The Committee on Digital Competition Law, formed by the Ministry of Corporate Affairs in February 2023, has recommended a new law and legislation to regulate the market power of Big Tech companies like Meta and Google.
The Committee on Digital Competition Law was set up on 6th February 2023 to examine the need for an ex-ante regulatory mechanism for digital markets in India. The Committee was tasked with the responsibility of reviewing the current provisions of the Competition Act, 2002; assessing whether they are sufficient to deal with challenges that have emerged from the digital economy; and evaluating whether a separate legislation to regulate digital markets is needed.
It examined the need for a separate digital competition law, bearing in mind the inherent peculiarities of digital markets vis-à-vis traditional markets as well as a wide range of stakeholder concerns.
The Competition Act of 2002 “intervenes after the occurrence of an anti-competitive conduct,” the committee said. “Such a framework was designed at a time when the extent and pace of digitalisation as is witnessed today could not be foreseen.” The recommendations, if implemented, would better equip the Competition Commission of India (CCI) to rule on competition matters for tech firms.
The Standing Committee Report stated that it recognised that digital markets, in comparison with traditional markets, are driven by strong network effects and tend to ‘tip’ in a swift manner, often leading to a ‘winner-takes-most’ outcome. The leading players in a digital ecosystem are more prone to resort to practices which foreclose competition, reduce market contestability, and raise barriers for new entrants in the market.
Given the pace at which such markets evolve, an ex-post regime may not be effective to remedy the irreversible tipping of markets in favour of large digital enterprises. The Standing Committee Report acknowledged the need for a comprehensive ex-ante competition law to ensure a competitive structure for Indian digital markets.
The report said “…digital markets bear the risk of becoming irreversibly polarised in favour of the incumbent.”
The report recommends the creation of a new law, the Digital Competition Act, to ‘introduce an ex-ante legislation specifically applicable to large digital enterprises, to supplement the Competition Act.’ A draft prepared by the committee targets firms with a ‘significant presence’ in the market for a ‘Core Digital Service,’ terming these Systemically Significant Digital Enterprises, or SSDEs.
The Committee observes that the current ex-post framework under the Competition Act, 2002 needs to be supplemented to better address concerns related to alleged anticompetitive practices of large digital enterprises. It recommends that ex-ante measures be introduced to complement the current ex-post framework by identifying large digital enterprises with a ‘significant presence’ in India in selected
‘core digital services’ and setting pre-determined rules for their conduct.
Since digital markets are dynamic in nature, timely intervention is necessary to prevent anticompetitive conduct, the report stated. A set of appropriately designed ex-ante measures can help the CCI in making a timely and effective intervention before the market irremediably tips, the committee said.
India’s digital revolution
The Committee also observes that such de novo ex-ante framework should be implemented in a manner that does not hinder opportunities and incentives for innovation for small enterprises, and that such enterprises are not burdened with additional compliance obligations. The Committee recommends that the CCI’s capacity for technical regulation in digital markets should be strengthened, and a mechanism for inter-regulatory consultation be implemented.
The report also highlighted India’s digital revolution. There are reportedly 759 million active internet users in India who accessed the internet at least once a month in 2022, compared to approximately 499 million users in 2018. The merging of technology with mainstream public policy and governance with the introduction of the CoWIN platform, DigiLocker, and Aadhaar for better efficacy has also accelerated the development of India as a digital economy.
During the course of its deliberations, the Committee noted that the digitalisation of the Indian economy has led to the emergence of start-ups which have immense capacity to contribute substantially to the growth of the country’s GDP. Start-ups not only create wealth and employment, but they also foster innovation in order to succeed against well-established players. Today, India has over 1.19 lakh start-ups and counting.
The Committee also took note of the Indian IT services industry, which grew from under USD 100 million to USD 250 billion in revenue in barely three decades, creating the world’s largest pool of high quality tech talent. However, the digital market is increasingly becoming concentrated with a few large digital enterprises that wield immense control over the market, stated the report, giving them an edge over other business users and start-ups. It added that this ultimately makes smaller digital enterprises and start-ups dependent on large digital enterprises and gives rise to an imbalance in bargaining power and information asymmetry in the digital market.
In light of this, the Committee felt that it is important to ensure that policy measures are carefully crafted only to address anti-competitive conduct by existing large digital enterprises, and to not throttle the growth of emerging digital enterprises that have the capacity to grow into global players.
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