Why Foreign Portfolio Inflows Could Restart Soon
Indian stock markets have been a relative returns disaster this year, according to Christopher Wood, global head of equity strategy at Jefferies
On Episode 727 of The Core Report, financial journalist Govindraj Ethiraj talks to Paul Gruenwald, Global Chief Economist at S&P Global as well as Nikhil Narendran, Partner – TMT (Technology, Media and Telecommunications) at Trilegal.
SHOW NOTES
(00:00) The Take
(05:00) Why FP Inflows could restart soon
(11:01) Trump starts rolling back tariffs on food products as inflation bites
(12:11) The shocking fact about US GDP Growth
(25:57) The latest DPDP rules will mean sea change for consumer facing company operations
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Good morning, it's Monday the 17th of November and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
The Take
The government of India last week withdrew quality control orders or QCOs on key industrial materials spanning textiles, plastics and mining applicable on their imports into India. QCOs are mandatory Bureau of Indian Standard certifications for these products, which means each category or subcategory of product or importable commodity has to be certified as meeting Indian quality standards at source, a highly expensive and cumbersome process.
So if you want to import steel into India from a factory in China, then that factory has to be certified by the quality inspector here. There is of course much more to this, but that's largely the point. Now this is in effect a non-tariff barrier on imports and is a millstone around India's downstream manufacturers, essentially millions of small and medium enterprises making the goods that most of us eventually buy and use, including at home.
Such QCOs exist in many countries but there seems to have been a certain recklessness with which they were issued if nothing else. The numbers ballooned from 70 to 790 QCOs in the last decade. Now the QCOs are also a good indicator of how policy capture by business, whether intended or unintended, has evidently led to some companies benefiting at the cost of others.
Leading the pack is Reliance Industries. A report put out over the weekend by Delhi-based trade policy tracker Global Trade Research Initiative or GTRI says the Mumbai-based oil-to-chemicals giant dominates terephthalic acid or PTA, monoethylene glycol or MEG, polypropylene PP or polyethylene, and the wider polyester value chain. In the Reliance Industries case, many of these QCOs are believed to have been in effect since 2023.
Other companies have benefited too, like state-owned Indian Oil and Gale, which are polymer manufacturers. Likewise, Finolex Industries and Chemplast Sanmad lead in PVC, while Indorama, Filatex, JVF Industries, and Vardhaman are prominent makers of polyester yarns, according to the GTRI report. There are other examples in metals as well.
Now, there are import duties or tariffs on all these products too, which keep raw material prices high for downstream industries here. But that's a slightly different battle as QCOs were ensuring that raw materials could not be imported easily or sometimes not at all. Now, the withdrawal of those QCOs comes on the back of considerable pushback by user industries and more recently recommendations of a high-level committee headed by the government's Neeti Aayog member, Rajiv Goba.
The Confederation of Indian Textile Industries somewhat sums up the reaction of downstream industries when it described the government's decision as a pro-growth measure and a long-standing demand of user industries. The Business Standard quoted Citi's chairman Ashwin Chandran saying polyester fibre and polyester yarn form most of the man-made fibre products and hence this measure by authorities could contribute to the growth of the man-made fibre segment in India. It also said that removing QCOs would improve the cost competitiveness of Indian textile and apparel products and it makes it easier to obtain raw materials at internationally competitive prices.
Interestingly, even GTRI does not argue for a full ban on QCOs, acknowledging that they are needed, but says that they must be exhaustively researched as other countries do before imposing them and doing so usually takes a much longer time than it has in many of these recent cases. It also points out that major economies do not impose mandatory national certification on industrial inputs like polymers or metals as we just discussed. Looking back, it's a little unfortunate that India managed to erect and raise so many non-tariff barriers at a time when it should be dropping both of them, that is tariff and non-tariff barriers.
While India, like many countries, faces dumping of excess capacity by Chinese industry and possibly even poor quality exports, that's unlikely to have been the case all the time. Importantly, a competitive domestic manufacturing industry, whether in raw material or final good manufacturing, would be better placed to take on international competition, particularly in this precarious post-Trump world. The Trump tariff wars may ease off soon, going by the most recent moves to bring down tariffs on food items and fresh deals with countries like Switzerland.
