Microsoft-Nayara Energy Case Exposes India Inc's Cloud Vulnerability

On July 22, Microsoft abruptly suspended cloud services to Indian refining and marketing company Nayara Energy without any warning or explanations.

Nayara Energy was left without access to its own data. This cas once again ignited a debate on the need for homegrown cloud companies and the requirement for sovereign cloud infrastructure.

Before we delve into it, let’s understand what exactly happened.

Nayara Energy claimed the suspension of IT services disrupted its operations and cut the company’s access to subscribed tools such as Outlook email servers, Microsoft Teams, and other cloud services.

The US tech giant said that it was complying with the European Union’s (EU) sanctions announced on July 18 against Russian-origin businesses supplying goods and services to certain geographies.

The sanctions were based on the premise that Nayara Energy, in which Russian state-owned energy company Rosneft owns 49.13% stake, was contributing to Russia’s invasion and military campaign against Ukraine.

Following this, Nayara Energy took the legal route and sued Microsoft. However, before the scheduled hearing in the case at the Delhi High Court on July 30, Microsoft restored the services and Nayara Energy withdrew the case.

While the issue has been resolved for now, it brought to surface a long-standing concern that has been quietly discussed within India’s industry and policy circles – what happens if Microsoft, Google, and other big tech titans step back from India due to policy shifts, geopolitical tensions or internal recalibration?

The answer is not simple. And the deeper one looks, the more complex it becomes – the Indian economy, especially in terms of tech infrastructure, has once again been uncomfortably exposed in this global geopolitical game.

Under the Hood: How Deep Is the Dependence?

India has made rapid strides in the digital arena over the past decade. From UPI and CoWIN to Aadhaar and GSTN, there has been global recognition in how quickly the country has digitised its public services.

Despite this, India relies heavily on US-based giants such as Microsoft, AWS, Google Cloud among others. These are not just vendors, but a critical part of the tech stack for startups and enterprises.

From banks, insurance giants, IT majors and pharma firms to a majority of the Indian startup ecosystem – Indian companies are dependent on Microsoft cloud services and email servers. This infrastructure underpins many Indian government projects as well, although access is governed by regulatory safeguards.

Google, too, isn’t far behind. Google Cloud is the backbone of thousands of startups. Search, Maps, Gmail, and Drive are not just free utilities, they’ve become core tools for productivity across businesses and schools alike.

Overall, cloud services in India have reached a market size of more than $27 Bn (over INR 2.2 Lakh Cr), and Microsoft and AWS account for the majority of that pie. More worryingly, over 60% of Indian corporations now store their business data on cloud, especially of foreign companies.

In an adverse event, this high dependency on US-based cloud service providers can cost more than just a disruption to India Inc’s operations.

A Warning Sign For India

Industry insiders believe that the Nayara Energy incident is a wake up call for Indian conglomerates and the government, as any homegrown firm can get caught in the crosshairs of a geopolitical mess.

“Indian companies would literally find themselves at the whims of the likes of such US-based companies,” said Nikhil Pahwa, founder and editor at Medianama.

To reduce the dependence on foreign players, industry experts want the government to focus on building a sovereign cloud services infrastructure, on the lines of the Centre’s AI push.

“These services (potential sovereign cloud infrastructure) should not merely be focussed on Indian businesses. The value proposition should instead be global, which competes on the technical functionality as well as the cost. And when that happens, it is only then we will be able to successfully, or to a large degree, insulate ourselves from these kinds of shocks,’ said Internet Freedom Foundation cofounder and lawyer Apar Gupta.

It is pertinent to note that besides unwanted disruptions, over-dependency on foreign cloud service providers also puts the data of Indians at risk. The Reforming Intelligence and Securing America Act (RISAA) empowers the US government to access any data that is stored with US-based cloud services and data centres.

“Now the government needs to do a risk assessment on how much of their data is stored with Microsoft or other US-based cloud service providers and move their contracts to Indian alternatives as quickly as possible,” said Pahwa.

What’s The Alternative?

The Indian cloud services market is highly concentrated. Microsoft and AWS cumulatively enjoy about 50% of the market share by revenue, as per the International Data Corporation. But, it is not as if India does not have homegrown entities that operate in the cloud services market.

In the infrastructure as a service (IaaS) and platform as a service (PaaS) space, India has Yotta, E2E networks and CtrlS leading the way. Besides, Zoho is a leader in the SaaS space, which also hosts a number of homegrown startups. However, foreign players continue to dominate the market. Hyperscalers like Microsoft, AWS and Google Cloud enjoy economies of scale and a bigger user base.

Big players can invest in larger data centres, which allows them to save on operational costs and also get better and discounted deals on the purchase of hardware.

“The big players have scale — scale of connectivity and compute. And, then, each of them also have their own proprietary infrastructure layer. Whether it’s Azure or Google or AWS engine or BigQuery, they also have their own engines for data ingestion, auto clustering, and providing compute virtualisation,” said Sarajit Jha, chief business transformation and digital officer at Tata Steel.

He added that though India has the likes of Tata, Adani and Jio operating in this space, they fail to acquire customers due to a lack of right talent, knowledge, expertise and credibility.

Moreover, foreign players have the bandwidth to offer cloud credits to startups through their accelerator programmes. What also tilts the balance in favour of these big tech giants is that a big chunk of independent software developers deploy their services on hyperscalers due to compatibility with their existing tech suite.

Then, there is also the issue of “inertia”. As one industry insider explained, it becomes harder for a company to switch to a new platform after spending years building on a particular platform, training staff, writing code and auditing compliance.

Nevertheless, the Nayara Energy-Microsoft episode has once again highlighted how important it is for India to build sovereign cloud infrastructure technologies.

[Edited by Rai Vinaykumar]

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