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Are data localization requirements necessary and proportionate?

GS Paper 2

Syllabus: Governance/ Internal Security/ Effect of Policies of Developed and Developing Countries on India’s interests


Source: The Hindu

 Context: The value and importance of data in today’s technologically driven society underline the demand for data localisation.


Data localisation:

  • Data localisation refers to policy initiatives that limit data flows by restricting the physical storage and processing of data inside the boundaries of a specific jurisdiction.


The need for data localisation: Governments across the world prefer data localisation to –

  • Strengthens the protection of personal data: For instance, the European Union’s General Data Protection Regulation (GDPR), obligates businesses in the EU to keep their data secured within the boundaries of the EU.
  • Protect the privacy of citizens.
  • Exercise control of the data for law enforcement purposes.
  • Drive their economy.


Case of India:

  • Because India is one of the most powerful markets in terms of data creation and use, data localisation is critical.
  • The long-awaited Personal Data Protection (PDP) Bill, 2019, was recently withdrawn by the Government of India in order to be replaced by a new bill with a “comprehensive framework” and “contemporary digital privacy laws.”
  • The Reserve Bank of India (RBI) has also ordered that payment system data must be maintained in India for better monitoring and safety, owing to the increasing volume of digital payments in the country.


Fears about data localisation:

  • Against ease of doing business: According to the UNCTAD’s Digital Economy Report, the cross-border data flow is an important pillar for established as well as growing businesses, and data localisation increases the operational costs of the businesses.
  • Promotes monopoly: It results in the eradication of small and mid-size businesses from the market, impacting daily consumers who would be deprived of making choices.
  • Make data security more vulnerable: This is particularly true for countries with poor IT infrastructure.
  • Misuse by rich countries: Developed countries may employ advanced data surveillance tools, which may defeat the aim of establishing data security by relocation.
  • Increased risk of local surveillance: Through the implementation of stringent data localisation laws.
  • Varied nature of compliances amongst different countries: Posing varied sets of challenges in different settings and the nature of businesses.


Way ahead:

  • A multiple stakeholder approach: It can help in looking not only at data localisation but also other issues such as privacy and governance.
  • Data encryption rather than delocalisation: In this age of rapid technological growth, governments should shift to alternate standards of data encryption.
  • Glocalization approach: Wherein laws can be harmonised globally, but by paying attention to local interests.
  • Assess the security of domestic systems for storing sensitive data.



Data is the enabler of businesses and digitisation has been essential for growth and innovation. There must be a balance between the sovereignty-based model for data localization and the need for data to be independent and autonomous.


Insta Links:

Data Localisation


Mains Links:

Q. “Data localization policies, while allowing government agencies to regulate the data efficiently, hinder the growth of global trade and investments”. In this context, analyze the pros and cons of data localization for India.