There is no doubt that tariffs are now beginning to hurt American consumer wallets and the ruling Republican party's electoral prospects. But India must continue to draw the right lessons from the new trade wars in reducing barriers and making domestic industry truly competitive and world-class. In an industry can surely supply and is supplying the bulk of the raw materials for downstream industry needs, whether it's stainless steel or plastics, but it must do so at prices that are globally competitive and thus make the nation more competitive as well.
And that brings us to our top stories and themes…
Why foreign portfolio inflows may restart soon.
Trump starts rolling back tariffs on food products as inflation bites.
The shocking fact about U.S. GDP growth
And the latest DPDP rules will mean sea change for consumer-facing companies.
Foreign Portfolio Investments
Indian stock markets have been a relative return disaster this year, according to Christopher Wood, global head of equity strategy at Jefferies, who said so in his weekly note to investors' greed and fear.
Now, this is, of course, not a new point, given that Indian markets or at least the benchmarks have mostly been stagnant when viewed from the peak of September 2024. And then other markets, including across Asia, have done much better, also thanks to hot new investment themes like AI and biotech. Wood said in a report quoted in Business Standard that India has only been a relative return disaster this year in terms of underperforming the MSCI Emerging Markets Index by 27 percentage points to date, that's year to date, as opposed to an absolute return disaster.
Now, this is because of the continuing remarkable resilience of domestic inflows. Interestingly, he also points out that the biggest risk to the bottoming out of the rupee is the continuing resort to handouts in state election politics, which have been a feature for the past two years. He says that the growing populism at the state level is reflected in a fiscal situation which looks much healthier at the centre than at the level of the states.
He also says that in the absence of such an anticipated cyclical pickup, Indian equity valuations in aggregate will be increasingly vulnerable. And still, one area, he says, where valuation looks attractive is property. Now, the question, of course, is what could bring foreign portfolio investors like Jeffries back into the markets in a much bigger way, particularly secondary, because many portfolio investors have been somewhat active in the IPO market at a smaller scale.
A report by Garima Kapoor at Elara Security says that while a significant part of foreign portfolio investment outflow has been attributed to lack of pure AI plays or artificial intelligence plays in India and rising geopolitical uncertainties, their assessment, looking at the last 15 years of data, suggests that the key factor influencing foreign portfolio investor appetite for Indian equities is nominal GDP growth, which has shown historically a strong correlation with foreign portfolio investment inflow cycles. According to them, five peak to trough FPI cycles since 2010 align closely with India's nominal GDP cycles. And weak U.S. dollar or U.S. rate cut support inflows only when nominal growth is robust or Indian equities trade at a relative price to earnings ratio below 1.6 times versus emerging market peers.
So what they're saying is that a relatively low nominal GDP growth that's below India's 25-year average of 12% attracts flows only if India's equity market is trading below 1.6 times versus MSCI emerging markets. Only once in the last 15 years have FPI flows been sizable at relative price to earnings of greater than 1.6x. Also, the report makes a strong case for financials leading the FPI recovery. According to them, they feel that a recovery in FPI appetite in Indian markets will be led by India's financial sector, which has seen a lot of deregulation by the Reserve Bank of India, which has created a tailwind for uptick in credit growth alongside GST cuts, tax rebates, and cooling inflation.
Meanwhile, India's equity benchmarks ended the week higher on Friday thanks to IT and pharma stocks. The U.S. government has now reopened and domestic earnings are looking up as we've been discussing, and the ruling NDA government won a clear majority in the state of Bihar. The election results did not have much of an impact on the markets as the outcome was seemingly and mostly priced in.
The Sensex recovered almost 530 points from a day low on Friday to close 84 points higher at 84,562. The Nifty 2 recovered, finally closing 30 points higher at 25,910. Both indices were up about 1.6% last week.
