Why Indian Startups Must Prioritise Data Privacy And Security

In recent years, India has witnessed a thriving startup culture, leading to the emergence of the world’s third-largest startup ecosystem. As data becomes more valuable in the digital era, issues about data privacy and security have become more prominent than ever. This is especially true for startups, which frequently rely on customer data to fuel their business models. To ensure the fair use and disposal of personal data, India passed the Information Technology Act (ITA) of 2000 and its subsidiary IT Rules. Additionally, to align with global best practices, India is currently in the process of finalising the Digital Personal Data Protection (DPDP) Bill 2022.

In addition to the Information Technology Act, its subsidiary IT Rules, and the Digital Personal Data Protection Bill, the Indian Supreme Court’s landmark Aadhar decision in 2017 recognised the fundamental right to privacy enshrined in the Indian Constitution. These measures demonstrate India’s commitment to ensuring the protection of personal data and privacy for its citizens.

However, the importance of data privacy is still not universally recognised, with the United Nations Conference on Trade and Development (UNCTAD) reporting in January 2023 that only 9% of countries have written legislation for data protection and 15% have no legislation at all. 

In this context, Indian startups must be aware of the essential data privacy rules and regulations that affect their day-to-day operations. By complying with these regulations and implementing best practices for data privacy and security, startups can protect their customers’ personal information and build trust among consumers. This can ultimately contribute to the growth and success of the Indian startup ecosystem.

Key Data Protection Concerns For Startups

A few important practices a startup must follow to deal with data privacy issues are:

• Transparency in data collection and processing is essential, as is presenting clients with a clear and transparent data protection policy. All businesses must develop a data privacy policy that complies with Indian and other countries’ privacy rules.

• Companies should offer all required information to their customers about why they collect data, its usage, and how they will protect it. According to Section 43A of the ITA, they should also implement adequate security practices and procedures into their operations. Section 72A of the ITA penalises anyone who unlawfully discloses personal data without the authorisation of the information provider.

• The IT Rules 2021 amendment requires intermediaries to publicly display rules, regulations, and privacy policies and ensure compliance. Startups with user bases exceeding 50 Lakh are subject to additional due diligence obligations as per rules 3 and 4 of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. Non-compliance may result in the loss of intermediary protection under the ITA. In the latest amendment to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 due diligence obligations have been extended to online gaming startups that rely on real money transactions. These startups must comply with the same regulations as other intermediaries, including the display of rules, regulations, and privacy policies, and ensuring compliance with data protection and privacy laws.

• Companies should seek consent from consumers before collecting their data, giving them the option to opt-out. For minors under 18, a stringent age verification process and parental consent are mandatory.

• Companies must obtain permission from the data provider before disclosing sensitive information to a third party. Data transfer should be done with the utmost confidentiality and using secure technologies.

• Designate a grievance officer with contact details posted on the website to establish a redressal mechanism and ensure accountability for mishandling sensitive personal data.

Checklist For Startups

• Conduct a data mapping exercise to identify the sources and types of data collected to ensure compliance with the GDPR and develop a privacy strategy.

• Appoint a Data Protection Officer (DPO) to provide guidance and structure in the implementation of GDPR compliance.

• Regularly review and delete unnecessary data, and minimise the collection of sensitive or third-party data to reduce risk.

• Ensure that data processing activities can be traced to one of the six legal bases: consent, legal obligation, contractual obligation, legitimate interest, vital interest, or public task.

• Develop a privacy policy that establishes trust and transparency with users and is easily accessible and understandable.

• Implement an efficient and affordable Consent Management Platform (CMP) to manage user consent and data collection activities.

• Reserve the right to disclose and transfer user information outside India while complying with relevant data protection legislation concerning the retention period for user information. (Note that the DPDP is currently a bill and may undergo changes before becoming law, and start-ups should monitor updates closely to ensure compliance.)

Conclusion

In conclusion, data privacy is a crucial concern for startups that can make or break their success. With the upcoming Personal Data Protection Bill in India, startups need to be proactive in their approach to data privacy and ensure that it is at the centre of their data strategy. It is not enough to just comply with the law; startups must go above and beyond to implement best practices, train their employees, and conduct frequent audits to safeguard their customers’ personal information.

Customer trust is a key factor for startups, and data breaches can have a significant impact on their reputation and future growth prospects. Therefore, it is essential for startups to install robust security measures and protocols that can contain any breach and prevent future incidents. In the event of a breach, startups must act swiftly to analyse the impact, notify the relevant parties, and upgrade their security procedures to prevent future occurrences.

Protecting data privacy is not just a legal requirement but also a business necessity for startups. By ensuring that their customers’ data is safe and secure, startups can enhance their reputation, foster trust, and create a loyal customer base. As technology continues to advance, it is vital for startups to stay up-to-date with the latest data protection measures and adapt their practices accordingly to stay ahead of the competition.

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