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Why is Data Localization Essential?

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The time-old cliché “data is the new gold” rings truer than ever. Data is essential to the operation of the digital economy. In addition, data centers are used to store, manage, and analyze data. Since the data center ecosystem in India is flourishing, a “National Data Centre and Cloud Policy” is urgently required.

The process of “data localization” may be defined as the act of limiting the transfer of data outside of its place of origin for compliance purposes. Seventy-five percent of the world’s countries now have some kind of data localization regulation in place. These constraints heavily impact data structures, IT footprints, and contacts with local authorities. So, what is a data center, and why is it significant to India’s data localization strategy?

What is data localization?

Data localization is the policy of restricting data flow out of a country. As part of the localization process in India, businesses that acquire sensitive customer information will be obligated to keep it in data centers physically located inside the country. The Indian government has made a case for data localization because it would secure people’s personal and financial data from international monitoring and give domestic governments and regulators the authority to request such data when necessary.

In early 2018, the Reserve Bank of India ordered businesses to store and handle sensitive information on Indian customers of different digital payment systems locally, sparking widespread interest in the concept of data localization. Until then, the vast majority of India’s data had been residing in a cloud database in another nation. While localizing data is still feasible, it is more difficult to do it in a cloud environment.

Why do we need data localization?

Fig 1: Why do we need Data Localization

As the digital economy in India grows, four major issues have arisen about the free movement of information. Here are some of them:

  • Data is stored on foreign servers, which limits its accessibility by local and national security services.
  • If foreign companies are able to make better use of collected data, it might have a negative impact on the economy.
  • Apprehension about spying from other countries
  • Misuse of private information is a serious breach of confidentiality.

The Indian government and other autonomous organizations have passed many sector-specific laws restricting free data transmission under certain circumstances to address the above-mentioned issues. For instance, in India, the Reserve Bank of India requires all financial records to be kept on Indian soil.

The telecommunications industry has also been the target of sector-specific regulation. The law restricts the transfer of subscriber account information and mandates that all subscriber data be stored and processed locally.

The government of India has established many policies that have helped advance data localization efforts, which have benefited all parties involved. The benefits of data localization in India will be discussed below.

Benefits of Data Localization

Fig 2: Data Residency, Data Sovereignty, and Data Localization. 

Image source: blogs.sap.com

Benefits of Data Localization

  • A rise in consumer demand is anticipated due to data localization, leading to a rise in the need for additional data center infrastructures to be built throughout India. As a result, demands for data storage and related infrastructure will rise. Domestic solutions will hopefully meet a portion of the total requirements.
  • If private information about Indian residents and businesses is maintained in the country, it will be easier to access. Because of this, the government and intelligence agencies may have easier access to the data, allowing for faster detection of illicit actions. Assuming they have a valid reason to do so, of course.
  • As a result of having to pay for data storage and processing infrastructure, international corporations would be at a disadvantage in comparison to Indian domestic firms if the government implements mandatory data localization legislation. These enormous capital expenditures may erode their early competitive advantage over Indian firms.
  • More Effective Security and Law Enforcement Localized data center design will aid law enforcement in gathering sensitive information on anti-social elements and taking punitive action to bolster security and uphold the rule of law. There is greater data security oversight if one nation keeps all its data. After all, the nation has established digital and physical security standards that all businesses must meet.
  • With domestically hosted servers, information is easier to access in many situations since it is closer to where people live. Simple upkeep is another benefit of having local storage. For businesses, this has benefits, including making it simpler to do routine maintenance on data center infrastructures. The data’s physical protection may be monitored more closely.
  • Data saved inside a country’s borders is easier to obtain than data stored outside. Having access to data may help with various tasks and issues that arise in daily life, such as discovering the source of data or seeing an outlier in an otherwise steady stream of data.