Now, the question of where AI stocks are going continues to haunt the global markets. The latest episode of fragility started last week when shares of some of the sector's leading lights lost ground, according to a report in the Wall Street Journal, which says that AI Expo's stocks fell on Tuesday when Nvidia lost about 7% and then slipped another 3% on Tuesday, and thus has fallen below its $5 trillion market cap milestone which it hit last month. The Wall Street Journal says that even companies that have posted strong financial results, like meta platforms, have fallen and the meta stock has fallen nearly 17% since its third quarter report about two weeks ago.
Palantir, the other AI software company which had hit a price-to-earnings forward ratio of about 250, is down 8% since its fairly strong earnings Monday, according to the Wall Street Journal. The larger point, the Journal says, is that there is far more AI computing infrastructure spending than there is AI revenue and that gulf is widening by the day. OpenAI, for example, the Chad GPT company, says it's planning to spend about $1.4 trillion in the next eight years but is only doing about $20 billion of annual revenue today and it lacks a clear business model to reach the hundreds of billions it needs within the next few years to keep the spending growth going.
OpenAI is already projecting that losses will rise to $74 billion by 2028. CEO Sam Altman of OpenAI said last week that the spending was understandably causing concern and pointed to his plans to boost revenue with new consumer devices, robotics efforts, and an AI cloud computing device, none of which, according to the Wall Street Journal, exists right now. Another source of concern is the high amount of leverage or debt which the AI players are pulling in.
Oracle did a $300 billion deal with OpenAI in September to supply it with AI computing power but it also raised $18 billion through a bond sale the same month. Analysts say that this is a taste of what's coming in terms of a growing pool of debt tied to data centres. AI-related companies have already raised about $139 billion through corporate bonds this year as of last month, according to Goldman Sachs, which is about 9% of all investor-grade issuance and 23% over last year.
Trump Rolls Back
President Donald Trump on Friday lowered tariffs on beef, coffee, and dozens of agriculture and food products, which obviously means a sharp rollback of the so-called reciprocal levies, even as Americans have started complaining about rising cost of living and inflation. Trump issued an executive order modifying reciprocal tariffs that were imposed on almost all trading partners in August, exempting more than 100 common food items, including fruits, nuts, and spices. As we discussed in the core report the other day, Trump and his team have surely and steadily begun walking back, possibly focussing first on areas where the hurt is greatest first.
The newly exempted products on Friday include many products commonly produced in the U.S., such as beef, which has risen to record prices in recent months, according to that Wall Street Journal report. Trump's decision comes after much debate within the administration on how to respond to voter dissatisfaction over the cost of living and, of course, that November election where Democrats swept aside GOP candidates with an affordability message, according to the Wall Street Journal.
The Shocking Number
Data centres and related high-tech investment activities have become a key driver of U.S. growth.
Current estimates suggest that 80% of the growth in final private domestic demand, that's GDP, less net exports, government, and inventory in the first half of 2025 came from data centres and high-tech-related spending. This development, says S&P Global Ratings in a just-released report, is quite astounding. The report says that a large and growing proportion of hardware is imported.
Imports of computers and peripherals increased nearly 60% in the past year, and that, of course, links to the overall increase in spending on data centres and high-tech industries. Still, even as the boost to GDP from hardware investment is offset by imports, the related outlays in domestically produced software research and development, as well as structures investment in data centres and power supply, are helping to lift GDP growth. So what does this mean? In an exclusive interview, I spoke with Paul Gruenwald, Global Chief Economist at S&P Global Ratings, based out of New York, and I began by asking him about, first, the overall economic global growth picture and how data seems to be suggesting that the global economy was not buckling under the pressures of the tariff wars, and then, of course, how data centres were driving GDP growth.
INTERVIEW TRANSCRIPT
Paul Gruenwald: Well, first, I think we generally agree with that assessment. Back in April, when the Liberation Day tariffs were announced, we lowered our global forecast, we were pointing to the risks around U.S. policy uncertainty, and we were very worried about the effects of the tariffs on activity generally. As it turns out, those tariff effects were smaller than we thought originally for a couple of reasons.
First, the tariff rates themselves are lower than the original announcement. On Liberation Day, we got some originally high numbers from President Trump, but most of those were negotiated down. I think India and Brazil are the current important exceptions to that.
