Territorial Scope of the Digital Personal Data Protection Act, 2023: Applicability to Foreign Entities

Introduction

The Digital Personal Data Protection Act, 2023 (DPDP Act) is India’s first comprehensive personal data law. Unlike earlier frameworks under the IT Act, 2000, it has explicit extraterritorial reach, applying not just to entities within India but also to organizations located abroad if they process the personal data of individuals in India.

This article examines the territorial scope of the DPDP Act, focusing on:

1. The statutory basis for extraterritorial application.
2. How foreign companies are brought under the law.
3. Comparison with the GDPR’s similar approach.
4. Practical compliance challenges for multinational companies (MNCs), SaaS providers, and global digital platforms.
5. Enforcement issues and strategies.
6. Key compliance steps for foreign organizations engaging with the Indian market.

Statutory Territorial Scope under the DPDP Act

Express Coverage of Foreign Entities

The DPDP Act applies to:

• Processing of digital personal data within India, irrespective of where the data principal resides.
• Processing of digital personal data outside India, if it is in connection with offering goods or services to individuals within India.

Key Features

• The law does not distinguish between Indian and foreign entities if the processing activity has a nexus with India.
• It is purpose-driven: if the processing is connected to delivering services or goods to Indian individuals, compliance is mandatory.
• The Act does not explicitly cover monitoring behavior, unlike GDPR, but broad wording makes it applicable in practice to most foreign businesses targeting India.

Entities Affected by Extraterritorial Scope

A. Multinational Corporations with Indian Customers

• Foreign e-commerce platforms, cloud providers, OTT streaming services, and gaming companies offering services to Indian residents.
• Example: A U.S.-based SaaS company with Indian subscribers must comply, even without a physical office in India.

B. Outsourcing & ITES Providers

• Foreign companies outsourcing processing to Indian vendors remain responsible as Data Fiduciaries if they control purpose/means.
• Indian service providers act as Data Processors but share compliance obligations contractually.

C. Financial Services & FinTech

• Global fintech apps enabling payments, wallets, or credit to Indian customers fall directly under the Act.
• Even foreign credit-scoring models using Indian consumer data must comply.

D. Social Media & Digital Platforms

• Any platform allowing Indian users to create accounts, share data, or consume services (even free ones) is covered.
• This includes U.S.-based tech giants, European SaaS firms, and Asia-Pacific streaming apps.

Comparison with GDPR Extraterritoriality

Insights

• India’s approach is narrower than GDPR since “monitoring” is not expressly covered.
• However, given India’s emphasis on data localization and sovereignty, practical obligations may prove stricter.
• For foreign companies, compliance costs may be comparable to GDPR, especially if designated as Significant Data Fiduciaries (SDFs).

Enforcement Challenges in Extraterritorial Context

A. Jurisdictional Limits

• The Data Protection Board (DPB) may struggle to enforce penalties against companies with no Indian presence.
• International cooperation mechanisms are currently absent.

B. Dependency on Market Access

India may enforce compliance
by linking it to market access:

• Blocking non-compliant services.
• Requiring data localization.
• Conditioning contracts with Indian partners on DPDP compliance.

C. Diplomatic and Trade Implications

• Enforcement against global tech companies may trigger trade disputes or negotiations.
• India must balance regulatory sovereignty with its ambition to attract FDI in the digital economy.

D. Sector-Specific Implications for Foreign Entities

i. SaaS & Cloud Providers

• Must implement consent dashboards, multilingual notices, and grievance mechanisms for Indian users.
• May be required to store certain categories of data locally if notified.

ii. Healthcare & Pharma MNCs

• Processing clinical trial or patient data involving Indians requires DPDP compliance.
• Absence of “sensitive data” distinction may create ambiguity in handling genetic or biometric data.

iii. E-Commerce & Digital Marketplaces

• Foreign e-commerce sites delivering goods to Indian consumers must adopt DPDP-compliant privacy notices and consent mechanisms.
• Return/replacement data processing and loyalty programs also fall within scope.

iv. EdTech & Online Learning Platforms

• Platforms offering online courses to Indian students (e.g., U.S. universities) must comply, especially for minors’ data.
• Stricter obligations around parental consent and prohibition on profiling children.

v. Financial Services

• Global fintech firms offering digital wallets, credit cards, or lending apps must comply.
• High-risk of classification as Significant Data Fiduciaries (SDFs) due to sensitivity and scale.

Practical Compliance Strategies for Foreign Entities

Foreign companies engaging with Indian customers should adopt the following roadmap:

A. Gap Assessment

• Map personal data flows involving Indian users.
• Identify whether data is processed for “offering goods/services” or incidental.

B. Compliance Infrastructure

• Draft India-specific privacy policies and notices (multi-lingual).
• Update consent mechanisms to meet DPDP standards.
• Ensure easy withdrawal of consent.

C. Governance Measures

• Appoint a Data Protection Officer (DPO) if classified as SDF.
• Establish grievance redressal mechanisms accessible to Indian users.
• Conduct Data Protection Impact Assessments (DPIAs) for high-risk processing.

D. Vendor and Processor Contracts

• Incorporate DPDP-compliant clauses in contracts with Indian processors.
• Ensure accountability flows from fiduciary to processor.

E. Representation in India

• While not explicitly required yet, foreign entities may need to appoint an Indian representative or branch for regulatory interface.

F. Breach Management

• Develop incident response mechanisms to notify the DPB and Indian data principals.
• Maintain audit logs to demonstrate accountability.

Risks of Non-Compliance for Foreign Entities

• Financial Penalties: Up to ₹250 crore per breach.
• Reputational Damage: Perceived non-compliance may harm trust with Indian consumers.
• Business Restrictions: Possible blocking of services or loss of Indian contracts.
• Contractual Risks: Indian clients may demand DPDP compliance as part of procurement contracts.

Case Study Illustrations

Case Study 1: U.S.-based SaaS Provider – A California SaaS platform provides CRM tools to Indian SMEs. Even though contracts are signed abroad, the processing of Indian business contacts and customer data triggers DPDP applicability. Compliance measures: India-specific notice, consent options, grievance redressal portal.

Case Study 2: European E-Commerce Platform : A German marketplace ships products to Indian buyers. Though servers are in the EU, customer addresses, payment data, and purchase history are processed “in relation to” Indian consumers. DPDP compliance mandatory.

Case Study 3: Health-Tech AI Startup in Singapore – Uses Indian patient datasets to train diagnostic algorithms. High risk due to scale and sensitivity → may be classified as SDF. Requires DPO appointment, DPIAs, and stricter oversight.

Conclusion

The territorial scope of the DPDP Act makes it clear that data protection obligations are not confined to India’s borders. Any entity be it domestic or foreign, that processes the personal data of Indian residents in connection with goods or services is covered.

For foreign entities, this means:

• Understanding the scope of their processing activities.
• Building compliance mechanisms comparable to GDPR-level safeguards.
• Preparing for enforcement not only through penalties but also through market access and contractual obligations.
• In effect, the DPDP Act positions India as a data-sovereign jurisdiction, demanding accountability from any business deriving value from Indian consumers’ personal data. For multinational businesses, proactive compliance is no longer optional—it is the price of entry into one of the world’s fastest-growing digital economies.

Contributed By – Aurelia Menezes