India’s Digital Competition Bill: Understanding industry concerns

India is now recognized as a significant and rapidly expanding digital market globally. Digitalization has stimulated the rise of industries like e-commerce and the creation of cutting-edge technologies, including artificial intelligence. These developments have led to a surge in new digital consumers. For example, about 70% of all Indian Internet users have utilized at least one social networking platform. Additionally, India’s flourishing e-commerce market has around 125 million users and is projected to attract an additional 80 million online users by 2025.

As the digital landscape evolves, there is a growing need to ensure that competition remains fair and that market dynamics do not favour a few dominant players at the expense of smaller companies and consumers. The Digital Competition Bill aims to address these concerns by introducing regulations to curb the dominance of large digital companies and foster a competitive environment.

India’s digital economy has been expanding rapidly, driven by a surge in internet penetration, smartphone usage, and innovative startups. As the digital landscape evolves, there is a growing need to ensure that competition remains fair and that market dynamics do not favour a few dominant players at the expense of smaller companies and consumers.

The Digital Competition Bill, which was launched on March 12 this year, aims to address these concerns by introducing regulations to curb the dominance of large digital companies and foster a competitive environment. However, some argue that the proposed regulations may limit innovation and stifle the growth of smaller companies, ultimately harming competition in the long run.

The process of digitalization has been primarily propelled by big digital businesses, which are currently subject to fragmented regulation in India. The Competition Commission of India (CCI) has taken note of some instances of anti-competitive behaviour by large digital enterprises such as Google, MakeMyTrip-Go, and Oyo, including unfair business practices and unilateral discriminatory policies.

As part of its comprehensive review of India’s competition regime, the Competition Law Review Committee (CLRC) noted these emerging concerns in digital markets. As a result, the CLRC proposed amendments to the Competition Act of 2002 (the Competition Act), such as including “data” in the definition of “price” and including “network effects” as a parameter for assessing an enterprise’s dominance. Finally, the CLRC recommends a wait-and-see approach and a periodic review of global emerging digital market regulation trends to judge whether a new antitrust framework is required for digital markets, .

Recognising these developments and the significant differences between traditional and digital markets, the 53rd Parliamentary Standing Committee Report in December 2022 identified 10 anti-competitive practices (ACPs) commonly used by Big Tech companies. The report acknowledged that these ACPs are made possible by digital market dynamisms such as strong network effects and economies of scale.

Large digital enterprises freely engaging in ACPs result in a ‘winner-takes-most’ outcome, with markets tipping in favour of the large incumbent. Protecting against this outcome may be impossible under the Competition Act’s ex-post framework, which requires lengthy enforcement proceedings and begins after the harm has already occurred. As a result, the 53rd Parliamentary Report recommended enacting a separate ex-ante competition law for digital markets.

Against this backdrop, the Committee on Digital Competition Law (CDCL) Committee was established in February 2023. The Committee was tasked with determining whether the current framework, including the Competition Act, was adequate to regulate digital markets. It was also tasked with looking into global best practices.

Overview of the Digital Competition Bill

The Digital Competition Bill is a legal framework that seeks to regulate digital markets in India, drawing inspiration from other regions known for their strict competition laws. The primary goal of the bill is to prevent anti-competitive practices by large digital companies, ensuring a fair playing field for all market participants.

The bill is based on the recommendations of the CDCL and the Parliamentary Standing Committee on Finance (PSC), with the aim of identifying certain enterprises as Systemically Significant Digital Enterprises (SSDEs) based on their financial strength and user base. These SSDEs will be subject to ex-ante regulations, which involve proactive monitoring to prevent any form of abuse or anti-competitive behavior. The key objectives of the bill include:

• Ex-Ante Regulatory Approach: Unlike traditional competition laws that react to anti-competitive behavior after it occurs, the Digital Competition Bill adopts an ex-ante approach. This means that regulations are put in place proactively to prevent anti-competitive practices before they can harm the market.
• Market Dominance: The Bill targets companies with significant market power, often referred to as “gatekeepers,” which can influence market dynamics due to their size and reach.
• Consumer Protection: Ensuring that consumers have access to a variety of choices and fair prices is a central goal of the Bill. It aims to prevent practices that could limit consumer options or lead to price manipulations.
• Encouraging Innovation: By curbing monopolistic practices, the Bill seeks to create an environment conducive to innovation, allowing smaller players and startups to thrive.

