The Draft Digital Competition Bill 2024, released by the Ministry of Corporate Affairs, aims to regulate Systemically Significant Digital Enterprises (SSDEs) by imposing pre-emptive obligations to prevent anti-competitive conduct in the digital space. By targeting platforms with large user bases offering core digital services, the bill seeks to address the perceived slow pace of existing competition enforcement mechanisms. However, it presents significant challenges for stakeholders in digital markets. If implemented, the Draft Bill threatens to undermine the business models of Indian tech companies, increase consumer vulnerability to fraud, reduce MSME competitiveness, and overwhelm government capacity. Such outcomes underscore the need for a reconsideration of its approach.
On 12 March, the Ministry of Corporate Affairs released the Draft Digital Competition Bill 2024. This prospective legislation aims to impose pre-emptive obligations – restrictions on certain conduct before it occurs – on Systemically Significant Digital Enterprises. SSDEs are online platforms with substantial user bases of at least one crore customers or 10,000 business users that meet specific financial criteria and offer ‘core digital services’. These core digital services include search, advertising, social media, video sharing, cloud services, web browsers, communication services, and online intermediation. Essentially, it covers nearly every conceivable digital platform or service.
The rationale behind this proposed bill stems from the fact that existing competition enforcement – which responds after anti-competitive conduct has already occurred – is supposedly sluggish and ill-suited to today’s fast-paced digital environment. Given the potential implications of the draft bill on key stakeholders like prominent Indian technology companies, Micro, Small and Medium Enterprises (MSMEs), consumers, and even the government, it may be argued that it presents a far more unsuitable regulatory path for the country than the existing competition regime.
Challenges to Tech Firms
Let us start with the impact on Indian tech firms. Indian companies hold market-leading positions within digital segments likefood delivery, ticket booking, and travel aggregation. Many of these entities may come within the scope of the draft bill as providers of online intermediation services. However, certain obligations in the bill pose existential challenges to their business models. For example, one provision in the bill forbids SSDEs from restricting the businesses on their platform from guiding users toward the latter’s own services. To illustrate, this means that a restaurant listed on a food delivery platform can direct the consumer to its own website to complete a transaction, and there is nothing the platform can do to stop this from happening. Some restaurants may do this to bypass the platform’s transaction fees.
However, food delivery platforms rely heavily on transaction fees to sustain operations. Allowing restaurants to use the platforms to reach consumers, and do so for free, is not only unfair but will also put the platforms out of business. The draft bill does provide a caveat that permits platforms to restrict such bypassing if these restrictions are integral to the platforms’ functioning. However, the final decision on what qualifies as ‘integral’ will rest with the Competition Commission of India. This uncertainty leaves the fate of many major Indian platforms hanging in the balance.
Analysing Impact
In the scenario described above, when a restaurant opts to bypass a food delivery platform to complete a transaction on its own website, the platform is presumably left powerless to intervene or even alert unsuspecting consumers. This situation allows fraudsters to prey on users. For instance, scammers can cheat customers by luring them off the platform with lucrative discounts. This concern may well extend to other e-commerce platforms, as well as application stores.
Another provision that could negatively impact consumers is the restriction placed on SSDEs from promoting the use of their bundled products. Under this rule, SSDEs may be restricted from providing consumers with a package of applications similar to those provided with mobile or computer operating software. To put it simply: users would have to download basic apps individually, thereby increasing complexity and potentially making online services less accessible for a significant portion of India’s internet users, particularly those groups that may not be tech savvy.
Now let us consider MSMEs. These businesses often face resource constraints that make it harder for them to enter and compete in various markets. Scholars argue that digital platforms play an important role in lowering market entry barriers for MSMEs, enabling them to optimise resources either through access to order fulfilment infrastructure or targeted advertising. For instance, a study by the University of California, Berkeley found that each dollar spent on online ads yielded $3.31 in revenue. They also found that ad spending increased purchases by a fourth, and led to a 13 per cent rise in the number of unique customers.
The draft bill introduces a hurdle for SSDEs to personalise and target ads effectively by mandating that they obtain user consent for certain types of data usage. Any limitation on an SSDE to target ads is likely to pose a problem for MSMEs that are dependent on this capability to drive revenues and purchases and acquire customers. We can, thus, expect the prospective law to dampen competition in numerous sectors where MSMEs previously thrived because of their access to SSDEs.
Finally, coming to the impact on the government. The Draft Digital Competition Bill 2024 is poised to trigger a surge in cyber fraud as platforms cannot control business and consumer interactions. This will turn India’s 800 million strong internet user base into 800 million individual vulnerabilities for malicious actors to exploit. The bill will make it harder for MSMEs to access and compete in different markets. These entities form the backbone of the Indian economy, accounting for roughly 29 per cent of the GDP, 36 per cent of manufacturing output across FY20-22 and 43.6 per cent of exports in FY23. Finally, the bill may also make many of our digital champions unviable, dashing the dream of a trillion-dollar digital economy.
The Draft Digital Competition Bill 2024 wields a sledgehammer where a scalpel, or perhaps nothing at all, is required. It risks stifling innovation, crippling our homegrown tech firms, and leaving consumers and MSMEs wading through a quagmire of inefficiency and risk. It must be reconsidered.
[This article was first published on ThePrint.in website Here.]