Draft Digital Competition Bill: Key characteristics and challenges

Recently, the Committee on Digital Competition Law (CDCL/the Committee) released its report recommending a new Digital Competition Law for India alongside the Draft Digital Competition Bill (DCB). The genesis of the report can be traced back to the 53rd Report of the Parliamentary Standing Committee on Finance (PSC), released in December 2022. The PSC Report recognised the unique dynamics of digital markets, which, it stated, are characterised by strong network effects and concentration. It stated that due to the swift evolution of digital markets, the current competition law framework may not timely address the anti-competitive conduct by large digital enterprises. 

Consequently, the report emphasised the necessity for a new law restricting certain leading players from engaging in specific anti-competitive activities that could distort competition. The report highlighted activities such as self-preferencing, bundling and tying, and deep discounting, among others, as areas of concern. 

Key Aspects of the Digital Competition Bill

The DCB proposes to designate certain enterprises as Systemically Significant Digital Enterprises (SSDE) if they are engaged in certain “core digital services” (CDS) and meet the threshold criteria outlined under the bill. The list of core digital services has been mentioned under Schedule I of the DCB, which consists of “online search engines, online social networking services, video-sharing platform services, interpersonal communications services, operating systems, web browsers, cloud services, advertising services, and online intermediation services (includes web-hosting, service providers, payment sites, auction sites, app stores, e-commerce marketplaces and aggregators, etc.).” 

If an enterprise is engaged in a CDS, the DCB proposes two tests, the significant financial strength test (Financial strength test) and the significant spread test (User Base test), to determine whether that enterprise may be designated as an SSDE. The DCB outlines the criteria for determining “Significant financial strength,” which includes multiple benchmarks. These benchmarks encompass turnover in India exceeding INR 4000 crore, global turnover surpassing USD 30 billion, gross merchandise value in India exceeding INR 16000 crore, or global market capitalisation surpassing USD 75 billion. These metrics provide a quantitative framework for assessing the financial strength of enterprises within the digital market landscape.

Furthermore, the DCB introduces the “Significant Spread Test,” which assesses the reach of these enterprises within India. The test comprises two criteria: firstly, if the enterprise has more than one crore end-users in India, or secondly, if the enterprise caters to over 10,000 business users within the country. These criteria are meant to serve as indicators of the widespread adoption and utilisation of the services of the enterprise, reflecting the scale of impact and presence within the Indian market.

Additionally, even if an enterprise does not satisfy these criteria, the CCI may designate it as an SSDE if the Commission believes that such enterprise has a significant presence in that CDS.  

The designated SSDEs are required to adhere to various obligations imposed on them through the DCB. These obligations include refraining from self-preferencing, imposing restrictions on third-party applications, implementing anti-steering policies, avoiding tying and bundling practices, and respecting data usage rights. Additionally, an SSDE must ensure fair and transparent dealings with end users and business users. The specifics of these obligations will vary for each CDS, and the CCI will specify them through regulations, considering factors such as market characteristics, user demographics, and other factors it finds suitable.

Key Challenges with the DCB

The proposed law and the policymaking process around it need a few important tweaks, including the following: 
Reliance on different international ex-ante models

The Indian law stands out for its unique approach to the framework, drawing lessons from various international frameworks while attempting to tailor them to fit its own context. One notable aspect is the Committee's adoption of a broad principle-based approach, where the law sets forth general principles and delegates the task of detailing specific requirements to subordinate legislation, reflecting a model akin to the UK's Digital Markets, Competition and Consumers Bill (DMCC). Similarly, the idea of identifying a list of CDS echoes the approach seen in the EU's

Digital Markets Act

However, it's worth noting that the Bill overlooks certain noteworthy alternative approaches. For example, Japan's Act on Improving Transparency & Fairness of Digital Platforms (TFDPA) embraces a "co-regulation" strategy. In this model, while the government establishes a basic regulatory framework, it entrusts individual operators with implementing voluntary measures within that framework. Integrating a similar approach into the DCB might have been more suitable, especially considering the significant impact any legislation would have on innovation. By allowing for more flexible and collaborative regulation, the DCB could potentially strike a better balance between facilitating competition and encouraging innovation within the digital ecosystem.

Timeline

The deadline for submitting comments has been extended from April 15, 2024 to May 15, 2024. However, considering the complex nature of the issues addressed in the report and bill, the revised deadline is inadequate. Evaluating the DCB's potential impact on various stakeholders, including startups, small businesses, consumers, and the Indian economy, demands a thorough analysis and cannot be rushed within a two-month timeframe. Therefore, a further extension of the consultation period should be considered. 

Inter-regulatory mechanisms

The Committee thoroughly analysed potential overlaps between the DCB and existing sector-specific policy instruments. However, it determined that while most of the other laws and policies in the country do pose certain overlaps with the DCB, they have a narrower scope than the proposed law and are, therefore, limited in their impact on ensuring fair competition in digital markets. For example, the Committee examined overlaps between its focus and the Foreign Direct Investment (FDI) Policy. It noted that the FDI Policy, like the Committee's objectives, aims to tackle issues such as self-preferencing and preferential listing. However, the Committee identified a limitation in the FDI Policy's scope, as it specifically targets certain practices and applies solely to foreign e-commerce entities. Nonetheless, addressing even these limited areas of overlap remains critical. The Committee has proposed implementing a mechanism for inter-regulatory consultations. Implementing this recommendation on priority would ensure clarity and certainty in regulatory processes and a more harmonised approach across regulatory bodies.

Capacity Building

The CDCL report strongly recommends enhancing the capacity of the CCI, especially its newly constituted Digital Markets and Data Unit (DMDU), by integrating technology sector experts to navigate the swiftly evolving digital landscape effectively. However, the report does not outline specific measures for the Commission to bolster its capacity. Given that the Committee has recommended a principle-based framework that will require detailed analysis, it would be of utmost importance to enhance the capacity and resources of the CCI and DMDU. 

Way Forward

The proposed DCB marks a notable stride towards regulating India’s digital markets. However, certain concerns persist about its content and policymaking mechanism. The timeline for stakeholder consultation is inadequate, necessitating an extension to ensure comprehensive feedback. Additionally, implementing inter-regulatory mechanisms and capacity building for the CCI remains critical to effectively navigating the evolving digital landscape. Therefore, addressing these issues will be pivotal in ensuring a progressive digital competition framework in India. 

Views are personal. Agarwal is currently working as a Senior Research Associate at The Dialogue. Mishra is a Senior Research Associate at The Dialogue.