The Digital Competition Bill is in line with current global trends in digital market regulation. The European Union’s Digital Markets Act (DMA) and Digital Services Act (DSA) are two prominent examples of similar legislative initiatives aimed at controlling big tech and promoting fair competition. These laws also prioritize preventing gatekeepers from engaging in unfair practices and bolstering consumer protections. Some of the key benefits promised by the Bill include:

• Enhanced Market Fairness: By curbing the dominance of large digital platforms, the bill aimed to ensure a more equitable distribution of market opportunities. This can lead to increased competition, which typically results in better products and services for consumers. Smaller companies and new entrants would have a fair chance of competing and succeeding.
• Consumer Protection: The primary goal of the bill is to protect consumer interest. By preventing practices, such as price manipulation, data misuse, and anti-competitive agreements, the bill aims to ensure that consumers have access to a wide range of choices at fair prices. Enhanced consumer protection measures can boost consumer confidence in digital services.
• Promotion of Innovation: By creating a level-playing field, the bill encourages innovation across industries. Smaller companies and startups, which are often more agile and innovative, would have the opportunity to compete with larger players. This could lead to the development of new technologies, products, and services that would benefit the entire ecosystem.

Implications for Big Techs

The Indian government’s introduction of the Digital Competition Bill has significant implications for major tech companies operating in the country, including global giants like Google, Amazon, and Facebook, as well as local powerhouses such as Reliance Jio and Flipkart. These companies have expressed concerns about the bill’s potential impact on their operations.

The Bill specifically targets large digital platforms that hold substantial market power, often acting as gatekeepers by controlling essential infrastructure or services that other businesses rely on. By imposing regulations on these gatekeepers, the bill aims to prevent them from abusing their dominant position to stifle competition.

Major industry players and associations, such as the Internet and Mobile Association of India (IAMAI), have voiced their concerns about the bill’s ex-ante approach. They argue that it could impose unfair burdens on digital companies, making it challenging for them to operate efficiently. There are also fears that stringent regulations could stifle innovation and limit these companies’ ability to invest in new technologies and services.

Following are some of the critical concerns shared by the industry wrt to this bill:

• Restrictive: One of the primary criticisms of the bill is that the ex ante approach may be too restrictive. By imposing regulations before anti-competitive behavior occurs, there is a risk of stifling legitimate business practices and innovation. Companies may be reluctant to pursue new ventures or invest in new technologies because of the fear of regulatory backlash.
• Industry Opposition: Major tech companies and industry associations have voiced their opposition to the bill, arguing that it could create an unfavorable business environment. They contend that the increased regulatory burden could make it challenging for companies to operate efficiently and compete on a global scale.
• Imbalanced: Experts and stakeholders urged caution when implementing the bill. They argue that, while regulation is necessary, it should be balanced and not overly burdensome. The goal is to create a fair and competitive market without stifling innovation or deterring investment.

Impact on Investments

One of the critical areas of concern surrounding the Digital Competition Bill is its potential impact on investments in the Indian tech sector. India has been a hotbed of tech investments, attracting significant capital from domestic and international investors. However, the introduction of stringent regulations could alter the investment landscape.

According to the Internet and Mobile Association of India, the ex-ante approach of the government under the proposed Digital Competition Bill is an “unfair imposition on digital companies”, will make business “untenable” for them and can “dry up venture investments in tech startups”.

Investors are typically wary of environments with high regulatory risks as they can impact the return on investment and the overall business climate. Fear is that increased compliance costs and the potential for regulatory scrutiny could deter investors from committing capital to Indian tech companies.

Startups in particular may feel the brunt of these regulations. While the Bill aims to level the playing field, increased regulatory requirements could pose significant challenges for new and emerging businesses. Startups often operate with limited resources and may find it difficult to navigate through complex regulatory frameworks. This could hinder their growth prospects and ability to innovate.

On the other hand, some argue that the bill could lead to a more stable and predictable market environment, which could attract more sustainable investments in the long run. By ensuring fair competition and preventing monopolistic practices, the bill could create a healthier market dynamic that would benefit a broader range of players.

Future Outlook

The Digital Competition Bill is a significant step towards regulating India’s digital markets, aiming to promote fair competition and protect consumers. However, its potential impact on investments and the broader technological ecosystem remains a contentious issue. The future of digital competition in India will depend on finding the right balance between regulations and market freedom. As the Bill moves forward, it will be crucial for policymakers to engage with industry stakeholders and experts to ensure that regulations are effective, balanced, and conducive to a thriving digital economy.

This initiative to implement ex-ante measures with the introduction of the DCB appears to be proactive enforcement. For now, the DCB has been kept open for stakeholder comments and then placed before the Parliament for approval. Once approved, exhaustive guidelines will need to be framed for self-regulation by the SSDEs to avoid any turmoil. Given the severe penalties and some opposition, the Government must ensure that concerns raised by companies are adequately addressed.