INTRODUCTION

• Competition is beneficial to the country's economy. By competing with each other, companies become more competitive, innovative, and efficient.

• In response to the growing market dominance of a few large digital tech companies in India, a government panel proposed in February the imposition of obligations under a new antitrust law that prevents companies from working together to control prices unfairly or to create a monopoly in the Digital sector. 

• The proposed "Digital Competition Bill" aims to complement existing regulations in India while also  mirroring the EU's Digital Markets Act 2022, and will apply to major firms identified as Systemically Significant Digital Enterprises(SSDE).

• The EU Act requires large tech firms like Alphabet, Amazon and Apple to open their services, and not favour their own at the expense of rivals. 

SSDE

Systemically Significant Digital Enterprise (SSDE): It is a business enterprise offering Core Digital Services (CDS) like online search engines, social networking services, video-sharing platforms etc in India. 

• Financial and user Thresholds: This designation is based on meeting specified financial thresholds of more than Rs 4000 crore as turnover in the last 3 financial years and user thresholds of more than 10 million users.

• Notification: An enterprise is obligated to notify CCI within ninety days of meeting the above thresholds in respect of one or more of its Core Digital Services. 

• Discretion of CCI: The CCI can designate an enterprise as an SSDE even if it doesn't meet the thresholds, based on factors like economic power and user dependence. The enterprise can then explain why it shouldn't be designated as an SSDE.

• Associate Digital Enterprise (ADE): If an enterprise designated as an SSDE is part of a group with other enterprises involved in providing the Core Digital Service in India, the CCI may designate these other enterprises as Associate Digital Enterprise (ADE).

•  Example, if one were to look at Google Search and how it steers direction data to Google Maps, the latter can theoretically be deemed an ADE. 

• Renewal: An enterprise will be designated as an SSDE or ADE for three years, with automatic renewal unless the SSDE applies for revocation due to no longer meeting the thresholds or significant market changes.

• Regulations: Entities which are designated as SSDEs, have been prohibited from engaging in anti-competitive practices such as self-preferencing, anti-steering, and restricting third party applications

• Penalty: If they violate these requirements, they can be fined up to 10% of their global turnover.

Why do we need this bill?

• Need for a Proactive Approach: The Committee on Competition Law noted that the current ex-post framework (intervening after an event occurs) under the Competition Act, 2002, does not facilitate timely redressal of anti-competitive conduct by digital enterprises.

• The Committee recommended enacting the Digital Competition Act to enable the Competition Commission of India (CCI) to selectively regulate large digital enterprises in an ex-ante manner (intervening before an event occurs).

• Lucrative Indian Market: With a population of 1.4 billion people and a growing affluent class, India is a digital goldmine for tech companies.

• Example: Apple witnessed a “revenue record” in India during the March quarter, when its overall global revenue declined 4%.

• Curbing Anti Competitive Practices: These practices stifle innovation, limit consumer choice, and potentially raise prices. The bill fosters a fairer market that benefits consumers, startups, and the overall Indian economy.

• Example:  Last year, Google was fined Rs 1.337 crore by the CCI for its anti-competitive conduct in the Android ecosystem.

• To Address Market Dominance: A handful of big tech companies, primarily from the US, have captured significant market share in various digital sectors. This creates high barriers for new entrants. Their established platforms become the default way to access services, making it extremely difficult for innovative startups to compete and gain traction.

• Preventing Circumvention: The Digital Competition Bill includes a crucial provision to prevent companies from manipulating their structures by  directly or indirectly segmenting, dividing, subdividing, fragmenting or splitting services to avoid being designated as SSDEs. 

Importance of the bill

• Protecting User Data: The bill seeks to prohibit companies from exploiting non-public user data. This data, which could include browsing history, purchase habits, or location information, is valuable for targeted advertising and could give dominant players an unfair advantage.

• Power of CCI: The CCI can conduct inquiries and impose penalties if it believes an SSDE or ADE is breaching the Act, ordering investigations and penalising violations. It can also take action against group enterprises and launch inquiries outside India, wielding Civil Court powers.

• Combating Self-Preferencing: The bill seeks to create a more level playing field, allowing smaller companies and innovative ideas to flourish in the digital market.

• Example: A group of 40 Indian startups, though, has come out in support of the new law, saying it can help address monopolistic practices of dominant digital platforms and create a level playing field for smaller companies.

• Preventing Anti-Steering: The bill stops SSDEs from forcing users to stay within their ecosystem. Consumers gain the freedom to choose and utilise different platforms and services based on their preferences.

• Promoting Transparency: The bill restricts the bundling of products and services, making it easier for consumers to understand pricing and avoid unwanted services.

• Ensuring Openness and Interoperability:The bill seeks to abolish restrictions on downloading third-party apps. Currently, some companies limit the ability to download apps outside of their own app stores.

