The Draft Data Centre Policy 2020 is much needed for the digital economy, but could benefit from single window clearance, economic incentives and protections against misuse of data, writes PM Devaiah

The Draft Data Centre Policy 2020, recently announced by the Ministry of Electronics and Information Technology, holds early promise to bring about the right directions in an emerging market for data centres. The policy document states that the value of the country’s digital economy will be about US$1 trillion by 2025. The growth of the digital population in India, and the digital economy, necessitate the strong expansion of data centres to fulfil these demands.

PM Devaiah, vice chairman, group general counsel, Everstone Capital
PM Devaiah
Vice chairman, Group general counsel
Everstone Capital

The Personal Data Protection Bill, 2019, and the Draft Data Centre Policy 2020 are classic examples of complementary lawmaking to address an emerging area of the digital economy, and concomitant regulation in a holistic manner. From an international perspective, the mandates on data fiduciary, as to how personal data should be processed and stored, and obligations regarding people’s rights with respect to their personal information, provide credibility to data centres located in India.

The policy’s stated vision proclaims to make India a global data centre hub, promote investment in the sector, propel the growth of the digital economy, and provide trusted hosting infrastructure to fulfil the growing demand of the country and facilitate state-of-the-art service delivery to citizens.

While such a vision is encouraging, it could have been even more facilitative in terms of expedited resources such as infrastructure, single-window clearance (processing through a single authority) and economic incentives. Separately, the mission statement states the obvious and could have been more progressive with a proclamation to expedite reforms, rather than endure the customary regulatory reforms timescale that we are familiar with.

One aspect that merits attention in the policy document is a roadmap to de-stress the urban landscape of India. Tier 2 cities, or de novo satellite towns on the periphery of metros, could be developed into new data centre hubs, unclogging already stressed metros and creating employment in such areas. Rewarding the torch bearers of such a de-clogging initiative with incentives would be embraced by the industry and citizens as a proactive measure.

While the policy makes a statement about protecting the country’s digital sovereignty, it is silent as to exactly how this would be protected. For example, the level of foreign investment and local component, the checks and balances for data breaches, and illegal proliferation by vested interests are all to be addressed in a manner that does not trample upon the ease of doing business, while keeping safety and security aspects in mind.

The stated goal of strengthening the “Atmanirbhar Bharat” (self-reliant India) initiative by identifying possible opportunities for manufacturing data centre equipment with participation from micro, small and medium-sized enterprises (MSMEs) and startups will serve as a catalyst to rejig the covid blues, at a certain level at least.

The present business climate mandates daring regulatory announcements laced with unconventional and bold reforms that shun the traditional shades-of-grey approach, to draw the attention of the investment community from the international arena and other stakeholders. For example, the policy states that the central and state governments shall formulate their respective schemes and guidelines detailing fiscal and non-fiscal incentives in this sector, to enable further expansion of data centres in the country.

While diversity is a virtue in a nation like India, a certain level of consistency and predictability of state-level regulation-making is welcome. High-stake announcements that rattle the cage and lighten the bureaucratic baggage will probably work well. Why not, for instance, uncork the extant three-year lock-in period for transferring a foreign direct investment (FDI) land parcel without having to complete the trunk infrastructure, if the transfer is to a data centre?

If the lock-in period is such a holy grail, the transferee data centre project could take on the uncompleted part of the lock-in. This will summarily create a healthy land pipeline and provide an impetus for launching greenfield data centres, circumventing the painful process of land acquisition that businesses are accustomed to suffering in India. There is already a mention about infrastructure status for data centres, which is inevitably needed, and there should be no turning back from this.

The policy frequently mentions centre and state co-operation. This can at times be a tricky point in Indian polity, particularly if the respective political dispensation governing the two levels of government are different. A recent example of this is when a few states objected to FDI in multi-brand retail, while others agreed to it.

Such political dichotomy can undermine a pan-India regulatory rollout, and must be addressed upfront to achieve unity of purpose. This challenge will be magnified when projects suffer due to non-availability of good real estate with a clean title, local approvals and needless land-related litigation. Land is a state subject, and anyone with experience of acquiring or aggregating land in India would only have frustrations to share.

It is also worthwhile noting that the policy from the Ministry of Electronics and Information Technology provides for enabling a favourable ecosystem for the operation of data centres. One of the stated goals is to encourage the use of renewable energy for data centres, be they solar or wind-powered, by collaborating with the Ministry of Power on their various green and sustainable energy initiatives.

The missing piece in the policy are the brownie points that could be harvested in the form of concessions and tax rebates for such an initiative. Green energy is here to stay, and government support is needed to sustain such an initiative. Redeemable or transferable green coupons, or something like transferable development rights, would be encouraging to reap the initial benefits for greenfield projects. The policy rightly addresses the issue of not only quality power, but also cost-effective and uninterrupted power supply. Such granular policy framework is operationally promising, and puts the policy on a very high pedestal.

Interestingly, the policy sets out to encourage joint ventures between foreign investors and domestic companies to promote the participation from Indian companies in the development of data centres, the endeavour here being to enable long-term capacity building of domestic companies operating in this space. The policy rightly talks about promoting the setting up of R&D units to create an ecosystem that will promote the development of data centre components within the country.

Conventional wisdom and the benefits of scale suggest that R&D could be a community corporate social responsibility (CSR) initiative for a regional conglomerate of the above-mentioned joint ventures that can harness capital and technology on a collective basis for common good. Consequently, while the larger R&D piece pursues a commercial objective, the CSR part could be an ancillary of it. Such a community initiative will achieve scale, promote sector homogeneity, and increase the longevity and viability of R&D efforts.

Once enacted, the data protection law will guard the gates. But the policy must additionally explore a framework for checks and balances for the protection of data from misuse, confidentiality and privacy issues, and provide the ability to quickly mine data by investigating agencies for law and order purposes, with adequate safeguards against misuse.

The policy should have adequate provisions to prevent cartelization and monopolistic play to the detriment of consumers, and set out standards for quality and specifications of equipment. It also needs to examine if there is any need to treat domestic and international data differentially, from a security and protection of information angle.

Summing up, the policy initiative by the e-governance division of the Ministry of Electronics and Information Technology is a timely endeavour. India should make its mark in presenting itself as a safe and convenient data centre hub for the Asia-Pacific region, and then strive for global outreach.

PM Devaiah is the vice chairman and group general counsel at Everstone Capital.