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What The draft Digital Competition Bill Proposes, Why Big Tech Opposes It

India is on the brink of introducing a significant legislative change in the digital marketplace with the Digital Competition Bill, 2024.

 

This proposed law aims to regulate the activities of big tech companies like Google, Facebook, and Amazon, drawing inspiration from the European Union’s Digital Markets Act (DMA). For UPSC aspirants, understanding this bill is crucial as it intersects with multiple subjects like economics, polity, and international relations.

 

This blog provides a comprehensive overview of the Digital Competition Bill, its key proposals, criticisms, and the broader context of digital competition.

 

1. Predictive Regulation

Ex Ante Framework: Unlike the current ex post framework under the Competition Act, 2002, which addresses market abuses after they occur, the new bill proposes a forward-looking ex ante framework. This predictive regulation aims to prevent anti-competitive practices before they happen by setting pre-determined no-go areas. This approach is designed to protect smaller competitors and maintain market fairness from the outset.

2. Significant Entities

Designation of SSDEs: The bill introduces the concept of “Systematically Significant Digital Enterprise” (SSDE). Companies involved in core digital services like search engines and social media can be designated as SSDEs based on specific criteria, including turnover, user base, and market influence. Here are the quantitative parameters:

  • Turnover: Rs 4,000 crore in India or $30 billion globally.
  • Gross Merchandise Value (GMV): Rs 16,000 crore in India.
  • Market Capitalisation: $75 billion globally.
  • User Base: 1 crore end users or 10,000 business users.

Prohibitions on SSDEs: SSDEs are prohibited from engaging in practices such as self-preferencing, anti-steering, and restricting third-party applications. Violations could result in fines up to 10% of their global turnover.

3. Associate Digital Enterprises (ADEs)

Data Utilization and Obligations: ADEs are group companies benefiting from data collected by another entity within the same group. They will have similar obligations as SSDEs. For example, Google Maps, benefiting from Google Search data, could be considered an ADE. These entities must adhere to the same anti-competitive restrictions as SSDEs.

 

Compliance Burden

Big tech companies argue that the stringent ex ante framework imposes significant compliance burdens, diverting focus from innovation and research. The increased time and resources required to meet these regulations could hinder the growth and operational efficiency of these companies.

Broad Definitions and Discretionary Powers

The bill’s broad definitions of significant platforms and the discretionary power granted to the Competition Commission of India (CCI) to designate SSDEs have raised concerns. Critics argue that this could lead to arbitrary decision-making, potentially impacting startups and smaller businesses relying on larger platforms for market access.

Impact on Innovation and Market Dynamics

There is a fear that the presumptive nature of the bill might stifle innovation. Companies argue that the prescriptive norms could lead to a shift away from developing new technologies and services towards merely complying with regulations. This could potentially slow down the digital economy’s growth.

 

Addressing Anti-Competitive Practices

Government officials assert that a presumptive framework is necessary to curb the anti-competitive practices of big tech companies, which have historically leveraged their dominance to stifle competition. For instance, the CCI fined Google Rs 1.337 crore for anti-competitive conduct in the Android ecosystem.

Promoting Innovation and Fair Competition

The bill aims to lower market entry barriers, fostering innovation outside the realms of a few dominant players. This would encourage a more diverse and competitive market environment, promoting innovations from smaller companies and startups.

Balancing Regulation and Innovation

While fostering digital competition, it’s crucial to balance regulatory measures with the need to maintain an environment conducive to innovation. The bill seeks to protect smaller competitors and consumers while ensuring that big tech companies do not misuse their market power.

 

  • Ex Ante Framework: The bill proposes a predictive regulatory framework to prevent anti-competitive practices.
  • SSDE Designation: Criteria for designating significant digital enterprises include turnover, GMV, market capitalization, and user base.
  • ADE Obligations: Associate digital enterprises benefiting from group data must adhere to anti-competitive restrictions.
  • Compliance Concerns: Big tech companies express concerns over increased compliance burdens.
  • Broad Definitions: Critics worry about the discretionary power of the CCI leading to arbitrary decisions.
  • Innovation Impact: Potential stifling of innovation due to strict regulations.
  • Addressing Anti-Competition: The bill aims to curb historical anti-competitive practices of big tech companies.
  • Fostering Innovation: Encourages lower market entry barriers and promotes innovation from smaller companies.

 

AspectCurrent Framework (Ex Post)Proposed Framework (Ex Ante)
Regulatory ApproachAfter occurrence of market abusePreventive, before market abuse occurs
Designation of Significant EntitiesNo specific designationDesignation of SSDEs based on criteria
Compliance BurdenReactive complianceProactive compliance
Impact on InnovationPotential for delayed regulation stifling small competitorsConcerns over hindering innovation due to strict norms
Market Entry BarriersHigher due to existing dominanceLowered by preventing anti-competitive practices

What is the Digital Competition Bill, 2024?

The Digital Competition Bill, 2024, is a proposed law in India aimed at preventing anti-competitive practices by big tech companies by introducing a predictive regulatory framework.

What is an Ex Ante Framework?

An ex ante framework is a predictive regulatory approach that aims to prevent anti-competitive practices before they occur, as opposed to addressing them after they happen (ex post).

What are Systematically Significant Digital Enterprises (SSDEs)?

SSDEs are companies involved in core digital services that meet specific criteria regarding turnover, user base, and market influence. They are subject to strict regulations to prevent anti-competitive practices.

What concerns have been raised about the bill?

Critics have raised concerns about the increased compliance burden on companies, the broad definitions of significant platforms, and the potential stifling of innovation due to strict regulations.

How does the bill aim to foster digital competition?

The bill aims to reduce market entry barriers, prevent anti-competitive practices, and promote a more competitive and innovative digital market environment.

The Digital Competition Bill, 2024, represents a significant step towards regulating the digital marketplace in India. By understanding its provisions, implications, and the debates surrounding it, UPSC aspirants can gain valuable insights into how regulatory frameworks can impact the economy and society.

 

This knowledge is crucial for comprehensively addressing questions related to governance, economy, and technology in the UPSC examination.

 

Understanding these aspects is essential for comprehending how legislative measures can shape the digital economy and ensure fair competition.


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