Also, there was not a lot of retaliation. We expected countries to push back a bit on those U.S. tariffs and proposed counter tariffs, and with the exception of China, which was largely successful in doing it, most countries didn't push back. And then we've also seen a very slow pass-through of those tariffs to consumer prices.
When we put all of those together, we've taken some of those downside risks off the table. I know we're going to talk about AI and data centres in a minute, but now we seem to have some tailwinds on the global economy, not just the investment boom, but also lower energy prices and easy financial conditions. So, in the span of two quarters, we've really gone from a somewhat gloomy outlook to a somewhat more optimistic outlook.
Govindraj Ethiraj: Right. Economists, independently, as well as who were part of, let's say, leading investment banks, were also projecting that maybe there was a lot of front-loading that had happened in exports into the United States, which is why prices were down and it was not really reflecting. So, now it's almost eight months.
My first question is really, was there front-loading or not, just by looking at the data? And secondly, if we were to look ahead, assuming these tariffs stay, how do things look?
Paul Gruenwald: There was definitely front-loading. It's very clear in the data for the U.S. So, in the first quarter, we saw a massive surge in imports as firms tried to front-run the tariffs. And we also had a buildup of inventories as they warehoused those goods.
And the first quarter growth was actually negative because, as we know, imports subtract from GDP. Then we got a big bounce back in the second quarter, growth of close to 4%. So, when we look at the first half of the year as a whole in the U.S., growth was around 1.5%. And that's in the ballpark of what we were expecting. We think the tariffs themselves are digestible. That's the term my team used as we were doing our forecasts earlier this year. What was really dampening investment and discretionary consumption spending was the policy uncertainty.
And that's not just around tariffs in the U.S. It's kind of international policy more generally and labour market policy around immigration. And then later down the road, H-1B visa. So, there's still just a lot of anxiety in the U.S. that the environment's not conducive for longer-term consumption and investment. But, you know, the tariffs themselves look like they've settled down and it's largely manageable. So, I think we've gotten through the worst of that so far. And then, as I mentioned earlier, growth looks like it's picking up again.
The third quarter looks strong until we stop getting the data. So, we're awaiting the final word on third quarter GDP in the U.S. But the now casters and the various real-time trackers were pointing to growth again, 3% to 4% annualised in the quarter. So, quite strong and definitely above trend.
Govindraj Ethiraj: I'm going to come back to the rest of the world in a moment. But let's talk about the report that you recently put out on the overall spending on data centres and its relation to driving GDP growth. Now, one of the points that you've made in this report is that almost 80% of the growth in final private domestic demand, that's GDP less net exports, government and inventory, in the first half of this year came from data centres and high-tech related spending.
And you also said that this is an astounding development. Another way of looking at it is it's also a frightening development, isn't it?
Paul Gruenwald: Well, it's definitely positive, right? If we've got a data centre related investment boom driving 80% of spending, that's going to obviously lift the growth numbers. Our view is also that this is masking some underlying weakness in the economy.
So, I'll give you three points to focus on there. One, if you look at the labour market in the U.S. by sectors, the only sector that's really adding jobs right now is healthcare. We're losing jobs in government.
We're losing jobs in manufacturing. And we're also losing jobs in tech, despite the build-out of the data centres. So, the labour market foundation is quite narrow.
Same story for investment. We talked about the uncertainty around policy in the U.S. a few moments ago. If you look across all the types of investment, the only one that's increasing right now is investment around data centres.
All the other investment categories are flat negative. And then if you look at the consumption story, and let's remember that the U.S. is a consumption-driven economy where household spending drives more than two-thirds of GDP. The top 10% of households in terms of income and wealth are driving about half of the spending.
So, if you look at the labour market, the business investment, or just the broad consumption picture, we're on a pretty narrow foundation. So, in that sense, we're a little bit worried that we're very dependent on data centre investment right now and high-income earners to drive continued growth.
Govindraj Ethiraj: If I were to extend my previous question on if it's frightening. So, maybe it's a little early to forecast, but where could this end?
Paul Gruenwald: You know, generational jump in investment around data centres. And by the way, this is not just the physical buildings, the data centres themselves. We have to add in the hardware, which are the racks and the mainframes, and then the software, which are the LLMs, the large language models that the hyperscalers are driving, plus the energy.
