India has unveiled its own data privacy framework which is quite similar to the European Union General Data Protection Regulation (GDPR). The ruling of the Supreme Court in 2017 to acknowledge the Right to Privacy as a fundamental right became the basis of the Digital Personal Data Protection Act, 2023. The history of data protection development in India since Information Technology Act of 2000, in the context of the digital environment has now developed to more relevant and more necessary data protection legislation: the Digital Personal Data Protection Act, 2023 (DPDP Act).

In the case of startups and small and medium-sized companies in India, the DPDP Act does not just demand adherence to the regulatory and legal frameworks. It demands a transformation in the operational paradigms, which will enable building trust through privacy compliance and staying competitive in the privacy-aware market environment. In the case of bigger companies, the law brings structural and strategic transformation. The point is also obvious: be flexible or risk being obsolete.

Key Stakeholders under the DPDP Act

The Data Privacy Compliance frameworks and governance policies shall be built and developed in conjunction with understanding these roles and the data flows. By categorizing entities handling personal data, the DPDP Act, 2023 provides an overview of the larger ecosystem:

Data Principal: The individual to whom the data or information relates. They have the rights like data access, correction, and erasure.

Data Fiduciary: Any entity that collects the data from the Data Principal and determines the purpose and means of processing personal data.

Data Processor: Any third-party service providers that process data on behalf of the Data Fiduciary. Their compliance responsibility stems from contractual agreements.

Significant Data Fiduciaries: This category of Data Fiduciaries is singled out by the government with regards to volume of data processed, sensitivity, and risk.

These stakeholders establish the way personal data is collected, processed and secured in the sectors in India under India Data Protection Law.

Major Challenges in Implementing DPDP

Although the DPDP Act presents a tangible legal roadmap, putting it into practice involves challenges, particularly for Indian SMEs that do not have well-established compliance frameworks.

1. Cultural Change in Compliance

The Act requires an accountability culture, changing attitudes from ‘collect everything’ to ‘minimize and justify’.

2. Consent & Grievance Redressal

The DPDP Act mandates definite and informed consent of Data Principals. Organizations are also required to offer Data Principals, which is an easily accessible grievance redressal system, something which is a challenge for small firms that lack compliance teams.

3. Transparent Communication

Organizations become obliged to communicate the notices and rights to people in various languages and media. This requires user training and interface redesigning.

4. Data Lifecycle Management

Most organizations have no idea about what type of data they have and where that information is located. These are usually weak or absent systems of data discovery, classification, retention and deletion.

5. Penalties for Non-Compliance

The DPDP Act of 2023, too, is empowered to impose significant financial fines of up to Rs. 250 crores of any violation of the compliance, making data protection a significant business risk.

These challenges highlight the broader realities of implementing Data Protection in India, particularly for organizations unfamiliar with compliance-driven governance models under the new India Data Protection Law.

Impact on Startups and SMEs in India

For startups and SMEs in India, compliance with Data Protection is no longer optional. The DPDP Act represents a paradigm shift, not just a checklist.

Product & Service Redesign

Products should be re-engineered or developed to collect only necessary data ensuring Data Minimization and provide easy access to edit or remove the data. This requires that products ensure privacy by design.

Data Flow Mapping

Visibility is essential to detect risks and demonstrate compliance during audits or regulatory audits. Therefore, the SMEs should chart and record the data flow within the organization, such as storage, transfer, and utilization on the third-party APIs and vendors.

Clean Consent Mechanisms

Startups ought to come up with simple and straightforward interfaces in which users know the type of data that is being collected and can give consent without inconvenience. Consent must be explicit, informed, and revocable, rather than the prefilled checkboxes or default consent.

Cloud Services & Vendors

Earlier, there was flexibility of choosing regulatory compliant cloud service providers. Startups shall formalize SLAs to hold accountability for the parties throughout the data processing chain.

Investor Due Diligence

The process of privacy compliance verification is becoming a requisite in the due diligence process by venture capitalists and private equity firms. Initial compliance also shows that startups are reputable and can survive in the long term, which increases the likelihood of investors.

Impact on Larger Corporations

In the case of enterprise-level organizations, the Digital Personal Data Protection Act exposes one more operational complexity level.

Appointment of DPOs

Significant Data Fiduciaries should have a Data Protection Officer. The DPO will monitor compliance, audit, respond to data breaches, and serve as the main point of contact with regulators.

Carrying out Data Protection Impact Assessment

Every high-risk data-processing must have Data Protection Impact Assessment. This analysis determines risks to people and neutralizes them prior to processing being made, similar to pre-positioning risk audits to finance or ESG compliance.

Role Definition

To implement corporate responsibility and issue compliance reports, companies need to define the staff roles in the enforcement process. Larger organizations ought to further assign roles of business units, which are the data fiduciaries, data processors, or data fiduciaries of significant nature, and separate business unit responsibilities.

Cross‑Border Transfers

Even though it is not mandatory when localizing data, cross-border transfers are limited to the jurisdictions that are accepted by the Government of India. This will force the companies to renegotiate the contracts, examine the legality of the third-party data collection and ensure that the foreign third parties comply with the systems in India.

Children’s Data

The Act puts strict guard on the data of children, such as parental consent and limitations on the tracking and profiling. The edtech, gaming and social media companies that cater to younger audiences are especially subject to these provisions.

Sectoral Overlap

Any insurance, banking, and healthcare companies are to make sure that the specifications of DPDP do not contradict or overlap with the policies of IRDA, SEBI, and Health Data Management.

Conclusion

With data being treated more as the new oil that is powering the digital economy, its safe and responsible usage is becoming an immediate concern. Organizations need to practice responsible data management among their management domains. Privacy by design must be a value system and new products/services must be designed using the concept and not as something added at a later stage.

With DPDP in place, the forward-looking organizations should take the remedial action and offer effective protective measures. This will allow the organizations to have a double-edged sword where at one end is the regulatory compliance and the other end a competitive edge over others where data privacy is the need of the hour.

Why Choose InCorp Global?

InCorp Global offers comprehensive data privacy and compliance services to help organizations navigate India’s evolving regulatory landscape. Our experienced team provides:

  • DPDP Act compliance assessments and gap analysis
  • Data mapping and privacy impact assessments
  • Policy development and consent management frameworks
  • Security safeguard implementation guidance
  • Employee training and awareness programmes
  • Ongoing compliance monitoring and support

To understand more about our services, you can write to us at info@incorpadvisory.in or WhatsApp us on (+91) 77380 66622.

Authored by:
Nakul Pranav | Cybersecurity

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