Digital Competition Bill: Gatekeeper tag likely for top digital startups

Besides top food delivery, streaming and fashion platforms, the new law will also cover some companies in delivering medicines, booking rail tickets, etc. (MINT_PRINT)
Besides top food delivery, streaming and fashion platforms, the new law will also cover some companies in delivering medicines, booking rail tickets, etc. (MINT_PRINT)

Summary

  • Besides global entities such as Alphabet and Meta, these local companies too may be identified as digital gate-keepers with significant influence over the market

Over a dozen top startups including Zomato, Myntra and Nykaa commanding millions of users and large revenues are likely to face stricter compliance standards under the new legal regime governing digital competition.

Besides global entities such as Alphabet and Meta, these local companies too may be identified as digital gate-keepers with significant influence over the market, independent estimates showed. The upcoming Digital Competition Bill which aims to ensure fair play in digital markets sets specific thresholds, which are expected to cover these companies.

The draft Digital Competition Bill prepared by an expert committee and released for feedback by the corporate affairs ministry earlier this year proposes to identify influential digital economy companies, to be called ‘systemically significant digital enterprises’ or SSDE, who will be required to follow certain ‘dos and don’ts’ called ex-ante regulations and file annual compliance reports to the Competition Commission of India (CCI). Businesses violating the law could be penalized up to 10% of their global turnover.

Apart from top food delivery, streaming and fashion platforms, the new law will also cover some companies in delivering medicines, booking rail tickets and offering digital payments, showed a study by CUTS Institute for Regulation and Competition or CIRC, a think-tank working in the areas of economics and law. CIRC’s analysis is based on publicly available information on these companies.

In comparison, the European Union's Digital Markets Act (DMA) of 2023 tags only six companies as digital gate keepers —Alphabet Inc., Amazon.com Inc., Apple Inc., ByteDance Ltd., Meta Platforms Inc. and Microsoft Corp. These companies are required to submit compliance reports as per the implementing regulations that became effective from April this year, information from the European Commission showed.

Zomato informed in response to an emailed query that it is not able to offer a comment on the subject. Emails sent to the other domestic e-commerce platforms between 1 and 6 July, and to a spokesperson for corporate affairs ministry and the CCI on 28 June seeking comments for the story remained unanswered at the time of publishing.

Navneet Sharma, director general of CIRC, said the tag of SSDE should be given to only those digital firms that justifiably fit that description in the light of India’s economic and market realities. Having criteria that brings an unduly large number of businesses under the ambit of the new law can over-burden the competition regulator and affect its performance, said Sharma.

“In a country like India having a strong smart phone penetration, the prescribed end user threshold of one crore in the draft Digital Competition Bill is not realistic. I am optimistic the government will revise this upwards in due course," said Sharma.

The draft bill says digital economy firms with domestic sales of 4,000 crore or global sales of $30 billion or gross merchandise value of 16,000 crore or global market capitalization or fair value of $75 billion and also meet the criterion of 10 million end users or 10,000 business users will be designated as SSDE. In addition, any enterprise which does not meet these criteria but has significant presence in the market for specified services including internet search, advertising services and operating system, in CCI’s view, will get the tag of an SSDE.

Experts pointed out that the thresholds appear to have received the most attention in terms of them being quite low for both financial strength test and user-spread test. “For example, a threshold of 4,000 crore has been suggested for turnover in India, but there is lack of any empirical basis supporting such a number," said Pranjal Prateek, a partner at law firm Khaitan & Co.

Prateek explained that the Committee on Digital Competition Law noted that the equivalent number in EU is 7.5 billion euros. The proposed India turnover number does not justify being many times lower, even after accounting for per capita income disparities, he said. On the threshold of number of users, the report took general note of active internet users, linguistic and regional considerations and household earnings, but again doesn’t provide any empirical basis to arrive at low thresholds, he said. “With over 800 million smartphone users in India, such low thresholds need more robust basis," Prateek said.

According to Sharma of CIRC, given that India is a growing economy, subjecting domestic enterprises to too many regulatory restrictions in terms of product design and user interface can hamper its growth. “The proposed law in its current form will adversely impact our start-ups and micro, small and medium enterprises—big job creating segments of the economy. It can affect the market access of small entrepreneurs in far-flung areas, who take their products and services to customers through e-commerce platforms," said Sharma.

Sharma said that it can also affect job creation in the digital economy.  “The financial and user thresholds in the draft bill require a review and revision to ensure that the digital economy is not adversely affected. The success of our unified payment interface (UPI) system has shown that India can think differently and successfully. We need not copy western economies blindly," he said.

The expert committee had noted that large digital enterprises and their unique business models have prompted a variety of anti-competitive concerns including unilateral and opaque policies on search rankings and anti-competitive usage of aggregated data. Through certain behaviour obligations, the bill seeks to prevent anti-competitive practices in digital markets because in the new economy, it may be too late to attempt to correct the market after an offence has been committed.

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