India: What the European Union's data protection rules mean for your business

Last Updated: 18 September 2018
Article by RV Anuradha
  • The General Data Protection Regulation sets down the minimum standards for processing of personal data of EU citizens, and strict conditions that need to be satisfied for any cross-border transfer of EU data.
  • Data protection laws in the EU have always been an important agenda item in the India-EU negotiations for a free trade agreement (India-EU FTA) since 2007.
  • If India's data protection law matches EU's adequacy test, it could potentially have significant benefits for the export of Indian IT services.

The General Data Protection Regulation (GDPR), a law enacted in the European Union (EU), comes into effect tomorrow. It sets down the minimum standards for processing of personal data of EU citizens, and strict conditions that need to be satisfied for any cross-border transfer of EU data.

The law will therefore have implications not only for businesses within the EU, but for any company outside of the EU that processes consumer data of EU citizens.

The IBEF estimates that India's IT industry constitutes 7% of the global market, and most of this is constituted by India's services exports.

IBEF further estimates that India's market share globally in the services sourcing business is around 56%, and in the Business Process Management (BPM) sourcing segment is 38%. Our most important market continues to remain the US, which represents 62% of India's exports in this sector. India's modest share of exports in the IT services market of the UK (estimated at 17% of India's exports in 2017), and the rest of the EU (estimated at 11%) has often been attributed to the stringent data protection laws in the EU.

The GDPR was preceded by the Data Protection Directive of 1995. The main difference from the earlier framework is that the GDPR significantly strengthens the rights of individuals, as well as paves the way for greater collaborative/concerted actions by regulators across the EU. It also strengthens enforcement actions, with the maximum fine reaching up to €20 million, or 4% of the worldwide annual revenue of the concerned company.

The India Connection

Data protection laws in the EU have always been an important agenda item in the India-EU negotiations for a free trade agreement (India-EU FTA) since 2007. With the new GDPR coming into play, data protection continues to have a crucial role in the negotiations. The UK, after Brexit, is also expected to continue its implementation of a law similar to the GDPR. Cross-border flow of information of consumers for processing by Indian IT service industries, therefore, will hinge on preparedness to adhere to the rules of the GDPR.

The underlying premise for cross-border data transfers of personal data from the EU to occur, whether under the earlier law or the GDPR, continues to remain the same: the jurisdiction in which the data recipient is located, needs to provide an "adequate" level of data protection.

The list of "data adequate" jurisdictions in the pre-GDPR phase included Andorra, Argentina, Canada (for organisations that are subject to Canada's PIPEDA law), Switzerland, the Faeroe Islands, Guernsey, Israel, Isle of Man, Jersey, New Zealand, and Uruguay. This will continue till further review of enhanced compliance as required under GDPR is met.

At the same time, the GDPR also provides a concrete framework for working out innovative solutions in the absence of a recipient country's entire legal framework standing up to the 'adequacy' test. This includes:

  1. National public authorities in the EU can enter into MOUs/agreements with similar authorities in a third country, to lawfully transfer data between themselves on this basis. The further processing of such data by an Indian IT services company, can be facilitated as a result of such an agreement.
  1. The GDPR provides for the requirements and procedures for "Binding Corporate Rules" (BCRs), for enabling companies within the same group to share information with their subsidiaries located in third countries.
  1. Contracts for data transfers to entities outside of the EU can incorporate model clauses approved either by the European Commission or the national authorities of EU member states.
  1. The GDPR also envisages approved "certification schemes" and codes of conduct based on which cross-border data transfers can occur.

Implications on IT Sectors

While mechanisms such as BCRs existed under the earlier EU data protection law, their actual utilisation was impeded by the time taken for approvals. The main difference is that the GDPR provides for clear requirements and procedures, which should, theoretically, enhance certainty and predictability in the approval of such rules. Similarly, the use of model clauses has also been streamlined further under the GDPR. Certification schemes are a new concept, and its actual implementation remains to be tested.

With the US policies towards outsourcing and IT services imports going through a phase of flux, the need to ensure greater regulatory certainty in other export markets assumes a higher degree of significance. A significant difference between now and 2007 when the India-EU negotiations commenced, is that India today is at the cusp of having its own data protection regulatory framework.

After the landmark Supreme Court ruling that privacy is a fundamental right, the BN Srikrishna Committee constituted to develop India's framework law on protecting data, is expected to circulate the draft law for discussion soon. If such a law matches EU's adequacy test, it could potentially have significant benefits for the export of Indian IT services.

In the interim, the onus will be on the government and industry to ensure that the flexibilities provided under the GDPR are utilised to the maximum extent possible for ensuring concrete outcomes.

Originally published by CNBC TV18, May 2018

RV Anuradha is partner, Clarus Law Associates, New Delhi, and specialises in international economic laws

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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RV Anuradha
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