In India, the established system of competition regulation that operates on an ex-post basis has demonstrated success, with opportunities to amplify its impact by expanding its administrative proficiency.
Government Panel Proposes New Law for Digital Market Oversight
Introduction to Digital Competition Law Initiative
Recent developments indicate that a governmental panel is poised to propose the implementation of a fresh legislative framework designed for the oversight of sizable technology firms. This legislation will establish proactive mechanisms for supervising digital marketplaces and will specifically address the potential monopolistic behaviors or other anti-competitive actions, particularly by major tech entities that either account for 10% of their international customer base in India or boast revenues exceeding ₹2,000 crore.
Current Competition Landscape in Digital Markets
The existing regulatory landscape for digital competition in India falls under the jurisdiction of the Competition Commission of India (CCI). Utilizing authorities accorded by the Competition Act of 2002, the CCI conducts thorough investigations and prescribes corrective measures focused on digital platforms. Throughout the past decade, the CCI has launched inquiries into over 30 distinct instances, including probes into industry heavyweights like Google, Matrimony.com, and UrbanClap, to name a few.
Movement Towards Proactive Regulation
The concept of an ex-ante regulation — regulation that is proactive rather than reactive — gained momentum after a recommendation by the Parliament’s finance committee. Subsequently, in February 2023, the government initiated the Digital Competition Law committee to evaluate if the prevailing competition legislation suffices for digital market regulation and tasked it with drafting new competition laws.
Simultaneously, Parliamentary efforts have been geared towards reinforcing the overarching competition legal framework through updates to the existing Competition Act.
Examining the Impact of Ex-Ante Regulation
India appears to be contemplating the adoption of the European Union’s model of ex-ante regulation, a path fraught with contention. Debates within the committee revolved around the potential drawbacks, such as the consequence of “false positives,” and weighed them against the expected advantages of such a regulatory approach, especially considering the dynamic nature of digital markets.
Current use cases of ex-ante regulations within digital markets include directives in the Foreign Direct Investment (FDI) policy. For instance, e-commerce enterprises with foreign investment are barred from influencing product pricing directly or indirectly to maintain competitive equality. Furthermore, the Consumer Protection (E-commerce) Rules of 2020 prohibit price tampering, consumer discrimination, and unscrupulous practices. However, the efficacy of these measures as a model for broader competition regulation remains debatable.
Moving Forward
As India embarks on the journey to shape its digital marketplace regulations, it must balance the importance of nurturing innovation with the protection of fair competition practices. The next steps will involve refining the proposed laws to address the unique challenges of the digital economy, ensuring they are both effective and do not stifle market vitality.
The Limitations and Risks of Proactive Digital Market Regulation in India
Understanding Preemptive Regulatory Measures
Preemptive regulatory frameworks or “ex-ante” regulation often classify actions as anti-competitive by default through a stringent set of predetermined rules. This contrasts with “ex-post” regulation, which evaluates the actual outcomes of business conduct to decide on its competitive nature.
Unfit for Fluid Digital Markets
Preemptive regulations are quite rigid and fail to accommodate the unpredictable evolution of digital markets. Predicting the players who may enter the market and their potential impact is impractical in the dynamic digital arena.
Analyzing Current Frameworks and Growth
Despite doubts about its efficiency, the existing regulatory system has overseen notable growth in the digital domain. The Competition Commission of India (CCI) has been investigating alleged misconduct retrospectively and found that intervention was often unwarranted considering the proven efficiencies of business practices under scrutiny.
Potential Impact on Innovation and Competition
There’s a real danger that a preemptive regulatory approach could hinder the ability of digital companies to demonstrate the positive aspects of their business conduct, including consumer benefits. This could ultimately dampen innovation, limit market competition, and detract from consumer welfare due to a legal compliance-paralysis mindset.
The Imperfect Nature of the Status Quo
Although current regulations are not flawless, owing to procedural delays and lingering vacancies in the CCI, it has been suggested that these issues can be resolved by bolstering current operational weaknesses rather than overhauling the framework.
Examining the Committee’s Recommendation
The committee advocates for ex-ante regulation, highlighting the urgency inherent in digital markets and their tendency to favor a small number of winners swiftly. However, the CCI does have mechanisms to temporarily counteract any potential abuse of dominance, evident in cases such as the CCI’s intervention with MakeMyTrip and OYO.
The Government’s Stance on Simplification
The Indian government has emphasized the importance of simplicity in governance, repealing unnecessary laws and focusing on the ease of doing business. This ideology is at odds with the complexities of ex-ante regulation, which is characteristic of excessive government intervention and can stifle business activities.
In conclusion, the debate on the type of regulation best suited for India’s digital markets is ongoing. With arguments on both sides, it’s clear that any decision will have lasting impacts on innovation, competition, and consumer welfare.
