Standing Committee on Finance recommended a Digital Competition bill in late 2022 to ensure a fair, transparent and contestable digital ecosystem in India. Thereafter a committee was formed by the government in 2023 to examine the need for a separate competition law for digital market.
What is Separate Competition Law for Digital Markets (SCLDM)?
- The existing Competition Act and Competition Commission of India (CCI) come into picture after the event has taken place, and monopolized the market. Proposed SCLDM aims to provide regulation before markets end up monopolized (ex-ante).
- Significant entities like Alphabet (google), Amazon and Facebook (Whatsapp) have monopolised various sectors like app stores, e-commerce and instant messaging. SCLDM aims to allow new players to enter by reducing entry barriers.
Significance of the Proposed SCLDM :
- It will regulate the unintended data collected by these companies either as a part of their operation or by-product of it. This data otherwise may be compromised, sold or misused due to absence of data protection act in the country. The proposed act will ensure consumer protection in India.
- The high scale of return for significant companies (Google, Amazon etc) due to large user base provides an unfair advantage. This advantage restricts the entry of new players through abusive practices and hindering innovation. For example- Google Play Store ruling by CCI. The proposed act will address innovation and entry barriers as well.
- The emerging digital challenges such as deep discounting and pricing, platform neutrality, search and ranking preferencing, advertising policies, market crowding and digital dominance, which leads to abuse of market, were hitherto unregulated. The proposed act will regulate these upcoming challenges in digital sector.
- The proposed regulation will only cover big companies that have significant presence in the market. Thus, only the Systemically Important Digital Intermediaries will come under ex-ante law, while new players will not be covered under the law. This marks an exit from the sector agnostic approach of CCI and Competition Law.
However, there are certain challenges that may come with enactment of SCLDM:
- With different regulations within same sector, distortions in choices made by consumer may arise, leading to market failure in future. Big players may take innovative route to bypass the regulations, leading to poorer protection for the consumers.
- Digital markets are not much different from physical markets, and both have one foot in the other type of market. It will be very difficult to demarcate which market will SCLDM apply to.
- With rapidly growing innovation, law making can never match the pace of technological advancements. Emerging areas like metaverse markets and Non Fungible Tokens (NFT) markets will need a different regulation, since they are fundamentally different from the current digital market.
- Special regulation for only one part (online sector), while both online and physical market face the same challenges such as increasing returns to scale, will hamper the uniformity in regulatory environment.
- Abuse of the dominance is the problem, which is only ex-post, and not ex-ante. Hence, creating an ex-ante law will suppress dominance, which may not be bad, and might be the result of efficiency and technology improvement, such as JIO telecom.
Therefore, before finalising a digital market law, effort to digitalise all the reporting, compliance and audit in important. Reporting will itself reduce the need for an ex-ante law, and the field will become more welcoming for new players that bring innovation into the sector.
