The Digital Competition Bill, 2024: What’s the fuss about?

On June 18, officials from the Ministry of Electronics and Information Technology (MEITY) met tech leaders to hash out the new Digital Competition Bill (DCB). The talks brought mixed views, with some backing the rules while others fear the new rules might scare off investors. Big names from online companies, travel sites, and news outlets shared their thoughts on how the bill could shake up India’s digital space. The meeting, held by MEITY, brought together nine industry associations and company executives to address concerns that the proposed regulations could either safeguard competition or hinder investments in India’s digital sector.

On March 12, the Ministry of Corporate Affairs (MCA) had proposed the Bill to curb anti-competitive practices of tech giants through ex-ante regulation. Big enterprises, such as Google and Reliance, are apprehensive because the Bill’s aim is to prevent big firms from dominating the country’s digital market by making the digital space more fair and contestable.

The DCB reportedly derived its inspiration from the European Union’s Digital Market Act (DMA), passed in 2022. The following year, the DMA categorised companies such as Apple, Amazon, Google, Meta, Microsoft, parent Alphabet, and ByteDance as “gatekeepers”; they had to ensure full compliance with the Act. In response, Apple is now allowing people to install apps from external app stores.

The DCB provides assurance to digital consumers who are worried about data breaches as it prohibits companies from sharing gathered data. It also prevents giant enterprises from self-preferencing their own products, that is, promoting only their products on top of search results and excluding similar products from outside thereby blocking new companies from entering the market.

However, the Bill is facing major criticism for allowing the Competition Commission of India (CCI) to intervene even before any harmful competitive practice takes place.

What does the Bill propose?

The DCB proposes ex-ante regulation, or predictive regulation, that can foresee and possibly prevent issues that can arise in the market. It draws from the Competition Act, 2002, where the Indian digital market follows a system of ex post model of regulation, which means that an action is taken by the CCI against market abuse after an incident takes place. This had sparked criticisms against the Act due to the delay in penalising the offenders. Kazim Rizvi, the founding director of The Dialogue (a public policy think-tank in Delhi), told Frontline that although the intention of ex ante regulation is to quickly resolve competition bottlenecks by skipping a few assessment levels, it remains to be seen if it will actually resolve market failures at a quicker pace.

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In its proposal, the Bill states that the CCI should identify certain core digital services like search engines and social media sites as “Systematically Significant Digital Enterprises (SSDEs)”. As per the Bill, this can be done based on parameters such as turnover, user base, and market influence. If a company’s turnover is not less than Rs.4,000 crore in the last three fiscal years and the global turnover is not less than $30 billion, it can be identified as an SSDE. Enterprises whose gross merchandise value is not less than Rs.16,000 crore in India and whose global market capitalisation is not less than $75 billion are also qualified to become SSDEs. Another quantitative parameter is that the firm’s digital service should have at least one crore end users or 10,000 business users. However, the DCB also states that entities that do not meet these parameters can be designated as SSDEs, if the CCI finds their presence significant.

The Bill prohibits SSDEs from directly or indirectly using personal data to compete with other enterprises and they should allow users to transfer their personal data from one IT space to another, called data portability. If they are found engaging in self-preferencing, anti-steering, or restricting third-party applications, they will be fined up to 10 per cent of their global turnover.

The Bill also proposes Associate Digital Enterprises (ADEs) or companies that benefit from data collected by major technology companies. For example, Google Maps can be considered as an ADE as it gets direction data from Google Search. The ADEs have the same obligations as SSDEs, as per the Bill.

What exactly are the anti-competitive practices?

In 2022, the Standing Committee on Finance listed 10 anti-competitive practices (ACPs) in its 53rd report. The list begins with “anti-steering”, in which companies block consumers from switching from their service to external services. It also lists “self-preferencing” and “bundling and tying”, in which a digital firm forces a user to buy related services that they need not want. ACPs are also “data usage” (when a company uses personal data to help other companies reach their target audience through advertisements) and “deep discounting”, when a company brings down its service price below the original price to exclude competitors.

The list also recognises “acquisition and mergers” where big firms buying large start-ups (acquisition) and conglomerates joining together (mergers) leave no space for small firms to grow. “Exclusive tie-ups”, another ACP, is when companies keep exclusive agreements with business users and sellers to prevent them from dealing with others.

“Search and ranking preferences” and “restricting third-party applications” also appear on the list. While the former means restricting the visibility of other products by promoting only its own products through search bias, the latter refers to blocking users from using external applications. Finally, “advertising policies” are also labelled ACPs because unhealthy competition in digital advertising markets are causing market concentration, consolidation, and integration.

Why is there opposition to the proposal?

In May 2024, The Indian Express reported that big tech companies are worried that their focus will shift from being innovative to refraining from ACPs. While the DMA has listed certain companies as “gatekeepers”, the DCB has left that decision to the CCI. Several companies, especially start-ups, have expressed concern as there is a possibility of arbitrary decision making.

The Hindustan Times reported in June that in a meeting held between MeitY and industry lobby groups, the Digital News Publishers Association stated that the draft Bill should incorporate a bargaining code between news publishers and Big Tech companies to ensure fair revenue sharing. Stakeholders such as MakeMyTrip opposed the threshold to designate SSDEs. The report added that the Internet and Mobile Association of India is worried about ex ante regulation preventing long-term investments in the country.

Whom does the Bill affect and how?

“A few categories of MSMEs and startups may benefit from the Bill through more choices of digital service providers and access to fairer terms and commissions,” Rizvi told Frontline. However, the DCB’s restriction on data processing, if implemented, would impact their targeted advertising capacities. Meghna Bal, Director of Esya Centre, a technology policy think-tank in New Delhi), said that when an e-commerce site offers the choice to sign in through an existing Google, Amazon, or Facebook account, consumers don’t have to manage multiple IDs and businesses don’t have to secure consumer data. “We conducted a study and we found that 77 per cent of the MSMEs surveyed use this service and the DCB’s limitation on bundling will make this service inaccessible to them,” she added.

“Consumers may find challenges in user experience and user interface”, said Rizvi. In the EU, consumers are now finding it difficult to navigate through search engines and it is tough to find allied services on the search site’s website. For instance, after finding an address on Google Search, one cannot directly jump into Google Maps to find the route of the same address anymore. Instead, the user will have to copy and paste the address from Google Search and then find the route.

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“Since the number of groups are also considered as a criteria to designate SSDEs, even companies with limited digital presence may get designated as they have more core services in the non-digital domain. This will increase the compliance burden for companies primarily operating in the non-digital realm,” said Rizvi. Referring to DMA, Bal said that the non-digital sectors will be adversely affected, for example, the organic traffic to hotel websites in the EU has gone down by 20 per cent and they are more dependent on online travel aggregator websites now.

Does India need such regulations?

In its report commenting on the Bill, the Information Technology and Innovation Foundation on May 15, 2024, stated that unless market failure is proven, there is no need for ex-ante regulation. The report added that even if there is real and durable market failure, the ex ante regulation is only justified if it improves the current state of affairs.

According to experts, the CCI’s capacity to monitor and enforce needs to be strengthened and the existing process should be made more robust, but they pointed out that India does not need to follow the EU as the country has a competition enforcement mechanism that works well.