A draft of a Digital Competition Bill was recently released by the Ministry of Corporate Affairs along with an explanatory report by the committee that recommended this Bill.
The report leans on the recommendations of the Parliamentary Standing Committee of Finance that a Digital Competition Act is required to regulate large digital enterprises (Amazon, Google/Alphabet, Meta/Facebook/Whatsapp).
Presently, the Competition Commission of India (CCI) is empowered to assess any anti-competitive activity by digital enterprises ex-post - i.e. after the occurrence of the activity.
The main thrust of the new Bill is to empower the CCI to regulate conduct of large digital enterprises ex ante - i.e. before the occurrence of undesirable conduct. Simply put the CCI will become an umbrella regulator which will set the rules of the game for designated large digital enterprises in India. This approach is concurrent with global practice especially in the EU and UK which have formulated similar legislations.
AI impact
However, the recent proliferation of AI across sectors makes one wonder if the Digital Competition Bill is a bit early for India. For example, even though ChatGPT is not a substitute for Google, the fact that a product like it was built and data required for it was readily accessible, makes one rethink if the so-called gatekeepers of the digital economy really pose as formidable an entry barrier as we think.
Digital markets have unique attributes like network effects which result in foreclosing competition but the question is whether we need to let it play out for a bit before drawing the boundaries.
As for the Bill itself, it seems to follow a mix of the EU and UK approach wherein the CCI will designate certain large digital enterprises and lay down a list of dos and don’ts for some core services provided by them. For example, Amazon may be designated for the e-marketplace services it provides via Amazon.in or Meta may be designated for its social networking services provided via Instagram and Facebook.
So far, India has adopted a unique approach to regulate e-marketplaces. The FDI Policy distinguishes between foreign and Indian e-marketplaces. Foreign marketplaces are not allowed to pursue a dual role - that of platform owner and seller. No such rule applies to domestic e-marketplaces. The draft Bill implies two policy reversals - firstly, there will be no difference in policy for foreign and domestic e-marketplaces and secondly, all e-marketplaces will be allowed to assume a dual role - i.e. to run the platform and be a seller on the platform - to put it simply, to be a referee as well as a player in the game.
Unlike the existing law (FDI Policy), the draft Bill does not prohibit an e-marketplace from assuming a dual role. The clause on self-preferencing in the draft Bill only states that a designated enterprise shall not favour its own products or services. Therefore, as per the draft Bill all e-marketplaces in India will now be able to run the platform as well as offer their own goods and services for sale on the platform.
The draft Bill itself highlights how enforcement of the FDI Policy is ambiguous and breeds uncertainty. Moreover, the draft Bill clearly states that if any of its provisions are inconsistent with an existing law then the draft Bill will take precedence.
Whether or not distinguishing between foreign and domestic e-marketplaces is desirable and whether or not e-marketplaces assuming a dual role is fair or not are larger questions. Their answers must be rooted in well thought out economic policy. If that exercise has been undertaken, it’s not captured in the report accompanying the draft Bill and if it hasn’t, then the proposed law must not be preceded by such conscious discussion. A rethink and reboot may be required.
The writer is an independent public policy researcher. Views are personal