Ex-ante regulations can hurt the growth of India’s digital markets

Source: The post is based on the article “Ex-ante regulations can hurt the growth of India’s digital markets” published in the Livemint on 12th June 2023

Syllabus: GS 3 – Indian Economy.

Relevance: About ex-ante regulations for digital markets.

News: Last December, the Finance Committee Report on Digital Markets in India proposed ex-ante (before the event) regulations and a new digital competition law to curb anti-competitive practices in digital markets in India. Their purpose is to ensure fair competition and contestability. The report suggested ex-ante regulations as the competition policy alone is inadequate to address the challenges posed by digital markets.

What are the challenges posed by implementing ex-ante regulations for digital markets?

Impact of ex-ante provisions in developed countries: Ex-ante provisions in Europe’s Digital Services Act may result in sizable economic losses thereby offsetting gains from the free trade agreements.

Hinder innovation and growth: Regulators often lack business expertise and may disregard potential scenarios for the evolution of sectors and markets. This can stifle innovation and hinder the growth of the nascent digital ecosystem in India.

Issues with imposing fines based on the global revenues of companies: While large global corporations may have the resources to withstand such measures, smaller entities that are already financially strained may struggle to survive. Thereby, favours monopoly which is against the goal of the ex-ante regulations.

How India is ensuring consumer protection?

The government is leveraging the country’s strong culture of innovation to empower more individuals with technology through the development of unique digital infrastructure. Initiatives such as the Open Credit Enablement Network (OCEN), Unified Payments Interface (UPI) and the Open Network for Digital Commerce (ONDC)

The Reserve Bank of India (RBI) follows an ex-post approach to regulate fintech companies. Recently, RBI introduced a regulatory sandbox. This approach facilitates innovation by tech firms while ensuring consumer protection.

A similar approach is being favoured by the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority of India (IRDAI).

What should be done?

a) It is crucial to position the country as an attractive investment destination, b) A case-to-case ex-post analysis of the impact of innovations on competition is required, c) India should tap India’s large startup ecosystem which presents vast potential, and d) The current culture of internet usage and technological advancements in the country is a result of collaborative efforts between the government and private players. This initiative needs to continue in the area of competition, which can be achieved through collaboration between the competition authorities, sectoral regulators and stakeholders.