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Jul 10, 2019 | 10:00 GMT

7 mins read

To Stake Their Claim in India's Future, Foreign Tech Firms Will Play by New Delhi's Data Rules

 An Indian visitor walks past a mural of social media logos in Bangalore.
(MANJUNATH KIRAN/AFP/Getty Images)
Highlights
  • The increasing digitization of the global economy has led India to join a growing list of countries seeking to maximize their control over data generated within their boundaries in the name of sovereignty.
  • In doing so, the country's government recently proposed a data protection bill that would effectively force foreign companies to store in India any data on Indian citizens collected in India.
  • U.S. tech giants with a large stake in India's market, such as Facebook, have voiced their concerns with the localization rule, arguing that it would increase operating costs and hinder global innovation.
  • But in order to seize the largely untapped opportunities present in India's growing digital economy, foreign firms will ultimately have to jump through whatever hoops New Delhi puts in front of them. 

India's booming $200 billion digital economy has recently drawn U.S. tech giants into a heated confrontation with New Delhi over the core commodity of the digital age: data. In June, New Delhi's Ministry of Commerce met with officials from Facebook, Amazon, Google and Microsoft to hear out their concerns over a proposed policy that would require foreign companies operating in India to store data locally. In addition to inflating their costs, these companies worry the law would loosen their grip on the data generated by the billions of Indian clicks, taps and swipes taking place on their platforms.

The Big Picture

India is the least developed of the world's 10-largest economies. Given its continental-sized population, the country's gradual transition to the digital age will create tremendous opportunities for the world's tech companies, whether they hail from Silicon Valley or Beijing. During this seismic shift, New Delhi will ensure Indian data remains in its control — resulting in stricter regulations for foreign firms operating in the country.

As the global economy increasingly goes digital, the value of data will only grow. And as a result, India will seek to tighten its grip over data generated within its boundaries. But New Delhi also knows it can't bring its digital economy up to speed alone, and will thus seek a balance that meets this demand for increased security without deterring foreign participation. Regardless of what path India decides to take, however, the powerful allure of its 1.3 billion consumers will ultimately leave foreign companies little choice but to bend to its government's will, or else risk being shut out of the world's second-largest market.

A Trillion-Dollar Opportunity

A subset of the country's broader $2.6 trillion economy, India's digital economy is poised for explosive growth in the coming decades. It spans information technology, e-commerce, telecommunications, digital payments and online government services under the New Delhi's "Digital India" campaign, among other subsectors. A government-commissioned study pointed to the potential for India's digital economy to boost its output to a trillion dollars by 2022. However, reaching that goal will depend on New Delhi's ability to implement its National Digital Communications Policy, which aims to attract $100 billion in investments and boost the telecommunication sector's share of the national economy to 8 percent. 

A map of U.S. tech offices in India

For New Delhi, encouraging India's digital connectivity is central to its vision of shaping a modern economy. The country already boasts over a billion mobile phone subscribers who collectively consume 2.4 billion gigabytes of data, the highest rate in the world. And the number of Indians gaining internet access is quickly accelerating as well: 460 million Indians have so far come online — more than the entire population of the United States. But that still leaves two-thirds of the country's 1.3 billion people as potential internet entrants. This will create soaring demand for the raft of goods and services tied to the digital economy in the years ahead, including increasing smartphone usage and mobile subscriptions that will drive e-commerce growth through domestic apps such as Ola (ride-sharing), PayTM (e-payments) and Flipkart (online retail). 

The Tug of War of Privacy vs. Digitization

For all of its boundless possibilities, however, the growth of India's digital economy has also sparked domestic concerns over privacy and government overreach. In 2015, Indian Prime Minister Narendra Modi's administration rolled out a biometric database called Aadhaar that aimed to contain information on all of India's 1.3 billion citizens. According to New Delhi, Aadhaar was designed to ease its ability to connect with citizens digitally, including delivering money to the poor. But opponents argued the government was violating a person's right to privacy by mandating the use of Aadhaar identification cards for too many activities — thereby arming it with a trove of data from which it could then profile citizens. 

This ultimately led to a 2017 Supreme Court decision that ruled that privacy was a fundamental right protected by the constitution. In a separate ruling focused specifically on Aadhaar the following month, the Court also narrowed the card's usage to purely government-related activities, such as filing taxes, and recommended that Modi's administration form a panel to draft a comprehensive data security plan. And that it did by establishing a committee that created a measure known as the Data Protection Bill-2018 shortly thereafter. 

The new data protection bill aims to balance privacy and digitization. But a specific clause tucked away in Chapter 8 hasn't sat well with U.S. firms participating in India's digital economy. The clause states that "every data fiduciary shall ensure the storage, on a server or data center located in India, of at least one serving copy of personal data to which this Act applies." Put simply, data collected in India must stay in India. 

With 1.3 billion consumers at stake, foreign companies will have little choice but to play by New Delhi's rules, even if it means housing their data in India.

U.S. tech companies have argued this will inflate their costs by requiring fresh investments into domestic storage solutions. But more broadly, they've also argued the law could lead to the kind of "data protectionism" that some believe can delay the onset of the Fourth Industrial Revolution.

A chart showing Facebook and Google use around the world

Facebook, which counts India as its largest market, has unsurprisingly voiced its concern over the proposed rule. In April, the CEO of the California-based social media giant, Mark Zuckerberg, expressed concern that India's data localization laws could set a precedent for what he describes as more authoritarian countries tightening their restrictions over data. The U.S. government has echoed its private sector's apprehensions, citing data localization as one of its main concerns in its bilateral relationship with New Delhi.

In Search of Sovereignty 

But despite these concerns, India is unlikely to eradicate the data localization clause altogether. For New Delhi, the bill touches on issues of sovereignty and leadership, as well as fears that its citizens' data could be exploited, or "colonized," by other countries. Mukesh Ambani — the richest person in Asia and the head of Reliance Industries (the multibillion-dollar Indian conglomerate) — echoed this sentiment in January when he implored Modi to take control of Indian data from foreign corporations, lest the country succumb to "data colonization." 

Beyond protecting the country's sovereignty, the Indian government also sees an opportunity to extend its leadership among developing nations by positioning the bill as an alternative to the U.S., European and Chinese data protection models, which emphasize, respectively: restraining the state; privileging the individual; and serving the collective.

A table comparing digital data protection laws worldwide

Although India's economy has minted billionaires like Ambani, it will have to expand at a much faster rate over the coming decades to break out of its lower-middle income status and rise to the level of other, more developed giants. (At only $1,900, India's gross domestic product per capita, for example, still lags far behind that of China's at $8,800.) And New Delhi knows that advancing the country's digital connectivity will be central to achieving that goal. 

Hitching a Ride on India's Digital Rise

That said, India's capital deficiencies will still sustain its thirst for foreign investment for the foreseeable future, securing Facebook and other U.S.-based firms' place in the country's transition from the analog to the digital age. But deciding who gets access to the budding tech market will ultimately rest with New Delhi. Thus, any outside players will ultimately be forced to abide by the Indian government's rules. 

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