WHAT IS THE BILL?

The Digital Competition Bill, 2024 is a proposed legislation in India aimed at regulating large digital enterprises to ensure fair competition in the digital economy. It introduces an ex-ante regulatory framework, which means it seeks to prevent anti-competitive practices before they occur, unlike the existing ex-post framework under the Competition Act, 2002, which addresses issues after they arise.

In other words, where as the Competition Act 2002 looks at the complaints about monopoly and restrictive trade after they take place, but this bill will set rules and regulations before hand to protect small players. 

The bill was drafted following recommendations from the Parliamentary Standing Committee on Finance (2022) and the Committee on Digital Competition Law (CDCL), with the draft released for public consultation by the Ministry of Corporate Affairs (MCA) on March 12, 2024. It draws inspiration from the European Union’s Digital Markets Act (DMA).

Current issues in India affecting digital competition

1. Network Effects: Large platforms gain dominance as more users join, creating barriers for new entrants.

2. Data Dominance: Big tech firms accumulate vast user data, giving them a competitive edge.

3. Market Tipping: Rapid consolidation where one or a few firms dominate, reducing competition.

4. Anti-Competitive Practices: Practices like self-preferencing, predatory pricing, and restricting third-party applications.

Objectives of the Digital Competition Bill

1. Promote Fair Competition: Prevent large digital enterprises from abusing their market dominance.

2. Protect Smaller Players: Ensure startups and MSMEs (Micro, Small, and Medium Enterprises) have a level playing field.

3. Safeguard Consumer Interests: Protect user data and ensure transparency in digital services.

4. Foster Innovation: Balance regulation with the need to encourage technological advancement.

Key Provisions of the Digital Competition Bill

1. Identification of SSDEs: The bill targets Systemically Significant Digital Enterprises (SSDEs) that provide Core Digital Services (e.g., online search engines, social networking platforms, video-sharing platforms, operating systems, web browsers, cloud services, advertising services, and online intermediation services). Which SSDEs would be covered?

• Quantitative Thresholds (Financial and User-Based): Indian turnover of at least ₹4,000 crore (approx. USD 480 million) in each of the last three financial years.

• Global turnover of at least USD 30 billion.

• Gross merchandise value in India of at least ₹16,000 crore (approx. USD 1.92 billion).

• Global market capitalization of at least USD 75 billion.

• Core digital service with at least 1 crore (10 million) end users or 10,000 business users in India.

• Qualitative Thresholds: The Competition Commission of India (CCI) can designate an enterprise as an SSDE based on factors like size, resources, market structure, or data volume, even if quantitative thresholds are not met.

• Associate Digital Enterprises (ADEs): Group companies involved in providing core digital services may also be designated as ADEs to ensure comprehensive regulation.

2. Obligations of SSDEs:

• Prohibits self-preferencing (favoring their own products/services over competitors’).

• Bans anti-steering (restricting business users from communicating directly with end users).

• Prevents bundling/tying of non-essential services with core services.

• Restricts the use of non-public user data to gain a competitive advantage.

• Prohibits restricting third-party applications or changing default settings to limit user choice.

• Mandates fair, transparent, and non-discriminatory service delivery.

3. Enforcement and Penalties

• The CCI will oversee enforcement, potentially through a new Digital Markets Unit (DMU).

• Penalties for non-compliance can include fines up to 10% of global turnover or ₹1 lakh per day (up to ₹10 crore) for failing to notify the CCI of SSDE status.

• Key personnel may face liability, and the CCI can issue behavioral remedies or structural changes.

• A separate bench of the National Company Law Appellate Tribunal is proposed for timely appeals.

• Ex-Ante Regulation: Unlike the ex-post framework of the Competition Act, 2002, which acts after anti-competitive conduct, the bill allows the CCI to intervene preemptively to prevent market distortions.

Context in India’s Digital Economy
 

1. India’s digital economy is projected to reach $1 trillion by 2025-26, driven by widespread smartphone penetration, affordable data, and a vibrant startup ecosystem (ranked third globally). However, concerns about Big Tech dominance (e.g., Google, Amazon, Meta) have grown due to practices like:

2. Preferential pricing and deep discounting, which disadvantage smaller players.

3. Exclusive tie-ups and search/rank preferencing, limiting visibility for competitors.

4. Data accumulation, enabling market consolidation.

The Parliamentary Standing Committee on Finance (2022) highlighted these issues, leading to the formation of the CDCL in February 2023. The CDCL’s report (February 2024) emphasized the need for a separate law to address the unique dynamics of digital markets, where traditional ex-post regulation is often too slow to prevent “irreversible tipping” toward market dominance.

Stakeholder Reactions
 

Support

• Startups, SMEs, and Civil Society: Groups like the Alliance of Digital India Foundation (ADIF) and organizations such as CUTS International and Broadband India Forum support the bill, viewing it as a step toward leveling the playing field and fostering innovation. They argue it protects smaller players from Big Tech’s dominance.

• CCI: The Competition Commission of India endorses the ex-ante framework to proactively curb anti-competitive practices.

• News Publishers: The Digital News Publishers Association advocates for a bargaining code to ensure fair revenue sharing with tech platforms.

Opposition:

• Big Tech Firms: Companies like Google, Meta, and Amazon oppose the bill, arguing it could stifle innovation, increase compliance costs, and deter investment. They criticize the broad SSDE criteria, which could include smaller firms, and the restriction on data usage, which may force changes to business models.

• Industry Bodies: The Internet and Mobile Association of India (IAMAI) argues the bill’s scope is too broad, potentially affecting all digital firms, and that the existing Competition Act, 2002, is sufficient with modifications.

• Concerns About Ex-Ante Regulation: Critics, including the Information Technology & Innovation Foundation and the American Bar Association, suggest India adopt a “wait-and-watch” approach, learning from the EU’s DMA experience. They argue that ex-ante rules may be premature for India’s growing digital market.

Challenges and Considerations
 

• Balancing Innovation and Regulation: Critics argue that overly strict ex-ante rules could hinder India’s digital growth, especially as it aims to become a $1 trillion digital economy.

• Regulatory Overlap: Uncertainty remains about whether the MCA or MeitY will administer the law, with MeitY’s expertise in the digital economy potentially conflicting with the MCA’s competition law authority.

• Global Alignment: The bill’s similarity to the EU’s DMA raises questions about its applicability to India’s unique market, where startups and digital penetration are still growing.

• Enforcement Capacity: The CCI may need to enhance its technical capabilities to monitor and enforce the bill effectively, including through the proposed Digital Markets Unit.