India SME Forum (ISF), a non-governmental, not-for-profit organisation for small and medium businesses, has written to the Corporate Affairs Ministry (MCA), highlighting the adverse effects of the proposed Digital Competition Bill (DCB) on MSMEs’ ability to access and compete in emerging markets. 

MSMEs play a vital role in India’s ambition to achieve a $5 trillion economy by 2030, especially by leveraging e-commerce for global competitiveness. However, the DCB poses a threat to MSMEs, risking their ability to realise these opportunities and hindering India’s e-commerce growth trajectory, it added.

ISF had invited experts, both legal and academic, to educate its 10 million members on the impact of the DCB. 

The experts highlighted that the draft provisions disincentivise MSMEs to grow their businesses as they would attract deeper scrutiny by the lawmakers.

SME Stifled

As the provisions are focused on digital services, it limits the ability of SMEs to extract value from digital platforms and deters them from adopting digital trade. This approach could hamper investments and growth in the Indian e-commerce sector, depriving MSMEs of the potential benefits of e-commerce expansion, according to the ISF.

Additionally, ISF also said that it’s crucial to address the limited scope of consultation (in framing the DCB) and the absence of MSME representatives in these discussions.

Including MSME representatives in future consultations can ensure their voices are heard and their unique challenges are considered in regulatory decision-making processes, the ISF has said.

Meghna Bal, Head of Research, Esya Centre, said, “The bill approaches competition from a very narrow frame, only considering competitive dynamics between businesses and digital platforms and neglecting the synergies between these entities. 

There is a provision in the bill that limits the ability of platforms to use data for targeted advertising. We found in our study that MSMEs in India are extremely reliant on targeted advertising offered by large digital platforms for things like revenue generation, customer acquisition, cost savings, etc.”

MSMEs said that they find advertising on these platforms more cost-effective and accessible than traditional advertising media, Bal added. 

“We need to realise that the EU’s Digital Markets Act (DMA) is an extremely experimental legislation. The EU sees itself as the first movers in regulatory innovation, but that doesn’t mean they get it right. We should get the context of Indian markets right because the purpose of regulations is to prevent market failure, not cause it,” she added.

Viswanath Pingali, Associate Professor, Indian Institute of Management Ahmedabad, said, “A significant advantage that big platforms offer small and medium enterprises lies primarily in their capacity to lower transaction costs. Our recent survey of approximately 1,400 MSMEs revealed that businesses more engaged on digital platforms and invested in digital advertising tend to serve a broader geographic area and exhibit higher export rates compared to their less digitally active counterparts.”

Furthermore, these platforms bring in an essential element of trust into MSME transactions. 

However, regulations imposing a blanket ban on practices such as tying and bundling, which are integral to these platforms, might ostensibly foster competition but inadvertently undermine this trust by complicating resolution processes previously streamlined by platform services, Pingali said.

This regulatory approach could significantly erode the trust element that platforms have built, particularly affecting smaller firms that disproportionately rely on digital advertising and platform services for their market reach and discovery. 

“They (DCB) are saying that they will not take a one-size-fits-all solution but take a case-by-case basis, but we have to realise that this could harm MSMEs and start-ups as policy uncertainties predominantly harm small businesses, who are least equipped to navigate or forecast the implications of such changes, thus amplifying their vulnerabilities in an already challenging marketplace,” Pingali said.

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