Data localisation may be important for developing nations, says UNCTAD report

5India’s push for mandatory data localisation contested by developed countries has found some support from the United Nations Conference on Trade and Development (UNCTAD).

In its Digital Economy Report 2019 , which was released globally on Wednesday, it observes that governments may decide to restrict data flow for reasons such as privacy of data and protection of their citizens, security and economic development.

“The only way for developing countries to exercise effective economic ‘ownership’ of and control over the data generated in their territories may be to restrict cross-border flows of important personal and community data,” the report said. It argued that this was necessary as due to a lack of any global agreement for recognising ownership of community data, once the data leave the home jurisdiction, the notion of ownership becomes largely meaningless.

According to the report, India generated the ninth-highest e-commerce sales globally in 2017 by generating a total business of $400 billion.

This included goods and services sold online, transactions via platform-based companies such as ride-hailing apps, and room-sharing platforms. The contribution to GDP was 15 per cent.

Topic of contention

Data localisation, which requires companies to store data collected from individuals in a country in local servers and not in another country or jurisdiction, is an area of hot debate.

India is facing huge pressure from developed countries including the US and in the EU to give up its insistence on data localisation.

While the RBI has made data localisation mandatory for payment systems, the Information & Broadcasting Ministry is working on a policy which places large restrictions on cross-border data transfer such as disallowing sharing of the data with a third party.

The countries said that restrictions on data flow would not only increase the cost of operations of foreign companies in India, it would also impede growth of business.

The report underlines that proponents of free data flows argue that barriers to accessing data hamper business innovation and economic growth.

Privacy issues

Privacy rules impose new compliance requirements on firms and increase the costs of doing business, that data localisation laws impose new costs on business by forcing them to invest in local infrastructure, and that any restrictions on data flows will result in less efficient and productive businesses. Nevertheless, many countries are hesitant to relinquish control over their data without getting anything in return, the report further reasons.

It said, “With data becoming an increasingly valuable resource in the digital economy, there are questions about the wisdom of allowing foreign firms to extract data without restraint. And with the global concentration of platforms, this free flow of data effectively means a ‘one-way flow’”.

Other reasons cited for considering the use of barriers to free flows of data include perceived risks to national security, surveillance by other countries, risks of hacking, and the need for easy access to data for law enforcement purposes,” it stated.

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