Impact of Digital Competition Bill on India's homegrown startup ecosystem

The Draft Digital Competition Bill is part of a more significant endeavour by the government to address the above competition concerns in the digital and technology ecosystem

India’s vibrant digital economy is being recognised and acclaimed globally. We are on our way to becoming a trillion-dollar digital economy soon, powered by widespread smartphone penetration, cheap data, a growing and talented youth population, India’s dynamic and burgeoning startup ecosystem ranked third globally, nationwide digital public infrastructure (India Stack), and effective digital gateways. The potential of India’s growing digital ecosystem, conducive policies, and demographic advantage has attracted the interest of global tech giants.

Over the years, Big Tech has invested in India’s growth and has also benefitted immensely. However, as the promise of India’s digital economy grows, it calls for appropriate regulatory intervention to curb anti-competitive practices by these tech conglomerates and create a level playing field for startups and MSMEs to flourish.

 

India has a well-established and mature competition regime functioning since 2009, with the Competition Commission of India (CCI) as the key regulator. With the rapidly evolving digital economy, the need was felt to bring certain amendments to the law, in tune with the fast-changing global landscape. In 2023, several amendments were carried out, including settlements and commitments, leniency plus, deal value thresholds, etc. Based on recommendations of the Parliament’s Standing Committee on Finance’s 53rd report in 2023, India planned to draft a separate law to address the concerns against anti-competitive practices by Big Tech in digital markets. Among the significant problems noticed in digital markets were preferential pricing, deep discounting, anti-steering, bundling and tying, accumulation of big data and its usage, network effects, exclusive tie-ups, search and rank preferencing, restricting third-party applications, advertising policies, etc. Due to the accumulation of big data and network effects, a robust competitive edge is created in favour of Big Tech for their consolidation and growth, which has the potential to hamper the growth of homegrown technology. Over time, these Big Tech companies have emerged as the gatekeepers of the digital ecosystem.

The Draft Digital Competition Bill, released based on the recommendations by the Parliamentary Committee, is part of a more significant endeavour by the government to address the above competition concerns in the digital and technology ecosystem. The ex-ante provisions in the draft bill aim to prevent anti-competitive behaviour before it harms the market. While the anti-competitive practices witnessed by governments worldwide call for intervention, we need to analyse if this has a spillover effect on another ecosystem in the Indian context.

The proposed draft bill seeks to identify companies that provide Core Digital Services (CDS) as Systematically Significant Digital Enterprises (SSDEs) based on financial thresholds and user base criteria. Under the user base threshold, a company would be classified as an SSDE if it has one crore end-users in India. This may appear to be a significant threshold, but it is a relatively modest number given India's vast population and huge digital market. With over 820 million internet users in India, one crore users are not a significant portion of the total internet user base in the country. Given the current contours of the bill, it will bring most tech unicorns and growing startups under its ambit. The primary objective of the bill was to create a level playing field for the market players in the digital ecosystem. This threshold may, however, result in more harm than good to homegrown startups.

These startups and smaller stakeholders are often at the receiving end of various anti-competitive practices of larger stakeholders. The sieve of competition law should first tackle the bigger challenges of tech and data monopolies. This threshold will increase the compliance burden of these homegrown startups and potentially stifle innovation. Such roadblocks may also deter private equity and venture capitalists from investing in these startups. India's digital economy is still evolving, and many startups may require time to navigate their early stages of development. As it happens, the draft bill is formulated in a manner that may include Indian tech startups also without adequate justification or evidence of competition harm by such companies. The Digital Competition Bill, if enacted in its current form, could potentially impede the growth of Indian startups.

Today, India has over 115,000 startups, creating nearly 12,00,000 jobs. The government has successfully created an ecosystem to foster and nurture growing startups. The vision set by the government under the Startup India initiative is yielding results as startups have been growing in numbers and bringing innovative solutions. Startups have emerged as a critical pillar of India’s digital economy and are greatly contributing to India’s vision of becoming a trillion-dollar digital economy.

Growing enterprises, digital or otherwise, should have a fair chance to compete with global corporations, including Big Tech, by fostering a competitive economy, lowering entry barriers, ensuring net neutrality and network effects which often tilt the balance in favour of a winner-takes-all scenario, and monitoring the tendency of killer acquisitions. To create robust competition regulations, it would be prudent to engage with the ecosystem of tech companies in India and understand the implications of the draft bill on the homegrown ecosystem. This approach will help create a balance between innovation and regulation, and a level playing field for Indian startups while addressing the problems of Indian startups vis-a-vis the competition challenges they face from larger corporations and Big Tech companies in India.

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Dhanendra Kumar has served as the First Chairman of the Competition Commission of India, Executive Director at the World Bank for India, Sri Lanka, Bangladesh, and Bhutan. He is currently Chairman of Competition Advisory Services India LLP.

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