The Proposed Digital Competition Law Report Poses a Major Innovation Challenge for India

In a world riddled with government regulators across countries struggling to contend with the monopolistic impact of large technology companies, the Indian government is on the cusp of a watershed new legislation on digital competition. More than two decades after the introduction of the Competition Act, 2002, the Ministry of Corporate Affairs constituted a committee which recently submitted its report on the need for a new digital competition law in late February 2024. The core recommendations of this report will be critical in determining the growth trajectory of Digital India, from an estimated size of $175 billion in 2022, to potentially a $1 trillion market by 2030.  

The report of the Committee on Digital Competition Law proposes a new ‘ex ante’ competition law designed to tackle digital monopolies, after finding the pace of enforcement under the Competition Commission of India’s existing regime much too slow. The existing framework has been deemed incapable of handling the dynamic antitrust issues in the digital economy. Unlike the ex-post Competition Act, which responds to anti-competitive behavior after the fact, the proposed ex-ante law, named the Draft Digital Competition Bill, 2024, seeks to prevent the behavior from taking place by ascribing specified responsibilities to identified companies in the digital market. To make this work, legislators will need to predict how market failures may occur in the digital markets and impose legal obligations that ‘preempt’ the failures. The exercise is as challenging as it sounds. The cross-sectoral nature of competition law further compounds the difficulty of this task.

The Draft Digital Competition Bill has also predetermined the source of the anti-competitive behavior in digital markets, i.e. specific large digital companies, colloquially referred to as ‘Big Tech’. The bill will only apply to these enterprises which are ‘systemically significant’ and offer what it terms ‘core digital services’, determined using some specific qualitative factors. This categorisation borrows heavily from the concept of ‘gatekeepers’ under Europe’s new Digital Markets Act, 2022, which is an untested and controversial new law. Hence, it is too early to gauge the effectiveness of this kind of categorisation. 

Under this proposed bill, Big Tech in India will be required to behave in a fair, non-discriminatory, and transparent manner with both businesses and end users. Violating  their obligations may subject them to significant penalties amounting to 10% of global turnover. However, the Bill leaves many of these ‘obligations’ to be framed as regulations after detailed stakeholder consultations. 

As we can see, the Committee’s proposal leaves many issues open for resolution but the greatest issue raised by the proposal relates to what the law excludes. In their finding, the Committee took notice of the potential for an ex-ante framework to negatively impact innovation within India’s thriving digital economy. It identified the need to strike a fine balance between increasing regulation and enabling innovation. Striking this balance depends heavily on which ‘digital services’ are included within the purview of the Bill, and which are not. The current draft Bill includes nine different digital services, such as search engines, social networks, video-sharing platforms, cloud services, advertising, web browsers etc. However, by providing this list of services in the schedule of the Bill, the process for the addition of new services has been made easy for the Central Government, as edits can be carried out without going through Parliament. Of particular interest is the potential inclusion of artificial intelligence (AI)-driven digital platforms, which are presently touted as significant disruptors of other entrenched services, within the purview of the bill. The possibility of AI’s inclusion is discussed in the Committee’s report. 

A critical determinant of the disruption and competition that Indian digital markets face over the next decade will be how, and when, nascent digital sectors like AI and Web 3.0 are regulated. The growth of the existing startup ecosystem across these nascent sectors has been slated as a key contributor to the $1 trillion Digital India dream. It is here that striking a balance between innovation and the regulation of competition will be crucial. Recognising the importance of this balance across innovative markets will be critical for maintaining the growth trajectory of Digital India well into the next decade. It is hoped that the Central Government will warmly embrace the challenge of achieving balanced regulation, taking into account the associated implications for all stakeholders.