The authorities want the information stored locally so that they can more easily get access to it when conducting investigations.
India's push for localisation comes at a time of heightened global scrutiny of how companies store user data. In July, India said its federal police had begun probing Cambridge Analytica's misuse of Facebook user data, which New Delhi suspects included information on Indian users.
REPORT TO BE SUBMITTED SOON
The draft report of the cloud policy panel, which is headed by the co-founder of Indian tech giant Infosys, Kris Gopalakrishnan, said a "forward looking" data protection regime was needed as India's IT laws framework was "not sufficient" for cloud computing.
"We recommend localization of cloud data and any data that is stored about Indian entities or data generated in India," it said, adding this data "must be available for investigative agencies and national security agencies."
Gopalakrishnan declined to comment on the draft report, but said he hopes to submit it to the information technology ministry before month-end, or at least by September 15. A spokesman for the IT ministry said the department would review the report once it's submitted but won't comment before that.
Cloud computing refers to the provision of software, storage and other services to customers from remote data centres. It allows companies to use programs at lower operational costs as programs and data are not stored at the customer's own data centres, or on their desktops.
Industry executives said many Indian businesses store their data on cloud servers located outside the country and a localisation mandate could force them to migrate data to India.
"Data localization will increase costs for public cloud companies as they might need to expand data centre capacity to fit customer data currently hosted outside India," said Santanu Patro, a research director with research and advisory firm Gartner in India. He said they could pass on the increase to customers.
The panel's draft recommendations said that India must consider the importance of securing "data sovereignty, especially in the context of cross-border data flows".
"Indian legal and policy frameworks must focus on ensuring that data generated from India can be utilised for the benefit of Indian citizens, governments and private players," it said.
An executive at a global technology company offering cloud services in India described the policy's recommendations as "protectionist".
"It seems we've turned the clock back on globalisation," the executive said.
The Indian public cloud services market is set to more than double to $7 billion by 2022, the draft report said. Enterprise spending on data centre infrastructure software will rise 10 percent to $3.6 billion in 2018, research firm Gartner estimates.
The government panel's draft listed Amazon, IBM and Microsoft among key companies already registered under a government initiative on cloud computing. It also listed Alphabet Inc's Google, Oracle and Salesforce.com Inc as those with "significant presence".
Amazon, for example, says "tens of thousands of customers" in India use its AWS cloud service platform.
"Due to increasing requirements of data hosting, India would need rapid establishment of data centres," the report said.
The report, however, highlighted infrastructure and connectivity challenges faced by cloud service providers in India - such as high power costs and the need to get various permits - which raise the cost of running data centres.
More than 80 percent of India's data centre supply was concentrated in five cities, the panel said. It recommended conducting a study to identify 20 locations conducive for such infrastructure, while also looking at incentives and relaxed tax structure for the industry's growth.
The panel also plans to recommend development of a "national cloud strategy" that could bring cloud service providers under a single regulatory and policy framework.
The Indian government's data localisation push has already unnerved U.S. companies who fear it will drive up costs and unsettle businesses. A government panel last week floated a bill that proposes all critical personal data should be processed within India.
Lobby group U.S.-India Business Council said the bill had raised some concerns and it would seek to work with the Indian government to improve it before its passage. (Reporting by Aditya Kalra; Additional reporting by Sankalp Phartiyal and Sanjeev Miglani; Editing by Euan Rocha and Martin Howell)
© Reuters News 2018