[By Jainam Shah & Ayush Raj]
The authors are students of Gujarat National Law University.
Introduction
In the rapidly evolving market of India’s digital economy, the Digital Competition Bill of 2024 has emerged as a contentious piece of legislation. It aims to regulate Systemically Significant Digital Enterprises (‘SSDEs’) in India through ex-ante regulations and seeks to ensure fair competition while preventing anti-competitive practices in digital markets. However, the bill’s criteria for identifying SSDEs and its enforcement mechanisms have raised several concerns among legal experts and jurists.
With the announcement of the Digital Competition Bill, India finds itself mirroring global debates unfolding in the EU, US, and UK. The legislative efforts of these jurisdictions, like the EU’s Digital Markets Act, have faced significant criticism for potentially stifling innovation while attempting to address competition in digital markets.
This blog delves into a critical examination of the Digital Competition Bill, scrutinizing its quantitative and qualitative thresholds, enforcement mechanisms, and the broader implications for innovation and competition in India’s digital economy. It is argued that the quantitative thresholds used to identify SSDEs are overly restrictive, failing to capture the nuanced realities of digital markets. On the other hand, the qualitative criteria grant the Competition Commission of India (‘CCI’) broad discretionary powers, leading to uncertainty and ambiguity among digital businesses. The analysis aims to highlight the bill’s shortcomings and propose more nuanced approaches to fostering a competitive yet innovation-friendly digital landscape.
Critique of the criteria for identifying SSDEs
As per the provisions of the Digital Competition Bill (‘DCB’), it aims to regulate companies and enterprises classified as ‘Systematically Significant Digital Enterprises’ – those having a significant presence in a ‘Core Digital Service’.
The DCB employs a dual-pronged strategy to classify a business as an SSDE – Quantitative and Qualitative. On the surface, it may seem a very comprehensive approach, however, a closer examination reveals a lot of major fundamental issues.
1. Restrictive nature of quantitative thresholds.
The quantitative thresholds used to identify SSDEs are – turnover, market capitalisation, and number of users. These thresholds bear a striking resemblance to those in the now-replaced ‘Monopolies and Restrictive Trade Practices Act 1969 (‘MRTP Act’)’. One of the major criticisms of the MRTP Act was its strictly mathematical criterion to determine whether a company had a dominant role or not in the market. Consider a scenario where a company with 23% or 24% market share escapes regulations, while another with 25% falls under scrutiny.
The same issue lies with the one-size-fits-all quantitative thresholds that have been incorporated into the bill upon the recommendation of the Standing Committee report. The bill aims to identify companies with a significant presence in their particular digital markets, but only through a fixed figure of revenue and the number of users of that company. Instead of providing a universal figure or threshold, the Bill shall provide specific figures with respect to each digital market that it aims to cover, considering metrics such as innovations, perceived value, brand loyalty, etc. This would ensure a more nuanced and comprehensive assessment of a company’s significance within its respective digital domain.
Further, another problem with the financial thresholds of DCB is that it inadvertently favours multinational companies over smaller Indian startups. As per the current scenario, an Indian startup with a turnover of 5000 crores could be classified as an SSDE, whereas, an Indian subsidiary of a global giant having a turnover of 20 million USD turnover might escape regulation if its local turnover falls below 3500 crores. This disparity contradicts the spirit of recent initiatives, such as ‘Make in India’ taken by the Government.
2. Ambiguity and uncertainty in qualitative thresholds.
While the quantitative thresholds are problematically restrictive, the qualitative criteria swing to the opposite extreme by granting the CCI sweeping discretionary powers to designate any given company or enterprise as an SSDE, regardless of whether it meets the quantitative thresholds.
The CCI holds the power to label an enterprise as an SSDE on the basis of qualitative factors such as “volume of commerce”, “size and resources”, “monopoly position”, and “economic powers”, among others. While this discretion might seem to address the problem of rigidity caused by quantitative thresholds, it introduces a new problem: uncertainty. Imagine being a company that just falls short of quantitative thresholds. You are now in a continuous limbo, unable to predict whether you will be classified as an SSDE or not. This would only paralyze decision-making and stifle innovation – the very antithesis of what a thriving digital economy needs.
Further, the qualitative criteria listed in the bill seem to be of an open-ended nature, which are purely subjective. The bill mentions not only 15 broad factors but also a 16th catch-all factor: “any other relevant factor not mentioned above may be considered”. Thus, CCI, in a way, has complete discretion and authority over the designation of a company as an SSDE.
The Bill has tried to solve this issue half-heartedly wherein it provides for an opportunity to appeal or rebut to any company designated as an SSDE based on qualitative criteria.
Recommendations
Along with an expanded appeals process, in order to mitigate this issue, the DCB must incorporate a transparent and structured process of designating an SSDE. This should include:
- A formal, step-by-step designation procedure.
- A clear and strict timeline for CCI’s decision-making process, thus, it would provide much more clarity to a company on what to expect further.
- A mandate for the CCI to provide detailed explanations of its reasoning. This would not only help the companies in appealing against the said designation process but also act as an obstruction to otherwise discretionary powers of CCI.
These measures would help alleviate the uncertainty and fear that the current subjective approach possesses. By refining the quantitative thresholds to account for market-specific nuances and implementing a more transparent qualitative assessment process, the DCB can strike a more balanced and equitable approach to regulating Systematically Significant Digital Enterprises. This, in turn, will foster a more conducive environment for the growth and innovation of digital businesses in India.
Moreover, India’s regulatory approach should consider global best practices to remain competitive and innovative. Countries like Japan and Australia have adopted more tailored approaches, focusing on transparency and fairness rather than rigid controls. By learning from these examples and avoiding overly strict regulations, the DCB can foster a more balanced and conducive environment for growth in India’s digital economy.
Conclusion
The Digital Competition Bill and ex-ante regulations pose a grave threat to India’s thriving digital economy. While the stated intent is to promote competition, the current criteria and approach will inevitably stifle innovation and create massive uncertainty for digital businesses.
The quantitative thresholds for designating SSDEs are far too restrictive and reminiscent of outdated metrics that fail to capture the nuances of digital markets. Meanwhile, the qualitative criteria grant the CCI sweeping discretionary powers to arbitrarily designate any company as an SSDE, potentially fostering a climate of fear and uncertainty that could stifle innovation and entrepreneurship. It also opens the door to regulatory capture and corruption, as special interests could influence the CCI’s decisions.
It is also essential to learn from global experiences with ex-ante regulation, in order to avoid potential pitfalls and harness best practices. Harmonizing India’s regulatory framework with international standards will facilitate compliance for global digital enterprises and encourage foreign investment.
The Digital Competition Bill, while well-intended, becomes a regulatory overreach in search of a rather minute problem. India’s digital economy is thriving precisely because of the light-touch regulatory approach that has allowed innovation to flourish. Imposing heavy-handed ex-ante rules will only serve to undermine this success, putting India at odds with global best practices and risking retaliation from trading partners.