It has been reported that a panel set up by the government is set to recommend a new digital competition law for regulating Big Tech companies. The law will prescribe an ex-ante framework for regulating digital markets, potential abuse of dominance or other anti-trust practices, especially by Big Tech companies that have 10% of their global base in India or having turnover of more than ₹2,000 crore.
Competition in digital markets is regulated in India at present by the Competition Commission of India (CCI). The CCI has powers under the Competition Act, 2002 (Competition Act) to investigate and impose targeted remedies on digital platforms. It has in the past 10 years initiated investigations in more than 30 cases, including against Google, Matrimony.com, UrbanClap, Meru Travel, Gmail, WhatsApp, Meta, Flipkart, Zomato and MakeMyTrip.
The idea of framing of an ex-ante regulatory framework started gaining currency after the parliamentary standing committee on finance recommended it in its 53rd report, the Anti-competitive Practices by Big Tech Companies. After which the government constituted the committee on Digital Competition Law in February 2023 and asked it to assess if having just the competition law would be sufficient for the purpose of regulating digital markets. It also asked this committee to prepare a draft digital competition law.
At the same time, Parliament also cleared amendments to the Competition Act, 2002 for strengthening the broader competition regulatory framework.
Now, it seems that India is keen to import the EU’s much-criticised ex-ante regulation framework, side-stepping the internal debates of the committee that were centred on evaluating the significant costs an ex-ante framework will impose on the rapidly evolving digital markets (such as false positives) and if those will outweigh its potential benefits.
Ex-ante regulations are already in use for some parts of digital markets. Under the FDI policy, for instance, foreign funded e-commerce businesses are not permitted to directly or indirectly influence the sale price of goods and services sold on their platforms. The idea is to ensure a level playing field for all sellers. The Consumer Protection (E-commerce) Rules, 2020 (Consumer Protection Rules) disallow manipulation of prices, discrimination between consumers and unfair trade practices by e-commerce companies. But the same may not work for competition regulation.
Ex-ante regulation is known to generate what are called “false positives”. A good example of this is conduct that does not lead to anti-competitive effects still getting labelled as anti-competitive because an ex-ante regime is operationalized by the setting up of a rule-based framework of restrictions. In contrast, an ex-post system operates though effects-based restrictions.
An ex-ante system of regulation is especially unconducive for digital markets that are evolving in unpredictable ways. It cannot be known beforehand who new market entrants would be and what impact their entry will have on the markets.
It’s not clear why the existing regulatory framework has been found wanting by the committee when digital markets are growing impressively, even as the regulator, CCI, has been examining allegedly abusive conduct ex-post.
In the current system, digital businesses show the efficiencies accruing from their conduct impugned by the CCI and the regulator has often concluded that intervention would not be necessary. The risk of an ex-ante system will be that digital players will not have the opportunity to show how their conduct being assessed may have consumer benefits or other positive effects that actually offset competition concerns.
This loss of opportunities for providing justification for their conduct could act as a disincentives for innovation, market competition and consumer welfare as digital players may constantly act out of the fear of violating the law.
This is not to say that the current system is perfect. It is beset with delays for instance, where cases drag on for years. But strengthening the existing regulatory weaknesses, such as vacancies remaining unfulfilled in the CCI for years, slow pace of capacity building, it has been argued, will do the job.
The standing committee’s argument for recommending ex-ante regulation was that time is of the essence in digital markets that “tip quickly and one or two winners emerge in a short span of time”. While true, this is not an unsurmountable problem for the CCI, which already has recourse to provisions under the Competition Act for imposing interim measures to limit possibility of abuse of dominance while investigation is still being carried out. An instance where the CCI used these powers was in a case involving MakeMyTrip and OYO.
It has been the government’s stated objective to avoid unnecessary laws; it has been rescinding outdated, unnecessary legislations and rules and regulations. Minimum government and ease of doing business call for avoiding the typical problems of ex-ante regulatory frameworks.
