Draft Digital Competition Bill

Source-This post on Draft Digital Competition Bill has been created based on the article “What is the draft Digital Competition Bill?” published in “The Hindu” on 10 July 2024.

UPSC Syllabus-GS Paper-2- Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Context- The Ministry of Corporate Affairs formed a Committee on Digital Competition Law (CDCL) to study the necessity of a new law for competition in digital markets. After a year of discussion, the CDCL decided to add an ex-ante framework to the existing Competition Act, 2002.

Ex-ante competition regulation is uncommon. The European Union is the only place where a comprehensive ex-ante competition framework, known as the Digital Markets Act, is currently enforced.

What does “ex-ante framework” mean?

The Competition Act, 2002 currently operates reactively, with the CCI intervening after anti-competitive behavior has occurred. The proposed ex-ante framework for digital markets would enable the CCI to prevent such conduct proactively before it occurs.

What are the reasons behind proposing “ex-ante framework”?

1) Economies of Scale and Scope -Digital enterprises benefit from economies of scale and economies of scope, reducing production costs per unit and total costs with increased services. This accelerates their growth compared to traditional market players.

2) Network Effects-It also enhances utility of digital services as user numbers increase.

3) Effective Regulatory Framework -Markets can quickly and irreversibly favor established players. The current framework is slow that allows offenders to evade scrutiny.

4) Monopolistic Tendencies-A group of Indian startups has backed the draft Bill, arguing that it would address concerns about monopolistic practices by big tech.

Read More- Digital Competition Bill: Its core needs strengthening

What are the key features of the draft Digital Competition Bill?

1) Dominant Digital Enterprises-It is inspired by the EU’s Digital Markets Act. The bill focuses only on “dominant” digital enterprises rather than all. It identifies ten key digital services such as search engines and social networking platforms.

2) Criteria for Determining Digital Dominance-It establishes clear rules for the CCI to determine if digital companies are dominant. It considers financial strength through the “significant financial strength” test and market presence in India through the “significant spread” test.

3) Designation of SSDEs- The CCI can designate “systemically significant digital enterprises (SSDEs)” even if they don’t meet quantitative criteria.

4) Restriction on SSDEs-

A) They must operate fairly, non-discriminatively, and transparently with users. The draft Bill prohibits SSDEs from self-preferencing, restricting third-party app availability, and blocking user settings changes.

B) They cannot use user data from one service to benefit another or unfairly leverage non-public user data.

Why has the draft bill been opposed?

1) Ex-Ante Regulatory Model in India -There are doubts about how well an ex-ante regulatory model will work in India, as it seems to be copied from the EU without considering the differences between these regions.

2) Lack of Evidence-There’s no evidence that this regulatory approach has succeeded in the EU, which raises doubts about its efficacy in India.

3) Impact on Investment– It could deter investments in Indian startups. This is because startups may avoid scaling up to avoid crossing quantitative thresholds.

4) Impact on MSMEs– Limitations on tying, bundling, and data usage could harm Micro, Small, and Medium Enterprises (MSMEs) that depend on big tech to reduce expenses and reach more customers.

Question for practice

What are the key features of the draft Digital Competition Bill? Why has the draft bill been opposed?