can we bring it all together?
For all the above segments, backup and recovery sites are planned at a location far from main servers. This provides better protection in case of any natural disaster, geo-political movements, and potential cyber threats. However, the new guidelines require both the sites to be within India. This makes planning for data redundancy and disaster recovery much more complex. But India has the potential and the required skill-set to develop these complex infrastructures and we are already working with IBM to empower this initiative further. While there is no denying the doubt about the positive intent to protect the Indian consumers against potential cyber threats, there will be near term challenges and repercussions when it comes to the implementation of the guidelines. While businesses chalk out their roadmap to move ahead the regulator should work in consultation with businesses and provide an adequate timeframe to make the required changes at ease. For local IT infrastructure providers, this is a breakthrough opportunity to raise their game, provide an enhanced bouquet of services at better competitive prices to bring them at par with their global peers and usher a new IT era in India which we can call it the IT for all in 2020.

Note: The views and opinions expressed are solely those of the author.

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