No, data localisation will not increase costs for small businesses or impact use of data, as assumed

Published: March 16, 2020 11:50 AM

Technology for MSMEs: Data centres today enable both SMEs and enterprises by providing a fertile ground for them to jumpstart and store their data locally.

data localisation, msme, small business, data security, online security, cloud dataData centres are a building block that will enable SMEs to keep their data here and adapt to data localisation.
  • By Nikhil Rathi

Technology for MSMEs: Driven by a view that data is the wealth of the 21st century and the cornerstone on which our economies, societies and democracies are increasingly built on. India advocated data localisation and it has been a topic with the most contrasting views ever since. While a number of firms both domestic and international have expressed their apprehension over this policy of containing personal data of Indian citizens within the borders of the country, groups have also vocalized their consent, claiming that data can give the nation an absolute advantage and we have missed the mark in letting all our data flow to foreign companies who hold more information about us than we hold of ourselves.

Data localisation is storing critical as well as non-critical data within the territorial boundaries of the country. This ensures that the country is not faced with a balance of bandwidth situation. Traditionally the internet was located in the western countries particularly the US. In the early 2000s, the Germans were the first to move their data from the US into Germany which gave them a benefit of not having to pull their traffic from the US and that improved their digital ecosystem locally. Improved fibre networks, new-gen technologies etc. are all required to access the ecosystem locally and all of this will develop within the country only if data is contained within the country.

The most important aspect of data localisation is having control over our own data which makes the country more resistant to issues around privacy, information leaks, identity thefts, security etc. The best example of this is China. China hosts all its data within the country. So, if any country gets into a trade war, their data is safe which gives the government more control and it’s easier to apply security measures to it, which also improves security system in the country.

A common myth is that economy-wide data localisation requirements have negatively impacted the GDP of countries. However, the truth is data localisation has mostly impacted the GDPs of countries positively. It has helped develop better control of people, better data access, better streamlining, better interaction of applications, better integrations all of which makes the nation a better digital economy. In addition to this, the investment that flows into other countries then finds their way back into the home country. For example, a large card company had to make an investment of approximately $1.8 billion in India because of data localisation. If the data was located in Singapore then every transaction data would pass through servers in India to Singapore and transactions would only be validated and maintained there. This would also increase employment in those countries. However, with data localisation, we now bring these job opportunities back to the nation.

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Big economies like the EU, China, Russia etc. have all adopted data localisation. They have their own search engines which also makes them resistant to sanctions. It has also helped the countries develop their own startups, evolve locally and also thrive in their own language. These indigenous startups then add value to the GDP of the nation. In addition to this having data stored locally keeps data colonization capabilities of other countries at bay. Another example of a positive impact on GDP is China’s internal search engine Baidu. All advertisements on Baidu add value to the GDP of the country. On the other hand, all the advertisements or Google adverts that we place all goes out of the country. 

Another common assumption is that the larger impact of restricted cloud market would be on smaller companies, particularly startups that rely on customer datasets to power their artificial intelligence models since these models are largely trained on global data as of now and switching to Indian data sets would be a challenge. With regard to the impact of data localisation on Indian startups, all data sets are normalized and there are standard. Rest APIs, data exchange protocols and data exchange models do not get impacted with the location of the data. In fact, if the data is locally located, AI engines can access it quicker. Why would a company rely on a  217-millisecond latency to the US or a 120-millisecond latency to Hong Kong when they can opt for a 7-millisecond latency due to data localisation in India. 

One of the greatest myths relates to compliance — requirements of data localisation to be too expensive for small and medium-sized enterprises and entrepreneurs with studies suggesting a 30-60 per cent rise in costs. However, if it didn’t increase costs for other countries why would it increase the costs in India. The cost of keeping data outside India will be the same as keeping data inside the country. In fact with newer hardware implemented in the country, it’s not really a cost. In some cases, there might be a marginal increase in costs. However, the efficiency of data performance when stored locally covers up for these costs. There would also be a marginal cost of bringing the data here but that is basically the cost of any lift and shift and there are OPEX models available in the country which makes it easier for countries to move their data.

Also, computing power has changed from the past that makes it easier for SMEs to adapt to the requirements of data localisation. Computing power keeps expanding. If someone invested in a compute power in the US four years ago and he invested in India today, he would possibly have two-three times stronger machines and will be able to do much better and leapfrog to better efficiency. Also, data centres today enable both SMEs and enterprises by providing a fertile ground for them to jumpstart and store their data locally. They basically act as the field for data to be sown so they can reap the benefits. Data centres are a building block that will enable SMEs to keep their data here and adapt to data localisation.

Nikhil Rathi is the CEO and Founder at Web Werks India. Views expressed are the author’s own.

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