Data PrivacyPrivacy & Data Localization: Impact On MNCs and Cloud Services

INTRODUCTION

In the modern-day economy, data is no longer an afterthought of a business, it has become an invaluable resource. It is the currency that drives commerce, innovation, and consumer confidence. In this regard, the question of where data should reside is polarizing governments, businesses, and consumer trust.

The increasing number of cyber threats, evolving geographical politics, and data privacy form a new plethora of challenges that are forcing nations to take a stricter stance on the control of data generated within their borders, resulting in the accelerated adoption of data localization laws.

India has taken a distinctive stance in this debate. The Digital Personal Data Protection Act, 2023 (hereinafter referred to as the “Act”) and the sector-specific guidelines, such as the Reserve Bank of India’s payment data directives, outline clear policies that make data retention and processing within the nation a mandate rather than a mere preference.

This approach is consistent with global models, for example, the European Union sets a brisk pace with GDPR and its cross-border data regulations, while China and USA adopt their distinctive notions of data sovereignty.

With the expansion of multinational corporations (hereinafter referred to as “MNCs”) and the advent of new cloud service providers (hereinafter referred to as “CSPs”), the challenges do not end with local compliances. Changes within MNCs and CSPs also come in business model structures, funding of physical infrastructure, and the sprint of innovation.

The need for data to remain local is reshaping the strategies of all industries, be it a fintech startup expanding to India or a global cloud data center operator.

WHAT DATA LOCALIZATION MEANS IN PRACTICE?

The fundamental matter under consideration is data localization. It refers to data storage  rules that enforce the storing and processing of data of certain kinds, such as personal data, financial data, health data, or even strategic business data, inside a particular country.

While the term seems straightforward, the global impact is quite astonishing. For multinational organizations, the concern extends to their data structure, storage agreements, and even user interface. This mainly boils down to the following three reasons:

1. Sovereignty- Data is regarded as a strategic asset in the same way as oil or electricity at one time was considered. By enforcing data localization, governments want to inhibit foreign interference and feel they are in control. The Act mirrors this mindset by permitting the government to delineate specific classes of data that may not be sent overseas.
2. Security and trust- With cyberattacks and data leaks becoming commonplace, the regulators have insisted that sensitive data must be kept within the framework of local laws for accountability. The Reserve Bank of India’s directive in 2018 that payment data be stored locally was justified with these words,” safeguarding the citizens’ financial data from being mishandled overseas”.
3. Economic opportunity- Data localization is not only about safeguarding the data. It is also about developing local infrastructure. The need for data centers, compliance services, and cybersecurity expertise has led to the creation of a flourishing industry in India. Analysts expect that the data center market in India will surpass USD 10 billion in 2026, driven in large part by localization requirements.

Opponents of data localization claim there could be restrictions on global innovation, and it could restrict the access to the internet to a country-defined narrow band of access, however from a government’s point of view, increased regulations, local job creation and trust, and stronger oversight are advantages. Because of these advantages, in 2025, data localization is no longer discussed as a policy. Now it is simply the baseline for conducting business.

HOW DATA LOCALIZATION IS RESHAPING MNC’S

From a MNC’s perspective, data localization is no longer a matter of complying with data regulations. It is now a critical and strategic issue that touches almost all aspects of their business and operations. A global bank, an e-commerce platform, or even a social media giant, all these companies are required to revisit their methods of data collection, data storage, and data processing in territories with data localization mandates.

The most immediate impact is cost. Building or leasing local data centers, redesigning IT infrastructure, and ensuring compliance with sector-specific rules can run into millions of dollars. For instance, global payment companies had to restructure their systems in India after the Reserve Bank mandated that all payment data of Indian users be stored locally. For smaller businesses trying to expand into India, such costs can be prohibitive.

