INDIA'S NEED OF THE HOUR- DIGITAL COMPETITION LAW

Antara Mandal,

Christ University

Abstract

India’s IT industry has contributed around 7-8% to the country’s GDP in the previous FY, 20212022. The cost competition in the provision of IT services is 3-4 times cheaper than in the US and it remains a Unique Selling Proposition in the global sourcing market. The IT market has a major impact on the growth of the Indian GDP yet it is one of the most concentrated markets today making it an easier place for monopolies to abuse their market position through various complex anti-competitive behaviors. The big tech monopolies pose risks to consumer welfare and reach as far as stifling market competition and technological innovation. The present competition law of India doesn’t identify digital market competition law, however, the Competition (Amendment) Act, 2023[i] (hereinafter, ‘The Act’) has put forth several much-needed amendments to foster the needs of the present digitized Indian economy. 

The article briefly discusses amendments in the act that focus on digital markets and puts forth an analysis of the need for a separate digital competition law. 

Introduction

The Indian market has changed a lot post 2002 and the Competition Act 20023 failed to address major market competition problems. With an aim to strengthen competition regulations, create a better and safer ecosystem for digital markets and foster a business and consumer-friendly market, the Indian legislation duly passed the Competition (Amendment) Act, of 2023. The act amended many provisions related to mergers and acquisitions like deal value threshold and certain changes were made to the behavioral provisions like the introduction of the hub and spoke cartel.

However, the amendment doesn’t exclusively identify the digital market. The digital market comes with various threats to data privacy, malware, phishing, etc. and there are individual laws available to check various issues but there is an absence of laws that are completely dedicated to monitoring anti-competitive activities on digital markets. The Indian legislation over time has realized the need for a separate law that is wholly dedicated to digital markets. 

Indian Legislation on Digital Markets 

In December 2022, a Standing Committee on Finance submitted its report, namely, “Anti-Competitive Practices by Big Tech Companies”. The Committee suggested for introduction of a separate ex-ante competition law on digital markets. The report gave reasons as to how different the traditional and digital markets are in terms of their economic operations on diminishing marginal costs, increasing returns to scale, increasing utility of the consumers, subject to monopoly easily and abusing new innovative start-ups and at the end the havoc falls on consumers. 

The committee specifically suggested an ex-ante law due to the time-sensitive nature of the digital markets. The monopoly of a firm in the market is established over 4-5 years, the present ex-post laws would fail to adjudicate matters because, by the time a case is filed against the firm and adjudicated, the market would have been already monopolized resulting in widespread abuse of dominant position. Ex-ante competition laws would, therefore, help in monitoring individual market behavior and maintaining a fair competitive market by a unit specialized in digital market.[ii] 

Post the report, the Ministry of Corporate Affairs in February 2023 established the Committee on Digital Competition Law (CDLC) to examine the need for a separate competition law for digital markets. The report of CDLC was to be published by Dec 2023 but there are no heads on the report as the term of the committee has also ended.  

In March 2023, the parliament proposed a draft of the Digital India Act, 2023 that aimed at focusing on challenges that the IT Act, 20005 has been facing lately, like regulatory provisions on e-commerce, social media platforms, e-transactions, digital signatures and abuse on user rights and individual security, organized information wars, deep fakes and unfair trade practices.[iii] The proposed act identifies the need for open internet and a need for amending the Competition Act, of 2000, which it has already achieved. 

Key suggestions of the Standing Committee on Finance Report 2022

The report has emphasized on establishment of a fair and contestable digital market competition in India. The prominent proposals by the committee are discussed below:

1.     Digital Competition Act: The report suggests the enactment of a law that specifically addresses the challenges of market competition in digital markets. As the existing laws only address the issues of traditional markets and as stated above, market functionality of traditional markets is opposite to that of digital markets. 

2.     Ex-ante regulations: The ex-ante approach to competition means to prevent anticompetitive practices before they occur. It would include measures like regulation of mergers and acquisitions, deep discounting, anti-steering and bundling and tying of services. Experts have their own reservations that such a provision would bring a chilling effect on the market and would slow down economic growth. On the other hand, start-ups are encouraging such provisions as that would open up gates for their growth. The OECD has also suggested some recommendations regarding ex-ante regulations as they must complement the traditional competition laws and must also ensure consumer protection, data protection and privacy.[iv] 

3.     Identification of Systemically Important Digital Intermediaries (SIDIs): SIDIs are digital platforms that play a key role and own a major share of the digital ecosystem. It  

is similar to gatekeepers defined by EUs that impose ex-ante regulations on them. SIDIs are necessary to be identified due to the size of the market share they hold and the potential risks they can cause to the economy. 

4.     Open Internet: This would promote interoperability and ensure a better ecosystem for start-ups to grow. 

The report highlights the concerns of big tech company dominance and calls for a comprehensive regulatory framework that would ensure a more equitable and competitive digital environment in India. 

Whether the Competition (Amendment) Act, of 2023 adequately address the issues of Digital Market Competition?

