By Augustine Peter
There are broad similarities between the regulatory framework of the Monopolistic and Restrictive Trade Practices (MRTP) regime and the proposed Digital Competition Law. The MRTP Act and other economic regulations of that period invariably were a drag on economic and technological development.
And it took many years of protracted rolling back of that over-regulated regime. The Competition Act, 2002, was introduced as part of the liberalisation process and to replace the MRTP Act, 1969, which, even after a number of amendments, remained at odds with the emerging liberalised regime in India.
Digital era and competition law
Digitalisation has overwhelmed the global economic landscape in recent years. Serious doubts have been raised about the adequacy of traditional competition law provisions to address the emerging digital challenges. Following in the footsteps of jurisdictions like Germany, the Competition Law Review Committee (CLRC) recommended “transaction value” thresholds for merger filing to the Competition Commission of India (CCI) in 2019, besides other changes in the law. And the 2023 amendment to the law incorporated these.
The Parliamentary Standing Committee on Finance, in its report in 2022, recommended a Digital Competition Law (DCL) for India, though the CLRC in 2019 had not found any need for a separate law. As a follow-up to the parliamentary committee’s recommendations, the government set up a Committee on Digital Competition Law (CDCL) to study in depth the issue of digital competition policy and also to prepare a draft Bill.
The CDCL recommended the design of a Digital Competition Law on the following lines: (i) an Act with ex-ante measures; (ii) it should apply to a pre-identified list (to be updated from time to time) of core digital services that are susceptible to concentration; (iii) systemically significant digital enterprises (SSDEs), which have significant presence in the provision of a core digital service in India with the ability to influence the Indian digital market alone, should be regulated.
Significance is defined in terms of presence in the Indian digital market evaluated through a “significant financial strength test” and “significant spread test”; (iv) a concept of associate digital enterprises (ADEs) is envisaged and covered; (v) explicit exemptions in the statute, as also provisions similar to Section 54 of the Competition Act, 2002, enabling the government to give exemptions from time to time; (vi) the CCI will enforce the new law and make regulations; (vii) penalty for non-compliance would be on the lines of the CCI penalty guidelines, with a 10% cap of the turnover (with provision for global turnover as well, as appropriate).
Are we on the right track?
At one glance, the similarities between the MRTP Act and the proposed Digital Competition Act are obvious. Both are addressing concentration of economic power, which is non-rebuttably presumed to be bad. Both per se are using prohibition of the exercise of concentration/market power. Both are resorting to ex-ante regulation.
Both give substantial flexibility and freedom to the regulator and the department/ministry concerned to widen the scope of the provisions.
The Indian competition law was enacted, “keeping in view the economic development of the country” (preamble): the promotion of “economic development of the country” is paramount. The MRTP Act, in hindsight, stunted economic development of the country. When it comes to the proposed Digital Competition Act, designed broadly on the same lines, the damage could be far worse because the digital space is far more closely linked to technology and innovation.
Rigid regulation not only stunts innovation and development, but also blocks access and reduces affordability. While the impact of regulation on innovation in the digital space may be seen to be benign, vis-à-vis ex-ante regulation, evidence is to the contrary. Ex-ante regulations tend to feed on themselves and get entrenched.
The primary rationale for ex-ante regulation in the CDCL report is the time-consuming process of ex-post regulation as it exists currently for processing digital competition cases. This appears to be misplaced. The DLF, cement cartel, tyre cartel, and the first spare parts cases are all still awaiting finality after or nearly a decade of initiation.
The current ex-post system, with some tweaks, can broadly achieve the objective of the Digital Competition Act with much less damage to innovation and economic development. The extant provisions in Section 4 of the draft Bill per se provides for prohibition of specified conduct by dominant enterprises. A new Section 4A could be carved out to specifically apply to digital intermediaries. The types of conduct as identified by the committee for per se prohibition on an ex-ante basis could be included in the list of prohibited conduct as appropriate.
The firms identified as SSDEs and ADEs could be treated as per se dominant and inquiry as regards their dominance could be dispensed with, saving substantial time. At any rate, according to the current dispensation only one enterprise could be dominant in one relevant market. Once such specified conduct is identified, it could be non-rebuttably presumed to be anti-competitive and treated as prohibited.
An accelerated system of disposal of such Section 4A cases could also be envisaged. Digital cases could be processed on a fast-track basis in the CCI. A specialised and dedicated bench could be established in the National Company Law Appellate Tribunal for competition issues. The Supreme Court too needs to have a specialised bench for regulatory issues. As indicated above, the objective of competition law is economic development through fair competition.
Radical regulatory misadventures in the digital space by a developing country like India would only slow down the digital revolution that is already on, and adversely affect innovation, affordability, and inclusion. Even though India is making rapid strides in the digital space, the country has a long way to go.
Any policy miscalculation in the regulatory space can unsettle our digital ambitions. Technology and knowledge flow into the digital space should be encouraged to continue unabated. Market creation should precede market protection. A guarded step-by-step adoption of regulatory stringency is called for.
Augustine Peter is former member of Competition Commission of India and founder and head of APRLP Law. Views are personal.