Approval would see flow of European IT outsourcing to India

Apr. 16 – The Indian government is asking that the European Union lift restrictions on the flow of outsourcing business to India by designating it as a data secure country. India is not currently included in the list of countries considered data secure by the EU, thus preventing the flow of sensitive data (such as patient information for telemedicine) to India under EU data protection laws. The issue has been taken up by New Delhi in the bilateral free trade agreement being negotiated, which includes an extensive chapter on the free flow of services.

“Recognition as a data secure country is vital for India to ensure meaningful access in cross-border supply,” a government official told the Economic Times. “We have made adequate changes in our domestic data protection laws to ensure the high security of data that flow in.”

The EU Data Protection Directive requires member countries to ban the transfer of personal data to a non-EU country unless the nation ensures adequate privacy protection. There is an exception to the directive that allows outsourcing to non-data secure countries by adhering to standard contractual clauses that place strict obligations on both parties to ensure privacy of data, but these are onerous and considered as disincentive for business.

Globally, about 42 percent of IT spending comes from Europe, the Middle East and Asia. Lifting of data flow restrictions can boost trade manifold for India’s US$100 billion IT-BPO industry, 30 percent of whose exports are to the European market.

“The standard contractual clauses do make life complicated for us. We have been trying to tell the EU that the content of regulation should be important and not the fact that they should match EU’s specific way of doing so,” said Kamlesh Bajaj, CEO of the independent self-regulatory organization Data Security Council of India.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in India. For more information, please contact india@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.