By Lloyd Mathias
It is the role of a government to promote and ensure that its citizens have an ecosystem where they can thrive and grow. This is what shapes society and can help it develop into a great civilisation. Innovation has been the driving force behind human evolution and expansion since the invention of the wheel. Wherever there has been a great necessity for something, people have innovated to achieve this.
Current society, based on superior science and technology, is not particularly different from this. The issues of the past are gone; this is no longer a world in which a little cut might result in death. This has only been possible due to advances in medical knowledge, but what if one player were to control the whole market, making it difficult for people to access even the most essential resources unless they followed the monopoly’s rules and engaged in its exploitative practices? This is when the government steps in to prevent such behaviour and ensure that no one organisation can corner the market and become entrenched.
While this could adversely affect competition, the question of innovation and enjoying its fruits occurs because this is a universally accepted incentive in modern society, to be able to have this advantage and then be able to leverage it through intellectual property rights.
Strengthening digital ecosystem’s enablers
India is on the path to becoming the largest internet market in the world, with increasing internet penetration and a thriving start-up ecosystem, putting us in a position where our digital markets are evolving but still nascent. There needs to be a semblance of balance in ensuring that any regulation that comes into the picture is not creating roadblocks and stifling innovation.
So far, the government has done a great job at this, India being home to 107 unicorns, is a testament to the fact. The regulators have understood that the need of the hour is a soft-touch approach since the market is in a state of flux and still taking shape.
That being said, the way the global winds are blowing, there is enhanced scrutiny on digital markets and on regulating them. The Global Data Protection Regulation (GDPR) and now Digital Markets Act (DMA) are an indication of the same. There have always been ripple effects of any EU regulation, and why shouldn’t there be, given the fact that it is a developed market and has often helped set up best practices for others to refer to. This is also logical, since there needs to be a degree of use case scenario before being able to effectively enforce any regulation prudently.
With India being an emerging market, a copy-and-paste strategy based on regulations suited for a more mature market could be disastrous for the nation. This is where India’s strategy must be nuanced. India has unique quirks that need to be suitably addressed while forming any legislation. The DMAesque legislation that the Government is considering for India should also be framed cautiously. But what is this DMA?
The Digital Markets Act envisions to ensure fairness and contestability in the digital markets by introducing regulations based on potential risks posed by entities which are large enough to have a greater impact on the markets. It aims to ban certain practices used by online platforms which act as digital ‘gatekeepers’ to the single market, by imposing various obligations on them. The act looks at quantitative criteria like turnover presence, number of users and some qualitative criteria basis which the commission would designate an entity as a “gatekeeper”.
Ease regulatory norms burden
The DMA envisions taking an approach, which is based on forecasts rather than actual market conditions to regulate the digital markets, while this could make sense in a developed market like the EU but unlike the EU, India is still a developing market. This could prove detrimental since the Indian market is extremely dynamic due to the pace at which technology and its use cases are evolving. A regulation based on pre-empting potential risks to market competition could, in fact, hamper the growth of the Indian markets and lead to contrasting situations where some players might be able to cope with the increased compliance burden while smaller players might get disproportionally affected, thus, reducing their ability to catch up with their global competitors.
This would also raise the question of setting up any quantitative benchmarks for terms such as ‘gatekeepers’ in the country, given the fact that there is limited precedence in the country given the nascent stage of the digital markets. Any blanket regulation could blatantly disincentivise innovation or growth. This could lead to the alienation of investments coming into the country with the creation of additional roadblocks and policy compliances. A return to the global sentiment of viewing the Indian space as that of ‘license raj’ and enhanced compliance burden would bode badly at this crucial juncture.
India is positioned to grow exponentially even when the global growth is bleak, but that can only happen when policies nourish and encourage innovation, not stifle it by blindly copy pasting from dissimilar jurisdictions.
(Lloyd Mathias is a Business Strategist and an Angel Investor. Views are personal)