So, there's a couple of dimensions here. We're starting to hear more stories in the press about the possibility of a bubble. So, I think the focus is on the very elevated price-to-earnings ratio.
So, all of these massive investment by these hyperscalers at some point are going to have to generate earnings to justify those asset prices. And then from a macro side, they're also, hopefully, going to generate some productivity gains and higher growth. So, those are the kind of risks we're looking at.
We are currently in a forecasting round, and we'll be publishing in a couple of weeks, and we'll contain some of that material. But I think a downside scenario in the next year or two is that the hyperscalers, in fact, do not deliver some of the earnings that are priced in right now. So, we would have an equity market correction, and then to the extent debt is involved, maybe some stress in the credit markets.
That's certainly not our downside right now, but it's a risk we're going to be watching because, again, we've had a very large amount of investment in a very short amount of time with high expectations around earnings, and we'll have to see how all of that plays out.
Govindraj Ethiraj: Just to come back to that 80% figure, is there any contrast with any such period in the past where we've had one sector or one category driving so much of investment? And, of course, the next question would be what happened then?
Paul Gruenwald: Yeah, well, I think we're all searching for analogies or parallels, right? One way to think about this is the digital equivalent of the interstate highway system in the U.S. So, as we all know, back in the 1950s, when Dwight Eisenhower was president, there was a massive buildout of the interstate highway system connecting all of states and municipalities and ports and everything else in the U.S. This is kind of the digital equivalent of all of that. These data centres are popping up all over the country, on the East Coast, in the South, on the West Coast.
And the first one was a public sector-driven investment programme, and this is a private one. So, I'm not sure we have an analogy. And maybe the other thing to think about is these hyperscalers, which are, in the end, mostly tech companies, they traditionally had a very CapEx-lite business model, and now they are driving the CapEx for a $30 trillion economy.
So, that's maybe another question mark we could put into the medium-term horizon, because these companies don't have a history of large CapEx buildouts.
Govindraj Ethiraj: Right. So, the U.S. data centre capacity, according to your own report, represents about 40% of the global total, and we are also seeing big investments happening elsewhere in the world, including right here in India, where we've seen Google, for example, announce with Indian Business House a $15 billion data centre investment on the East Coast of India. And there are many others coming up, and this is AI-linked, not just data centres for normal computing and storage.
So, my question really is, while a lot of what we've talked about so far is U.S.-centric, what is this doing to the rest of the world? What could, therefore, happen subsequently?
Paul Gruenwald: Yeah. So, there are kind of two ways to answer that question. First is there, as we know, is an AI race between the U.S. and China, the two world's largest economies and, I guess, geopolitical rivals. We have a lot of information, as we've been discussing, around the buildout of data centres and AI investment in the U.S. We have very little information about what's going on in China. We occasionally get a peek into this with the success of DeepSeek earlier this year, but I guess the best guess we can make is China and the U.S. are probably on parallel tracks in terms of the big buildout of data centres and AI. There are some spillovers in the rest of the world.
In some of our research, the exports of high-tech both software and hardware from certain EU countries, mainly Ireland and also the Netherlands and Germany, we're also seeing some chip exports out of Taiwan and then Korea and Japan into the U.S. as well. So, we're getting some spillovers from the rest of the world on the trade channel. And then, as you mentioned, we also have data centres being built in certain other countries.
India is one. So is Brazil. Saudi is another one.
Our read on this is that those are going to be mostly country-specific or regional and not nearly the same scale as what we're seeing on the U.S. But again, this is early days. We'll have to see how this plays out. But there are definitely spillovers from the U.S. build to the rest of the world. And there are other centres where we're seeing some AI activity, but it's just not at the same scale as we're seeing in the U.S. But everyone globally, I think, has got a piece of the action here on the AI build-out.
Govindraj Ethiraj: Thanks. Last question. So, we've talked about data centres.
We've talked about its disproportionate investment scale and levels that we're seeing led by the U.S. and now in the rest of the world. What's happening in the non-data centre economy, global and otherwise?
