Centre for Internet & Society

Indian companies dealing with European data wait ­anxiously as the EU pushes in new security rules

The article by Arindam Mukherjee was published in the Outlook in March 26, 2018 issue. Elonnai Hickok was quoted.

Pretty soon, Indian companies, especially those associated with European companies, will have to walk that extra mile to protect personal data. Come May 25, the European Union (EU) will enact a new set of regulations, called the General Data Protection Regulation (GDPR), which will impose stringent conditions for personal data protection and privacy laws.

What’s more, any violation of or non-compliance with the new regulations will ­attract the strictest of penalties and fines. On an ­average, the new regulations call for up to 4 per cent of a company’s global revenue as penalty.

With the already huge and rapidly ­expanding field of big data play across companies and industries, data protection has come under the limelight and many countries are talking in terms of putting in place stringent rules for personal data protection. The EU will be the first off the block with GDPR, which comes into effect in less than three months. It is expected that following the EU’s ­example, similar regulations will start coming up in other countries as well.

The GDPR will replace the 1995 Data Protection Directive ­currently operational ­in the EU.

The GDPR will replace the 1995 Data Protection Directive currently operational in the EU and its regulations will cover all EU member states and citizens. Accordingly, all companies operating in the EU and having customers there, or even having work outsourced from the EU which involves its citizens’ personal data, will have to fall in line and comply.

The rules under GDPR will be relevant for businesses collecting, processing, storing, and sharing data of EU data subjects. This would include all businesses located in India providing services ­directly or indirectly to EU data subjects, as well as Indian companies with a ­pre­sence in Europe.

This has put a lot of Indian IT and ITES companies in a bind given that few Indian companies are in a position to comply with the new GDPR rules and regulations within the given deadline. GDPR neces­sitates that adequate steps have to be taken to secure EU data wherever it is stored or processed.

At present, India does not have any data privacy law. However, the government has set up a committee of experts under former Supreme Court Justice B.N. Srikrishna to look into matters related to data protection and privacy in the country. The comm­ittee has so far come up with a draft ­protection bill. But it is ­unlikely that the committee will be able to come out with its final report before the GDPR deadline of May 25.

Huzefa Goawala, who heads GRC, India & SAARC, RSA, says the impact of GDPR will be heavy on India. “A sizeable chunk of Indian companies operate out of the EU including IT/ITeS, manufacturing, financial services and telecom companies,” he adds. “The GDPR will apply to personally identifiable information and internal facing data and external facing data, and organisations will have to protect data on all these fronts. Unfortunately, very few organisations have taken measures to become GDPR compliant at the ground level and are waiting for others to make a move. Larger, tier 1 organisations are in a consultation mode at the moment and are in a preliminary stage of compliance.”

According to Ernst & Young’s ­forensic data analytics survey (2018) done among Indian companies, 60 per cent of Indian respondents are still not familiar with the GDPR, while only a little over 23 per cent have heard of it but have done nothing about it. “This puts India in a precarious position, especially because it takes time for a company to prepare for GDPR compliance, which involves identifying where all the data resides and taking measures to safeguard it,” says Mukul Shrivastava, partner, Fraud Investigation and Dispute Services, Ernst & Young.  “Many large IT-ITeS companies have sec­ure servers in the EU or on cloud. But a lot of EU data processing is either done in India or is outsourced to India. That data needs to be protected under the GDPR.”

Experts say that under GDPR, a company will have to report any breach of data security within 72 hours. In case it fails to do so, stiff penalties will be imposed. With GDPR, the EU wants to stress on how important personally identifiable information is and see what companies are doing to protect it. It calls for deployment of ground level technologies by companies to ensure data security.

To ensure full compliance under GDPR will be a difficult task. “It is not possible to check 100 per cent compliance,” says Vijayshankar Na, cyber law and international information security expert.  “There can be multiple versions of personal data in a process. To tap this data and see where all it is flowing in the system will be the toughest part under GDPR. Companies will have to identify all this in order to protect data.”

To help Indian companies, India’s IT representative body Nasscom has sought a “data secure” status for its companies from the EU. The EU has given a similar status to American companies, which ensures some concessions for them. Indian companies would be entitled to similar concessions under GDPR if they get the data secure status. But a decision on this is yet to come.

“As India has not attained data secure status, the collection, processing, storing, and sharing of EU data subjects by Indian companies will continue to be through ‘binding corporate rules’,” says Elonnai Hickok, chief operating officer, CIS (Centre For Internet and Society), Bangalore. “Though GDPR will affect any company handling EU data, the IT sector in India could potentially be impacted the most given the amount of business that it does and potentially could do with the region. For instance, a Deloitte report has estimated the outsourcing oppor­tunity of the Indian IT industry with Europe at $45 billion.”

Hickok says India’s legal regime around privacy, consisting primarily of section 43A of the IT Act and associated rules, has not been found to be data secure by the EU in past assessments. This means that unless practices are guided by binding corporate rules, the standard of practice in India is lower than required by the previous Data Protection Directive (1995) as well as the GDPR. Some of the potentially challenging requirements in the GDPR will include the requirement for reporting breaches, new standards for consent, ensuring the rights of data subjects including access and correction, portability, erasure and deletion, the right to objection, and, if the need arises,  the right to request human intervention in automated decisions.

What could also hit Indian companies is that the cost of GDPR compliance will be high—there will be costs related to human capital, periodic updates, IT infrastructure around the data (both hardware and software) and setting up cyber security and incident response programs.

“Europe is an important market for Indian companies,” says Vinayak Godse, senior director, Data Security Council of India (DSCI). “This heightened threshold of privacy may lead to some top line compromise for Indian IT companies. The compliance burden is also bound to increase. The small and mid-size companies looking at the EU as a market may struggle to comply with the new rules.”

The Indian government is trying to bring some order vis a vis data privacy and the Justice Srikrishna panel is expected to expedite the process. “The Government of India is currently developing a national data protection framework, following the Supreme Court judgment of August 2017 recognising an individual’s privacy as a fundamental right,” says Keshav Dhakad, director & assistant general counsel, corporate, External & Legal Affairs, Microsoft India. “The coming of GDPR will help galvanise the discussion in countries outside of Europe and in India.”

As of now though, there is a lot of con­fusion and Indian companies, staring at a tight deadline, are under stress. If they can speed up the process and comply, they will be safe, but if they fail, they could lose business in one of India’s most promising markets.