Business Benefits of Data Localization in India

With data stored locally, we may enjoy faster speeds and less lag time on the network. In addition to storing data locally, significant market drivers, such as the expansion of cloud computing, user data, e-commerce, etc., allow organizations to get top talent at reasonable prices and improve their operational efficiency. The cost of everything from labor to property to internet access is at least 60% lower in India than in the United States or Singapore. And in the modern corporate world, data localization is a must-have. It aids them in areas such as centralized administration, the removal of obstacles, increased profits, data storage and management, security, and explosive expansion. In this pandemic-driven age, there is an increasing demand for data center services on top of the already-rising prevalence of remote work.

Data localization

Fig 3: Business Benefits Data Localization.

Image source: Hlavka, Jakub & Triezenberg, Bonnie & Graf, Marlon. (2016). Strong Winds Ahead for Cloud Computing: Can Data Localization Threaten Future Growth?. RAND Blog.

Does data localization ensure privacy?

Data privacy is affected by a wide variety of circumstances, making user protection a challenging problem to solve. For instance, even if data is stored locally, there is no guarantee that encryption, which is essential for privacy, will be used. Data localization is meaningless if a website doesn’t employ encrypted HTTPS. Thus, it doesn’t matter whether a person visits a site that maintains their data within the same area. Similarly, data localization would not prevent a corporation from selling data to other parties within the same area, which might be considered a violation of privacy. Neither would it safeguard against leaks of sensitive information due to insider threats.

Disadvantages of Data Localization

  • Lack of trust: Various jurisdictions throughout the world have varying standards for protecting individuals’ personal data. Problems arise when people in a country don’t trust their government with their personal and business information, and that lack of trust fuels discontent. A rise in conflict is possible if these nations demand that companies keep data on servers inside their borders.
  • The price attached: Data center infrastructure does not come without a price tag. Maintaining and keeping tabs on sensitive information is an expensive endeavor. There are certain countries that do not have access to the type of high-speed internet connection that is required in order to construct data centres. As a result, it is advantageous for these nations to archive their information in other locations.
  • Technological prowess: Companies in countries with less-developed technology infrastructure might benefit from storing data in other countries. Consequently, a business has control over the location and method of data storage and protection. One way to do this is to use superior technology that is available in another nation. This won’t be possible if the government passes legislation requiring data to be kept entirely inside the country.


A reliable data center infrastructure may be an asset to any company’s IT department. This is why data center services will become more critical to the future prosperity of contemporary businesses. If authorities draft rules taking into account the societal and economic shifts occurring in India and throughout the world, localizing data centers in India may provide numerous practical advantages.

Learn more about STL’s Data Centre Network Services here.


1- What is Data Digitization?

Data digitization is when you are translating something into bytes and bits, such as scanning documents or photos. In the process, the data is not altered, but only the encoding is changed into a digital format. It is better known as the analog to digital conversion process of the existing documents or data. Thus, it is also called digital enablement. 

2- Does data localization ensure privacy?

Data localization is the approach where both critical as well as non-critical data is stored within the territorial boundaries of your country. The best thing about it is that you will have your control over the data that you own. Thus, there is no possibility of any privacy issues, identity thefts, security breaches or information leaks. 

3- What is Data Residency?

Data residency is the terminology used for describing the physical location of a company’s information or data. Data residency abides by the laws and regulations specified by the concerned authorities upon handling data. Data residency rules are applied when some business makes use of a foreign SaaS or cloud service provider. 

4- What is Data Sovereignty?

In simple words, data sovereignty explains the rules and compliance regulations that the data should abide by. It states that the country laws will be applicable onto the company’s data, irrespective of whether it is stored within the country boundaries, or overseas. It is an important rule, because this helps the countries protect the confidential data of companies and citizens. 

5- What is Data Localization? 

Data localization is the idea of storing the data within the region of its origination. For instance, if a company is collecting data within the UK, then the data localization aspects state that the data will be stored only in the UK, without being transferred to other countries. It is implemented to restrict the free-flow of critical data across various geographic boundaries.

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