Paul Gruenwald: Yeah, well, we came out of COVID in reasonably good shape. We had an inflation scare across the globe. Central banks raised rates.
They're now normalising rates. But we still have the geopolitics and all the uncertainty around that. So, if we forget about data centres and maybe go back to geoeconomics and tariffs and sanctions and the U.S.-China rivalry, we're still moving away from the Washington consensus. I spent many years at the IMF. And the IMF was one of the institutions promoting that view where markets were good, trade was good, capital flows were good, and the government was playing a supporting role. Now, we have the government in front with tariffs and other tools of diplomacy.
We have even the U.S. taking ownership stakes in some of the larger companies. So, we haven't landed on the new post-Washington consensus model. We see that trade is being reconfigured.
Geopolitics is still in flux, capital flows. If you go to the IMF and World Bank meetings, which I do every six months, most of the world is still supportive of globalisation in a rules-based order. But the U.S., which was central, of course, in founding that world, has partially at least pulled back from its historic position of being the guarantor of the system. So, we've got all those uncertainties we're still working through. The data centres we discussed are kind of masking some of that in the short run. But we still have to come to a new global trading and macro and geopolitical model and hopefully get all the uncertainties settled out so we can go on to a stronger growth path for everyone.
Govindraj Ethiraj: Paul, it's been a pleasure. Thank you so much for joining me.
Paul Gruenwald: Pleasure was mine. Thank you very much.
The New Data Protection Act
India's new Digital Personal Data Protection Act is rolling out, and it defines the operational norms for entities in collection and handling of personal data and protecting individual rights. The final rules have now been put out, and the rules also lay out the practical framework for the Act, and India now has an 18-month runway to gear up for full compliance, and for many organisations, this will involve data mapping, redesign of consent and notice flows, and training programmes to ensure compliance. Also remember that these new guidelines and rules will have several aspects that relate to protection for children who, obviously, are engaging with the internet.
I reached out to Nikhil Narendran, Partner, Technology, Media, and Telecommunications, or TMT, at law firm TriLegal, based out of Bangalore, and I began by asking him who this would affect first.
INTERVIEW TRANSCRIPT
Nikhil Narendran: The timeline that we have is till the next November 2026 and then May 2027 for the whole act and the rules to be enforced. Probably May 2027 is going to be the most important date for most of the rules to come into place. So what really changes for India Incorporated is that they'll have to now start working on an action plan to ensure compliance with the act.
The foremost important thing is that look in India we don't have a culture of data protection within most organisations which means that you'll have to spend a lot of time identifying and training your stakeholders which includes legal, technology, information security, the most important senior leaders including the board members, getting them used to the concept of data protection, probably at some level looking at redesigning products and UI, UX to ensure that it complies with the requirements of notice and consent for data protection. There will have to be an extensive exercise with respect to doing a data inventory or data mapping which involves the help of you know lawyers, technologists and consultants and data privacy professionals and then sort of create your runway for the next 12 to 18 months to ensure compliance with the act.
Govindraj Ethiraj: Can you illustrate this, what's the best illustration? I mean what kind of company will have to go through all of this so as to align with these new laws?
Nikhil Narendran: Pretty much every company which deals with personal data in a digital form which now is you know I would say probably 99% of India and cooperated will be covered under the act but I would say that those companies which are facing the consumers for instance your likes of you know e-commerce where you're providing services online whether you are selling goods online even your regular small shops online will also have to comply with this data protection act but specifically those companies which face the consumer will have to take the bulk of the load when it comes to the compliance.
Govindraj Ethiraj: And what would be the first manifestation of this? So let's say companies are already collecting data from you and me and they're storing it and that is useful because we have renewed transactions or recurring transactions so what will they have to do as per this new act?
Nikhil Narendran: Immediately they'll have to ensure that the data protection is in compliance with the act which is that you need to have a proper notice and a proper consent before they collect the act. The most important moment and this is actually very important moment for the data privacy in India is the fact that look once the act comes into force you'll have to inform all the consumers about the data that has been collected already by these companies and you need to give them an option sort of an opt-out option to opt out from the continuing processing of the data. So the companies will have to send out large amounts of communiqué to its users you and I will get large amount of communiqué from various companies which probably we've even forgotten to whom we have given this data a long time back and that's going to be one of those watershed moments when it comes to implementation of this act.
