Recently, the Parliamentary Standing Committee on Finance came out with its report on Anticompetitive Practices by Big Tech Companies (Report) and proposed a set of ex-ante obligations against Systematically Important Digital Intermediaries (SIDIs) to regulate the digital market in India. There is a hullabaloo over the Report which labels it as an act of mirroring the European Standards in India and an unfit approach that is pre-mature for a ‘developing country’ like India; that it would thwart innovation and it ignores consumer welfare and the effects-based approach, among few other inhibitions cited. Through this article, we attempt to unpack the motive and the real need for ex-ante regulation for digital markets in India considering the Committee Report while addressing the concerns that surfaced.
A. India as a growth story India is a fast-growing digital market.
Internet penetration is at an all-time high wherein it is expected to rise to 907 million internet users by 2023. India’s digital economy grew 2.4 times faster than the Indian economy itself between 2014-2019. India’s ambitious Unified Payment Interface (UPI) has clocked 40% of all real-time digital payment transactions in the world and leading economies of the world are adopting UPI. The Open Network of Digital Commerce framework (ONDC), a government initiative, has been designed to promote the entry of new players in the upstream market, promote business efficiency and viability of sellers in the marketplace platforms and facilitate the creation of shared digital public infrastructure (only example in the world), as was previously done for identity (Aadhar) and payments (UPI). These measures are also fueling competition and promoting innovation and interoperability. As evident, India is already a growth story nation, thus, the legal and policy instruments must be bolstered to ensure that spirit of innovation and contestability in the digital market is kept intact.
B. The need to regulate digital market
Today’s digital market has already advanced from the traditional physical markets and as with the efficiency it yields, both differ significantly in terms of regulatory requirements also. In the context of digital market, it has been a consistent study in the Report as well as recent CCI orders (Android case, PlayStore case, MMT-Go) that the combined effect of network externalities and increasing returns to scale often results in a winner-take-all market. Such markets lead to significant competitive conduct issues. Digital markets present their own unique set of regulatory challenges wherein they tend to ‘tip’ quickly by the time the regulator intervenes, which eventually makes the market prone to anti-competitive behaviour by the leading players. For instance, in one of the recent cases in the digital markets, the CCI has noted how a global player couldn’t penetrate the Indian market because the incumbent reaps the benefits of network effects and vertical integration. The dire need for a timely intervention has always plagued conventional antitrust law tools when applied to digital markets. The recently developing jurisprudence in the European Union, UK, USA, Australia as well as in India which plan to impose exante obligations on gatekeeper platforms/ SIDIs shares one common goal – to make digital markets more contestable and to limit the harmful impact of the strong positions of some platforms. It is all about benefiting competition and giving back the autonomy of choice to consumers. The key underlying theme is to ensure a win for all stakeholders involved – and not a few gatekeeper platforms and their affiliated entities.
C.Modalities of ex-ante regulation and thinking ahead
The CCI has always focused on freeing the digital market at every value chain and removing bottlenecks, to promote dynamic efficiency, which as noted in the SAIL judgment, promotes innovative practices, and ultimately assists in the creation of a market responsive to consumer preferences. CCI held in the MMT-GO case that in multi-sided markets, a platform caters to different user groups (end-consumers and business users in the upstream or downstream market) who may be interlinked and interdependent. Thus, the benefit to a consumer group cannot be spoken of in isolated terms but a solution for collective benefit must be given in the digital market. The need for ex-ante obligation in digital market is also felt because although the effects-based approach increased the quality of decision-making, it has one unfavourable effect of complicating investigations, particularly in the digital market that is characterised by information asymmetries and where data plays a major role (Play Store Case). Recently, in the Play Store case, the CCI recognised Google’s Play Store status as a gatekeeper platform and called for a special obligation on such enterprises to keep the market contestable. Furthermore, in 2020, the CCI in its report on ECommerce in India discussed anti-competitive practices in the sector which have also formed part of the discussion in subsequent CCI orders, and are also part of the Committee Report, formed after considering the views of all stakeholders. Thus, the Report enlisting ten anti-competitive practices and imposing ex-ante obligations has not come out of thin air but after diligent consideration and past enforcement experiences of the CCI on the effects of these practices.
D. CCI as a robust enforcement authority
There have been concerns in the past also on the functioning of the CCI and that CCI regulations would become a bottleneck in the growth. We recall, when the merger control provisions became effective in 2011, a similar noise was heard which said that it would stall business progression and affect investment which would affect India’s growth since CCI would take time to review and approve transactions, but it stood the test of time and has facilitated the business and market. Similar will happen here, with CCI being the enforcement authority for such ex ante regulations, CCI would only pass remedial directions appropriately to unlock the true potential of e commerce. In fact, CCI has always stayed their hand and not intervened in pricing practices of such large players which shows the regulator’s thought process, of only intervening for benefit of all stakeholders. We will discuss more about the specifics of the Report and how it can be made better in the second part.
The Committee Report is an endeavour to fine-tune the existing laws and pre-empt the market from identified anti-competitive conducts which have come out either in the past decisions of the CCI or in the detailed study undertaken by the regulator or from international experiences. The Report is a mere proposal giving a head start to regulate digital markets and the modalities of regulation can be worked out collectively. We are already past the debate on whether India needs a DMA-like law or not, rather the focus should be on how to lead the law-making process by providing a template to the world, like the chronicles of our digital innovation.