India is on a path to reach a $1T internet economy by 2030. Digital services are fast becoming integral to India’s 700M+ internet users. If we focus on the current trends, digital commerce/services/payments will invariably become even more integrated with the daily lives of Indians. This implies that the room is open for more and more players to enter the digital markets.
As India enacts regulations & policy measures for the fast-developing digital economy, we take a look today at the recent step by the Government of India (“GOI”) towards ensuring healthy competition in the market. The GOI has in March 2024, released a draft legislation aimed at regulating digital markets in India. Though the Digital Competition Bill (the “Bill”) will take a while to be adopted as a law, the digital players need to understand the major areas covered by the Bill, which may affect them in the future.
The need to regulate Digital Competition
In the past few years, we have already seen some of the homegrown digital startups become massive in terms of both services they offer, and volume of transactions that happen through them (example, PayTM, PhonePe, Policybazaar, GooglePay). The GOI (through its Standing Committee) noted that Digital markets are structured differently, giving ample opportunity of advantage to players to utilise network effects and gain monopoly.
While we already have an existing Competition Act, 2000, the following features of digital markets prompted the need for new targeted legislation:
- collection & usage of user data which can allow large incumbent enterprises to enter related markets,
- network effects where utility of a service increases when number of users consuming the service increases, and
- economies of scale wherein incumbents can offer digital services at lower costs as compared to new entrants.
The digital players have the potential to exert influence over the market even with non-dominant characteristics because of the above features. To keep them in check, the GOI through the Bill intends to ensure that the market remains fair & competitive for new & small entrants, & restrict the creation of a monopoly or a duopoly.
Key terms of the Bill:
Outlining key terms of the Bill here. I will also direct the reader to the case study by MediaNama on Tata Neu’s app & applicability under the Bill, which will help you understand the provisions better
Classification of Systematically Significant Digital Enterprises (“SSDE”)
An organisation can be classified as an SSDE if it provides a core digital service, and meets both the thresholds:
- in the last 3 FY, i) turnover in India: INR 4000 Cr or more; or ii) global turnover of USD30 bn or more; or iii) GMV of INR 16000 Cr or more; or iv) global market cap of USD75bn or more;
- the user base of 3crore end users or 10,000 business users
Apart from the above, the CCI holds the discretionary power to designate any other entity as an SSDE, depending on the volume of the business, size of the enterprise, economic power, structure etc.
A “Core Digital Service” includes any of the following: (a) online search engines (Google); (b) online social networking services (Whatsapp, Facebook); (c) video-sharing platform services (Instagram); (d) interpersonal communications services; (e) operating systems; (f) web browsers; (g) cloud services; (h) advertising services; and (i) online intermediation services (Zerodha, brokerage companies).
Obligations on being identified as an SSDE:
The Bill prohibits SSDEs from carrying out certain practices. These include:
(i) favouring their own products and services or those of related parties,
(ii) use non-public data of business users to compete with those users,
(iii) restrict users from using third-party applications on their core digital services, and
(iv) not restrict business users from, communicating with or promoting offers to their end users, or directing their end users to their own or third party services;
(v) requiring or incentivising users of an identified core digital service to use other products or services offered by the SSDE.
Related parties & group entities
In some cases, compliance may be required from multiple entities in a group that are providing a core digital service. These enterprises should be designated as Associate Digital Enterprises (“ADEs”) under the proposed framework, and will be subject to the scrutiny as above. For example, Tata Neu app and entities will be designated as ADEs under the Bill.
To conclude
India is continuously increasing scrutiny on its digital/tech players and hence its advisable that startups remain updated on the latest in tech policy. Though not a law now, the entities should do a risk assessment and stay updated on the developments regarding the Bill. It will be advisable to submit comments as well, as a consortium or in an individual capacity if any provisions seems too burdensome to them. The Bill is open for comments till May 15,2024.
References:
PRS Bill track page provides a summary of the Bill here
The full text of the report & the Bill is here
Case study by MediaNama: Taking Tata Neu’s case and understanding implications under the Bill