Govindraj Ethiraj: Right and in your understanding are companies generally geared for this I mean will it take like a lot of resources to align with this or they can do it with existing resources apart from all the external let's say skills or resources they have to bring in?
Nikhil Narendran: So I would say that look the more developed advanced companies are already ready with this sort of compliance because they would have done it for you know both Indian multinationals and global multinationals they already have some lived experience of going through this process for GDPR and the Singapore data protection law etc. Whereas the new Indian companies those companies who are largely just focused in India they will have to do quite a bit of a uplift when it comes to compliance with the act which involves hiring privacy officers within the organisations, hiring infosec professionals who have got specialisation in data protection compliance so it'll have to be quite a bit of an uplift for those sort of companies.
Govindraj Ethiraj: Right and you mentioned the Singapore and the EU the European Union act so as a company I'm already aligned to those then this should not be much of a stretch?
Nikhil Narendran: I wouldn't say much of a stretch but I would say that look it's a sort of a plus plus or a minus minus when it comes to some regulations like a GDPR for instance the EU GDPR is a very extensive regulation we have not gone down that route of being very prescriptive we give a lot of options for the companies to comply with there will be some deviations whichever regime you look at there will always be some deviations when it comes to the Indian law and we also have some data transfer restrictions which has not yet come into force but once it comes into force there will have to be some readjustments a lot of vendor agreements to be re-entered into a lot of education and training which needs to happen internally so I would say it's going to be quite an uplift for most companies but those who are already compliant with let's say a GDPR they will have a much lesser of a job at least it's likely that culture of privacy or data protection which is already within those organisations they will have to definitely take a less of a load compared to those who are not at all familiar with this at all.
Govindraj Ethiraj: Right, and there's an authority which will oversee all of this. So when will they start, let's say, moving, and what are the kind of things that they would typically or likely respond to?
Nikhil Narendran: So the authority has quite extensive powers under the Act in relation to even the enforcement. For instance, the user can make a complaint to the authority, and the authority then decides to actually enforce the action against a particular company. Initially, what we expect the authority to do is to set the sort of tone for how the enforcement and the guidelines with respect to this will be, because it's actually a greenfield area, and the authority will have to lead the way in coming out with the global best practises, adopt those to India, and educate the company, spread awareness about data protection within India itself. That's the first step that the authority will have to do, and for that matter the authority will have to be a very progressive and an independent authority. We hopefully will get a very good authority by way of, you know, which is a mix of technologists, lawyers, and bureaucrats and privacy professionals who will set the tone for the data protection law in the country. The next phase they will have is to, once it is enforced, once it's fully implemented, they will look at enforcing, probably looking at those who are engaging in pretty much intrusive processing of data protection as the one they'll probably target. That's the expectation in the market.
Govindraj Ethiraj: Right, and last question. So as consumers, for example, if I feel that I'm not in full control of my data that I've given to a company — it could be an e-commerce company or some other services company — would I have recourse, or what kind of recourse is there?
Nikhil Narendran: Typically, a grievance redressal mechanism needs to be put in place by these companies. So once you can approach the grievance redressal mechanism, and if it's not really answered to and you're not really satisfied with the answers that you're getting or the results that you're getting, you can approach the authority and make a complaint to that extent. And the authority will then take it to the next level in terms of enforcing it against the company, asking questions, and if the authority is not satisfied, it has got the power to enforce penalty. There is also a section on mediation which could also be used by the authority to mediate between the user and the company in question. So there is a bunch of options available to us. This is not really like a class action sort of a situation that you see in the EU where you get large amounts of compensation per se. Largely, this is just corrective measures that the authority can enforce, including by way of penalties on these companies, asking them to stop intrusive data processing, give specific remedies or results to the user per se who is aggrieved, etc. So that's largely the sort of complaints that you can pursue and the remedies that you can obtain from the Data Protection Authority.
Govindraj Ethiraj: Nikhil, thank you so much for joining me.
Nikhil Narendran: Thank you for having me.
