Business Standard

Digital regulation

Proposed competitio­n law should not stifle innovation


The proposed Digital Competitio­n Bill has been drafted by the 16-member committee on digital competitio­n law and presented for public comment after over a year’s deliberati­on. It is designed to regulate India’s digital sector more effectivel­y. The Bill proposes an ex-ante approach while giving startups exemption from purview. It empowers regulators to proactivel­y check if a proposed action is in breach of competitiv­e principles. It prescribes possible penalties of up to 10 per cent of global turnover in fines, as well as possible jail sentences. Some proposals may duplicate provisions of the extant Competitio­n Act and this adds to the complexity of regulation. Areas of duplicatio­n will need to be clarified and the penalties to be imposed in such cases aligned.

There are concerns that ex-ante regulation could stifle innovation and an ex-ante regime may give too much discretion­ary power to the regulator. Normal ex-post investigat­ion under the Competitio­n Act requires assessment on a case-to-case basis to judge if some violation has occurred. The ex-ante approach could ban a proposed action before it comes into force and, thus, stifle innovation. Ex-ante regulation is deployed in the European Union’s (EU’S) Digital Markets Act (DMA), giving regulators the powers to investigat­e dominant players and proactivel­y prevent anti-competitiv­e practices. In the proposed Bill, “systemical­ly significan­t digital enterprise­s (SSDES)” would have to self-declare they are above the SSDE threshold. These big players could be targeted ex-ante.

SSDES may be defined as large corporatio­ns with at least ~4,000 crore in India revenues, and global revenues of $30 billion and at least 10,000 business users in India along with some other criteria. The Bill also entrusts SSDES with preventing fraud, maintainin­g cybersecur­ity, preventing trademark and copyright infringeme­nt, compliance with local laws, etc. This is in addition to compliance with relevant provisions of the Competitio­n Act and the Digital Personal Data Protection Act. These SSDES would have to establish transparen­t complaint-handling mechanisms and operate in a fair, non-discrimina­tory, and transparen­t manner. SSDES cannot directly, or indirectly, favour their own products, services, or lines of business, or those of related parties, and they may not use or rely on non-public data of business users. Nor can they restrict the use of third-party apps. They cannot indulge in “steering” or “self-referencin­g”. Predatory pricing must also be avoided. Big tech firms have run into trouble with the EU’S DMA, and they opposed the concept in consultati­on with the Indian Committee on Digital Competitio­n Law. Another issue is that SSDES could face parallel inquiries for anti-competitiv­e behaviour, or abuse of dominant position, under both the proposed Digital Competitio­n Bill and the existing Competitio­n Act. This duplicatio­n could lead to confusion and divergent rulings.

India is a huge digital market with over 750 million mobile broadband users and a growing set of services delivered online. By 2030, the domestic digital economy could be around $800 billion. Hence, a regulatory update is surely necessary. But apart from clarifying the areas of duplicatio­n in the proposed Bill and finetuning when ex-ante may apply, the Competitio­n Commission of India will need to bolster its capacity to ensure early detection. The Committee on Digital Competitio­n Law also recommends setting up a separate Bench within the National Company Law Appellate Tribunal for speedily disposing of digital cases. The Bill may require some thought and re-drafting before it is presented for legislativ­e approval.

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