Evaluating the Impact of Data Localization on Technological Innovation in India

Abstract

Cross-border data flows are playing an increasingly important role in supporting a globally digitized economy and yet, countries are attempting to regulate the flow of data through localization mandates. Using India as a case study, I critically examine the impact of localization on economic growth and technological innovation. India’s dynamic policy environment and its unique combination of a large digital economy and an emerging data center industry offer insight into how localization impacts growth and innovation in countries with relatively lower levels of digital infrastructure. Given that emerging economies are also turning towards restricting the free flow of data, this is an important context within which to study data localization. Existing studies approach localization from a macroeconomic perspective and there is a need to understand how localization plays out at a company level. Thus, I conducted semi-structured interviews with executives at various financial technology companies in India to understand the impacts of data localization. I find that there is a high level of compliance with the localization mandate across all company sizes. Additionally, companies, which only operate locally, are able to localize their data with greater ease when compared to companies with global operations. This varied impact of localization may cause multinational companies to opt-out of markets with data localization restrictions. I also identify an over-reliance on data centers located in Mumbai; this is a key vulnerability in the Indian financial ecosystem. In order to mitigate some of these identified risks, I recommend investing in increasing the availability and geographic spread of India’s data center infrastructure.Further research with more companies and in different countries is necessary to build upon my findings.