• Example: The Competition Commision of India (CCI) in 2022 fined Google $161 million, ordering it to stop restricting users from removing its pre-installed apps and allow downloads without using its app store.

• Level Playing Field for Innovation: Ex-ante regulations proactively address the dominance of established players, creating a fairer environment for new startups to compete and innovate.

• Appeals: Appeals can be made to the National Company Law Appellate Tribunal (NCLAT) within sixty days of receiving the CCI's direction or order, after paying 25 percent of the penalty. Further appeals against NCLAT orders can be made to the Supreme Court within sixty days.

Issues 

• Limited Consumer Focus: Unlike the UK's Digital Bill, which mandates clear complaint procedures and notice periods for service changes, the Indian draft prioritises competition between tech giants. This could leave consumers vulnerable to ineffective Complaint Redressal.

• Broad Definition: Companies are concerned about the broad definition of SSDE. Unlike the EU’s Digital Act which specifically names the 'gatekeeper' entities (enterprises that provide important gateway between businesses and consumers in relation to core platform services, like Amazon, Google. Apple etc), India's draft law leaves this decision to the discretion of the CCI. This could lead to arbitrary decision-making, potentially impacting start-ups.

• Reduced Visibility and Reach: Smaller businesses often leverage big tech platforms like social media or e-commerce marketplaces to reach a wider audience. Changes to data sharing norms could restrict their access to potential customers, hindering their visibility and growth.

• Increased Compliance Costs and Bureaucracy: Ex-ante regulations often involve a complex set of rules and procedures that companies must adhere to before engaging in certain activities. For large tech companies with vast operations, complying with these regulations could translate to significant administrative burdens and associated costs.

• Stifling Innovation:Big tech companies might adopt a more cautious approach, prioritising compliance over innovation. Companies might be less willing to experiment with new ideas or business models if they fear running afoul of the regulations.

• Example: Because of the stringent requirements of the EU’s Digital Markets Act, there has been an increase of 4,000 per cent in the time it takes to find things via Google search.

• Uncertainty in investment: Strict ex-ante regulations can create an environment of uncertainty for investors. They might be hesitant to invest in startups unsure of how the new regulations will impact their business models or future growth potential leading to a decrease in funding.

• Example: Four Internet and Mobile Association of India (IAMAI) members have written to the Ministry of Corporate Affairs arguing against the necessity of ex-ante regulations for digital markets in the draft Digital Competition Bill.

Suggestions

• Gradual Implementation : While ex-ante regulations are important, a phased rollout with clear guidelines can ease adaptation for startups. 

• Startup Exemptions: Considering specific exemptions or simplified compliance processes for startups in the early stages can lessen the burden and encourage investment.

• Focus on Both Competition and Consumer Protection: The current draft prioritises competition between tech giants. The bill can be strengthened by incorporating consumer-centric measures like those in the UK's Digital Bill. 

• This could include mandating clear complaint procedures, requiring explanations for service changes, and ensuring a reasonable notice period before service modifications.

• Regulatory Sandboxes for Innovation: The bill could benefit from creating designated "regulatory sandboxes." These would allow startups to test and refine their business models within a controlled regulatory environment. This fosters innovation without compromising consumer protection goals.

• Clearly Defined Systemically Significant Digital Enterprise (SSDE) Criteria: The criteria for designating SSDEs should be transparent, objective, and regularly reviewed to adapt to the evolving digital landscape. This ensures the regulations remain relevant and target the most dominant players effectively.

• Collaboration and Stakeholder Engagement: The Indian government can benefit from ongoing collaboration and open discussions with stakeholders like startups, tech companies, and consumer rights groups. This collaborative approach can help refine the regulations and address potential unintended consequences

  
  

  Short Takes

  • Competition Commision of India (CCI): This is the chief national competition regulator in India. It's a statutory body established in 2009 under the Ministry of Corporate Affairs. The CCI is responsible for enforcing the Competition Act, 2002, which aims to promote healthy corporate competition and prevent anti-competitive practices, like monopoly, in the Indian market.

  • Anti Steering: In the context of digital platforms like app stores or online marketplaces, anti-steering refers to practices that prevent users from making choices outside the platform. For instance, application stores mandating the use of their own payments systems for application purchases

  • Self preferencing: A practice where a platform owner prioritises its own products or services over those offered by third-party vendors on their platform.

  • Ex ante regulations: It means ‘before an event’. It refers to rules and guidelines that are established before any potential anti-competitive behaviour can occur.

CONCLUSION

In conclusion, the Digital Competition Bill presents a crucial opportunity to foster a vibrant and competitive digital market in India. By carefully considering the potential drawbacks of ex-ante regulations and implementing a measured approach that prior

Tags:
Polity

Keywords:
Digital Competition BIll DPI CCI