The act very well identifies anti-competitive practices present in the digital market like self-referencing, data abuse and bundling. Major amendments related to digital market competition are observed in section 4 and 19 of the acts[v][vi]. The two sections aptly address the issues of self-referencing, data abuse and bundling and grant the CCI to investigate cases of self-prefacing, scrutinize data practices and intervene in cases were mandatory bundling of services by dominant platforms stifles competition or limits consumer choice.

The act further puts additional measures like transparency requirements on algorithms, data usage and terms of services by making it easier for consumers and competitors to identify potential unfair practices. It also opens up the market by enabling interoperability with other services which would ensure fair competition and better consumer choice.

However, the act doesn’t identify all the challenges of the digital market and there are major loopholes. The areas where the act falls short are: 

1.     Defining significant market power: The act doesn’t use an effective method to identify the significant market power, rather it relies upon the vague method of identification through market share. This can lead to inconsistencies in enforcement. 

2.     Ignored the global reach of digital platforms: the act only focuses on the platforms that are operated within India and completely avoids the fact that digital platforms have a global reach. 

3.     Ex-post regulation: It has been discussed above that the digital competition market requires an ex-ante provision and the present law is ex-post in nature.

Foreign Jurisdictions on Digital Market Competition

Within the sphere of five years, the digital market has grown considerably and it is not just a national concern but has become a global concern to regulate the dynamic and complex landscape of digital markets. Post globalization the world has indeed turned into a small village and our economies are working in a more interdependent way. Just like India, several global powers have addressed the issues of big tech companies and the unfair competition persistent in the digital market. Countries have opted for different methods to address the issues of the digital market competition. These methods are based on various factors like the nature of the markets and the nature of the law of the land. 

There are two main approaches that countries follow i.e., the soft and hard approach. The Soft Approach relies on non-binding measures like issuing guidelines, consultations and market studies. It is flexible to the rapidly evolving digital markets and ensures faster implementation with fewer resources. The industries are encouraged to self-regulate. However, this seems to be a utopian approach, with the complexities in the digital market it would be difficult to deter significant anti-competitive behavior and the major setback is that it is not binding. 

The Hard Approach is legally binding and imposes obligations and prohibitions on dominant digital platforms. It can be more effective in deterring and sanctioning anti-competitive practices. However, due to its inflexibility, it can stifle innovation and competition. 

Countries have adopted a mixed approach due to the several cons that both approaches have. EU uses the hard approach to the Digital Markets Act by imposing strict obligations on gatekeeper platforms and its soft approach can be observed in its non-binding guidelines on self-referencing and data portability. 

The US like India still relies on existing anti-trust laws, which is a soft approach. However, at the state level, it has several initiatives for digital competition regulation. 

China too has a mixed approach; it has specific anti-trust laws for monitoring the digital market competition and also utilizes administrative measures and guidance. 

Choosing the best approach for India

As mentioned above, both approaches come with pros and cons and hence choosing the right approach depends on various factors. India’s rapidly evolving digital market and limited regulatory resources make the soft approaches a favorable approach. By this industry cooperation could be promoted and with adequate guidelines responsible behavior from the companies could be expected.

Whereas the growing dominance of big tech companies and their abuse of market power could only be controlled through the hard approach, i.e., implementing binding laws to safeguard consumer and competitors' interests.

A hybrid approach just like the EU, USA and China would serve the needs of India’s dilemmas with the present digital market competition conditions. With this, the Digital Competition Act can be established with legally binding provisions and prohibitions against anti-competitive practices. The soft tools like issuing guidelines and conducting market research can be implemented and hard tools like identification of SIDIs and imposing strict regulations on them. To safeguard from a stifle in innovation and competition, a safer and fairer start-up ecosystem must be established. 

Conclusion 

The success of any law in the end depends on its effective implementation and adaptation to the dynamic digital landscape. Continuous monitoring and evaluation are crucial for India’s digital market and to achieve its desired outcomes.   

References

[i] Competition (Amendment) Act, of 2023

[ii] An-Competition Process by Big Tech Companies, Standing Committee on Finance (2022-23), 53rd report, Ministry of Corporate Affairs

https://loksabhadocs.nic.in/lsscommiee/Finance/17_Finance_53.pdf Information on Technology Act, of 2000

[iii] Proposed Digital India Act, of 2023, Ministry of Electronics and Informa on Technology, Govt of India, 09.03.2023

https://www.meity.gov.in/writereaddata/files/DIA_Presentaon%2009.03.2023%20Final.pdf 

[iv] Competition on policy in the digital age, OECD, 22 Feb 2022

https://www.oecd.org/daf/compeon-policy-inthe-digital-age/ 

[v] Sec on 4 of the Digital (Amendment) Act, of 2023 

[vi] Sec on 19 of the Digital (Amendment) Act, of 2023 

IT/Software Sector, Ministry of Electronics & Information Technology, Govt. of India, [last accessed

12-01-23] https://www.meity.gov.in/content/software-and-services-sector