By Naval Chopra, Yaman Verma
Artificial intelligence (AI) is increasingly becoming a cornerstone of technological advancement globally, and India is no exception. Enterprises are competing vigorously to launch their AI offerings in India and Indian start-ups have also launched large language model applications in sectors from agriculture and manufacturing to services and information technology. With the government investing in compute capacity as part of the IndiaAI Mission, and businesses — both large and small — adopting AI initially to differentiate themselves and eventually in order to remain competitive, India’s AI growth story is being written now. One key aspect that will determine whether an AI revolution will boost the Indian economy will be the regulatory framework developed for the technology, and one regulator is looking to get a head start.
The Competition Commission of India (CCI) has invited proposals to conduct a market study on AI. The CCI should be commended in its desire to initiate this “knowledge-building exercise to develop an in-depth understanding” of “AI systems and implications of AI applications for competition, efficiency, and innovation in key user industries”. This is because it is important to avoid the pitfalls of over-regulation, which can stifle innovation and economic growth. This risk of false positives is especially stark in the field of AI, where, for example, independent decisions of enterprises can be easily confused with collusion due to the speed and analytical capabilities of AI algorithms that allow prices or terms to be adapted to follow competitors without there being any cartel agreement.
Global regulatory approach to competition and AI
The CCI’s market study aligns with global moves to understand the interface between AI and competition.
The European Union, which was one of the first jurisdictions to develop AI-specific regulation (through the AI Act, which is expected to come into force later this year), has also initiated a consultation process on competition in virtual worlds and generative AI. The UK competition authority published a technical update report in April, identifying principles to guide AI development and deployment while promoting competition. These include access to key inputs such as data and computing power, flexibility and interoperability, and fair dealing. Canada, France, Hungary, Portugal, and other jurisdictions are also in the process of conducting similar market studies.
Focusing the lens on competition issues
Currently, regulators perceive that a small number of enterprises control key inputs necessary for the development of AI. Key inputs include AI chips, data, technical know-how, and computing power. Where few companies control the production of chips or have comparatively significant computing power, they could engage in tying and bundling. For example, a chip manufacturer could provide its own AI development arm disproportionate discounts and better terms than those offered to other AI developers. The best way to address such concerns is, of course, through market forces (that is building up capacity through competition). The Indian government’s focus on investing in computing power is an example of this. However, in situations with entrenched market power, regulatory intervention may become necessary, and the market study should help identify if that is indeed the case.
Another emerging concern is that enterprises with access to large amounts of data could exercise market power and potentially abuse their dominance. However, it is important to note that data is replicable, easily available, and is not valuable in and of itself. Data sets are also substitutable in many cases. Thus, merely the ability to access data should not be seen as determinative of market power.
The use of AI also adds a layer of complexity to traditional collusion cases, and the market study is likely to explore these nuances.
How should India proceed?
The CCI’s market study is a welcome first step in AI regulation in India. However, given the various issues that AI raises, from anti-competitive conduct to data protection and even ethical dilemmas, a multi-disciplinary approach where there is co-ordination among different agencies is the need of the hour. In addition, it is critical that India does not simply ape the West and our policies should be specific to the unique realities of the Indian ecosystem.
Finally, with the CCI being burdened with the enforcement of anti-profiteering provisions under the goods and services tax law and the proposed Digital Competition Bill, there is an urgent need to substantially increase the funding and staffing at the commission so that they have the capacity and tools necessary to effectively and efficiently enforce the law.
Coauthored with Sanjana LB, associate, Shardul Amarchand Mangaldas
(The authors are Partners at Shardul Amarchand Mangaldas.Views expressed are personal opinions.)
