Context:
In February 2023, the Ministry of Corporate Affairs (MCA) established the Committee on Digital Competition Law (CDCL) to consider the need for a specific law governing competition in digital markets. After extensive discussions, the CDCL determined that the existing Competition Act, 2002, which operates on an ex-post framework (addressing issues after they arise), should be complemented by an ex-ante framework (preventive measures to address issues before they occur). This type of regulation is rare, with the European Union being the only jurisdiction with a comprehensive ex-ante competition framework under the Digital Markets Act. Consequently, the draft Digital Competition Bill was developed, detailing the ex-ante framework aimed at improving the current regulatory system for digital markets.
Relevance:
GS II: Polity and Governance
Dimensions of the Article:
- Growing Need for an Ex-Ante Framework
- Digital Competition Bill 2024
- Criticism of the Digital Competition Bill 2024
Growing Need for an Ex-Ante Framework
Rationale for an Ex-Ante Framework
- Challenges of Digital Markets:
- Regulating digital markets ex-post (after harm occurs) is suboptimal due to rapid growth fueled by economies of scale and network effects.
- Digital enterprises benefit from economies of scale (cost reduction per unit) and scope (cost reduction across services), accelerating their expansion compared to traditional markets.
- Network Effects and Growth:
- Network effects amplify the utility of digital services with increasing user numbers, further driving growth and market dominance.
- Advocating for Ex-Ante Framework:
- A forward-looking, preventive law (ex-ante framework) anticipates potential harms from antitrust issues and prescribes pre-established prohibitions to safeguard fair competition.
Digital Competition Bill 2024
Overview and Objectives
- Legislative Purpose:
- Introduced in March 2024, the Digital Competition Bill aims to regulate large digital enterprises to ensure fair competition and a level playing field in the digital sphere.
- Presumptive Norms and Provisions:
- Prohibits practices like self-preferencing and leveraging data across services within conglomerates.
- Similar to the EU’s Digital Markets Act (DMA), which aims to prevent tech giants from favoring their own services to the detriment of competitors.
- Penalties and Enforcement:
- Heavy penalties, potentially amounting to billions of dollars, for violations of the prescribed norms.
- Enforced by the Ministry of Corporate Affairs (MCA) to ensure compliance and fair market practices.
Key Proposals of the Draft Digital Competition Bill 2024
- Designation of Systemically Significant Digital Enterprises (SSDEs):
- Criteria include financial strength tests and user base metrics to identify enterprises significantly impacting core digital services in India.
- Obligations on SSDEs:
- Prohibited from engaging in anti-competitive practices such as self-preferencing and restricting third-party applications.
- Non-compliance could lead to fines up to 10% of global turnover.
- Associate Digital Enterprises (ADEs):
- Entities associated with core digital services must adhere to similar obligations as SSDEs, depending on their role and data interactions within conglomerates.
Comparison with EU’s Digital Markets Act (DMA)
- Similarities:
- Mirrors DMA’s objectives to curb monopolistic practices among large tech firms like Google, Facebook, and Amazon.
- Differences:
- India’s bill leaves the determination of significant platforms to the Competition Commission of India (CCI), potentially impacting decision-making transparency and startup ecosystem dynamics.
Criticism of the Digital Competition Bill 2024
Concerns Raised by Stakeholders
- Compliance Burden:
- Strict prescriptive norms could burden big tech companies, diverting resources from innovation to compliance.
- Impact on Innovation:
- Fears that stringent regulations may stifle innovation and research efforts among tech firms.
- Broad Definitions and Discretionary Powers:
- Unclear definitions of significant platforms and discretionary powers of the CCI could lead to arbitrary decision-making, impacting both established companies and startups.
- Operational Implications:
- Potential restrictions on data sharing and platform modifications could disproportionately affect smaller businesses reliant on digital platforms for market access.
-Source: The Hindu, PIB