Of course, building new infrastructure is only the beginning of the problems that will follow. Every market has its own unique rules and regulations which have to be followed, as well as its own systems to operate within. For example, the terms of one policy might be, say, allowed by GDPR but could be in direct opposition of the stricter Indian laws. This patchwork of laws means that businesses have to hire more people to manage compliance checks, draw up contracts, and negotiate deals rather than focus on product development.

As a result of this several large corporations are learning how to leverage localization as a difference-maker. They not only invest in region-specific infrastructure but also zealously protect customer privacy, thereby enhancing their trust with both consumers and regulators. To demonstrate their willingness to comply with regulations, a number of multinational technology firms have revealed their multibillion-dollar plans to invest in India’s data center infrastructure.

As a result, what is becoming clearer is the movement toward regional or hybrid data models. In place of one global data lake, multinational corporations are creating multiple smaller regional hubs that satisfy local compliance requirements but are also integrated with global operations.

CLOUD SERVICES AT THE FOREFRONT OF CHANGE

If MNCs are feeling the heat of localization, CSPs are the epicenter of it. Nearly every company uses cloud-based infrastructure today, whether for storage, applications, or AI-powered analytics, and localization regulations means the cloud now must conform to the limits of national borders.

A direct impact of this phenomenon has been the rise in demand for cloud infrastructure that is localized. For one, India is witnessing a race among global players like Amazon Web Services, Microsoft Azure, and Google Cloud to expand their data center footprints. Alongside them, Indian service providers like Yotta, CtrlS, and Reliance Jio are filling the gap with sovereign cloud solutions that are tailored to domestic compliance requirements.

Though cloud companies are being forced to modernize due to a lack of capacity, it is not the only thing to be concerned about. Industry cloud and sovereign cloud are real offerings cloud companies strive to provide as opposed to simply marketing their services. While a sovereign cloud ensures every single bit of data and even the support staff and services are kept within the country, adipose clouds are for healthcare and finance industries for offering easier compliance. This creates an offering to SaaS providers to both leverage and remain viable in the market.

Naturally, increased cloud offerings come with their own set of sacrifices. Localized infrastructures come with an increase in operational challenges and are more costly. Straddling regulatory ambiguity is also a problem, as compliance standards must change rapidly and what is deemed compliant now is likely to not be compliant in the near future. This is quite common in India, as legislation in some industries is very prescriptive, whereas in others, it is so vast that it is up to businesses to comply on a best effort basis.

As far as cloud and SaaS platforms are concerned, the challenges posed by the localization are outweighed by the benefits. It is attracting fresh investments, creating new collaboration opportunities, and allowing the emergence of new tailored services. For businesses, having cloud computing services in their own country enables them to better comply with cloud computing regulations without compromising the scalability of their services. It also offers peace of mind that data of critical nature is stored within the geographical boundaries and is protected by a strong cloud computing ecosystem to the regulators.

In other words, the cloud serves as the meeting point for sovereign matters, compliance, and innovation, enabling businesses to achieve their goals while adhering to regulations.

AMLEGALS REMARKS

In 2025, the debate on privacy and data localization is no longer about why but how. Governments are asserting stronger control, and businesses must adapt. India’s model, blending the DPDP Act with sector-specific rules, reflects a global move toward embedding sovereignty into digital governance.

For MNCs, localization raises compliance costs and complexity. For cloud providers, it drives investment in regional infrastructure and sovereign cloud solutions. Yet, it also offers opportunities to build trust and resilience.

The key is balance. Over-localization risks digital silos, while unchecked data flows threaten privacy and security. The path ahead lies in responsible globalization, where sovereignty, security, and innovation coexist.

With its vast digital economy and assertive stance, India will play a pivotal role. As enterprises move forward, one principle holds true: privacy and progress must advance together.

– Team AMLEGALS assisted by Ms. Tanisha Khandelwal (Intern)

For any queries or feedback, feel free to reach out to mridusha.guha@amlegals.com or rohit.lalwani@amlegals.com