Big Tech regulation: Blanket emulation of EU law may harm India’s startups

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Big tech regulation: With the rapid expansion of digital markets globally, its regulation has become a challenge to governments all over the world. In India, the parliamentary standing committee on finance submitted a report in December 2022 titled ‘Anti-competitive Practices by Big Tech companies’ which has examined several key issues relating to digital markets. The report has several key recommendations similar to the Digital Markets Act of the European Union which itself is under scrutiny.

As the Indian digital markets are significantly different compared with the EU markets, blanket emulation of the DMA in India may have unintended adverse consequences. Hence, the peculiarities of the Indian digital markets need to be carefully reviewed before bringing additional ex-ante regulation. Any hasty decision in this regard may impede innovation and may harm the start-up ecosystem, consumer welfare, and overall economic growth momentum.

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Parliamentary panel report on big tech regulation

Since digital markets often result in winner-takes-all situations and tips quickly with only one or two market players, the standing committee felt that ex-post enforcement under Competition Act, 2002 may be insufficient. Hence, it recommended additional ex-ante regulation in the form of a Digital Competition Act (DCA). The thought process of the panel seems to be informed by the EU-DMA. The proposed DCA will apply only to systemically important digital intermediaries (SIDIs), as it would regulate SIDIs as gatekeepers in digital markets.

The standing committee has identified 10 anti-competitive practices of big tech firms in digital markets in India. These are anti-steering practices; platform neutrality/self-preferencing; bundling and tying; data usage; mergers and acquisitions; price/deep discounting; exclusive tie-ups; search and ranking; restricting third-party applications; and advertising policies.

The presumption of introducing an ex-ante regulation rests on the belief that (a) the Big Tech companies are invincible (b) the digital markets cannot correct themselves, and (c) the ex-post enforcement under Competition Act 2022 is insufficient. However, such presumption may be misaligned with market realities.

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In the follow up to the standing committee report, the ministry of corporate affairs has now set up a committee to examine the need for ex-ante regulation by examining the adequacy of the current legal framework to address competition concerns emanating from the business conduct of the Big Tech. The committee is also tasked to study international best practices. The MCA committee is expected to submit its report, including a draft DCA, in three months.

Because of the innovative and dynamic nature of the digital markets, and because its economics are not yet completely understood, it is extremely difficult to estimate the consumer welfare effects of specific practices. Therefore, the approach of ex-post regulation offers an advantage to take into account various relevant factors on a case-to-case basis before arriving at a conclusion on consumer harm.

The existence of technological solutions like Unified Payment Interface (UPI) and Open Network for Digital Commerce (ONDC) also counter certain anticompetitive practices as they are intended to promote a level playing field in the digital markets in India. The MCA committee should take into account all such unique features of Indian digital markets while drafting its report.

With regards to the inadequacy of the existing regime, the recent decision of Competition Commission of India (CCI) against Google, imposing a fine to the tune of Rs 2,273 crore speaks differently. Moreover, after a failed appeal to the Supreme Court, Google has changed its anticompetitive practice of tied conditionalities for use of its operating system. Thus, it remains inconclusive that the antitrust measures have an insufficient deterrent effect on the large digital players.

The standing committee report suggests the establishment of a digital markets unit (DMU) within the CCI to monitor unfair practices of SIDIs and other digital players. This implies that the DMU would technically be overseeing the entire digital market in India and would not just be restricting itself to the SIDIs.

In this regard, it may be pertinent to note that the several vacancies in the position of members in the CCI in recent times have resulted in delays in the disposal of cases totalling more than Rs 10,000 crore, pending since the exit of CCI’s previous chairperson. This also highlights the stark difference in the challenges faced by the Indian regulators as compared to the EU, the US, and Germany. Therefore, the constitution of a DMU may also face similar operational difficulties.

The proposed ex-ante regulatory response needs to be cognizant of the market reality that the SIDIs have different business models such as from ad-funded, or transaction/ matchmaking platforms or operating system platforms/app stores. The identification of SIDIs on different factors can hamper innovation and expansion by different firms, as these firms might be afraid of additional scrutiny to be faced by them in case they get designated as big.

A similar concern was echoed by Frederic Jenny, chair of the OECD Committee on Competition while critiquing the DMA wherein he said that “the EU proposal could actually restrict competition or innovation of such ecosystems in the name of fairness or of protecting competition within an ecosystem.”

Thus, emulating the EU-approach in India could be counter-productive, particularly when the country has a burgeoning start-up ecosystem. Furthermore, there are many laws such as Telecommunication Bill, the Digital Personal Data Protection Bill, and the Digital India Bill which are in the pipeline that would apply to digital markets. Would an increment in regulatory burden not harm the emerging Indian digital ecosystem, particularly before the coherence of the laws has been established?

(Navneet Sharma is Director General and Aman Mishra Research Associate with CUTS Institute for Regulation & Competition, New Delhi. Views are personal.)