Digital regulation: Why the tearing hurry?

The draft Digital Competition Bill, proposing ex-ante regulations as opposed to the current ex-post approach, seems to have run into trouble, as most of the stakeholders seem unprepared to form a view on it.

The draft Bill, released by the ministry of corporate affairs (MCA) in March, initially gave a month’s time (April 15) for stakeholders to present their suggestions. The MCA later extended it by a month to May 15. However, the stakeholders — from local to global firms, and researchers, lawyers, to Internet activists — now want the deadline to be extended by five more months to October 15.

Seeking extensions to submit comments on draft papers by regulators is nothing new. However, seeking an extension of seven months is out of the ordinary, that too in an area where for the longest time, it has been understood that the divide is clear: local vs global, big vs small.

Against this backdrop, and with rapid advancement in digitalisation leading to the emergence of big tech firms like Google, Meta, Amazon, and Apple, a view was held that domestic start-ups feel constrained in growing beyond a point. Thus, there was a need for regulation to check predatory behaviour and create a level playing field.

The Parliamentary Standing Committee stepped in, and in its report in December 2022, identified 10 predominant anti-competitive practices of large digital firms and examined the need for strengthening the competition framework.

This became the starting point for the MCA to constitute a committee to examine the need for a Digital Competition Act, which puts in place an ex-ante regulatory framework to prevent anti-competitive conduct. The ex-post approach, where intervention takes place after the practices come to the fore, was seen to be insufficient in fast-paced digital markets.

It was felt that the case is straightforward and the solution simple — ex-ante regulations will be supported by local and opposed by global players, but India needs to support its own and not be cowed by big tech.

That this was a wrong assumption became clear when the draft Bill was put in the public domain. The responses of companies and industry bodies showed there was no strict dividing line between global big tech firms and major domestic platforms. If some domestic firms saw Google, Meta, Amazon, and Apple as bullies, several home-grown enterprises viewed Zomato, Swiggy, and Oyo in similar light. Both industry groupings voiced their angst against ex-ante regulations on the ground that it would kill innovation, leading to slowdown in investments.

A near-unanimous stand from all sections of stakeholders seeking a lengthy extension for submitting comments should make it clear to the MCA that it bit off more than it could chew.

The joint industry letter seeking an extension has cited the following reasons: conducting research on themes, including on nuances of the ‘whole of government’ approach and the impact of the law on the digital economy and role in advancing the interests of Indian citizens. It has sought to involve small businesses, consumers, gig workers and other stakeholders to ensure their inputs are reflected in the law. The study of the policy and regulatory overlaps of the Bill with existing and upcoming tech and relevant sector-specific regulations is essential to make it more precise, as is the impact study of existing ex-ante regulations globally.

This shows that the industry is not prepared for such a major regulation and needs more time to study its implications before it engages with the government.

It is also doubtful that the MCA has held inter-ministerial consultations before floating the draft. If not, even if the demand for a seven-month extension is not heeded, some ministries may raise strong objections. The rules of business allocation by the government seem a little contradictory. While certain ministries have been given the charge of soliciting investments from big tech, an entirely different ministry has been tasked with regulation. If the two do not talk and are not on the same page, of what use is seeking industry views?

Perhaps the MCA should take a leaf out of the Data Protection Bill. The draft Bill was first submitted by the Justice BN Srikrishna Committee in 2018. It faced severe opposition from US and the European Union, besides various industry bodies. It was later redone by a joint committee of Parliament in 2021, only to be scrapped in 2022. An entirely new Bill was drafted later, which became law in 2023.

The lesson is simple: taking a simplistic approach to heterogeneous issues does not yield a solution. Straitjacketed regulations work fine in a cohesive sector where the boundaries can be strictly defined. In the digital space, the nature of businesses varies with the only common thing being that all are providers of core digital services and can influence the market.

It’s an ideal time for the MCA to withdraw the Bill. It should wait for a new government to take charge, then work on it afresh after holding extensive inter-ministerial consultations and discussions with the industry. A hurried approach now will lead to more worries in the future.