By Aryan Govindakrishnan

Abstract

The enactment of a Digital Competition Act is imperative to tackle instances of anti-competitive conduct in India’s burgeoning digital marketplace. The implementation of certain practices, such as price fixing and mergers, can have detrimental effects on competition, consumer options, and innovation. In its entirety, the Act assumes a crucial function in fostering a competitive and sustainable digital economy within the Indian context.

Introduction

India’s digital market and users have grown significantly in recent years, driven by a combination of factors including increased internet exposure , use of smartphones, e-commerce boom, and etc. As of 2021, India is the second largest online market in the world  with over 700 million users just behind China. According to a report by Kantar India, an average Indian consumer spends around 4.2 hours online everyday. This may vary depending on the age as younger users tend to spend more time online. What sets the Indian digital market apart from  other markets barring the fact that it is a growing economy with tremendous potential is that the Indian digital market is one of the most diverse in the world. The diversity of the Indian  market presents a number of great opportunities for businesses owing to the large population and the growing middle class in India as they have more disposable income to spend.

The key reasons for this massive increase in the digital sphere of India are as follows

1. Internet Accessibility : India has witnessed remarkable increase in internet availability, primarily due to availability of affordable mobile data plans with prices starting as low as 20 rupees for one GB of data.

2. Digital Payment: Digital payment system has undergone a significant transformation since 2016. This was primarily due to the Unified Payment Interface or UPI introduced by the government. These developments in the digital payment sphere have led to a surge in online transactions including mobile banking, e-wallets, and peer-to-peer payments. 

3. Start-up Ecosystem: India has emerged as a vibrant start-up hub with several tech companies gaining advances in areas like fintech, ed-tech, health-tech, etc. It is supported by a strong network of investors, accelerators, and incubators driving entrepreneurship, technological advancements, and economic growth, making India a thriving hub for start-ups and innovation.

Anti Competition Practices

With more and more companies entering the digital market there arises many unfair practices taking place in the market. One among them is the Anti Competition Practices. It means taking measures that reduce competition in the market. The types of anti-competition behaviours include the following:

1. Price Fixing: When big firms collude with each other and set prices in such a way that smaller companies are unable to compete in the market and fallout there by abusing their dominant position in the market. It is illegal in most jurisdictions as it harms consumers by reducing choices and stifling innovation.

2. Mergers and Acquisitions: This is when larger firms  buyout the smaller ones by merging or acquiring them. Concentrating too much power in the hands of a single company could harm competition in the market and leave the consumers at  a disadvantage.

 Recent examples of anti-competition practices in India include Byjus acquiring Akash education; this created a bullish atmosphere in the edtech market.

To prevent this from happening again The Standing Committee on Finance (Chair: Mr. Jayant Sinha) submitted its report on ‘Anti-Competitive Practices by Big Tech Companies’ on December 22, 2022. They had the following recommendations:-

1.     Digital Gatekeepers: The Committee recommended that India must identify its leading players in the market who can negatively affect competitions and classify them as Systemically Important Digital Intermediary (SIDI) and make them submit a report annually to Competition Commission of India regarding the measures taken to comply with various mandatory obligations.

2.     Data Usage: The committee recommended that the SIDIs should not process the personal data of end users who use services of third parties, if those companies use core services of the SIDI. End users should not be signed into other services of any platforms unless he has been presented with a specific choice to which they have consented to.

3.     Anti-steering: The practices where companies prevent, limit or manipulate consumers options are known as anti-steering practices. The committee recommended that SIDIs should provide conditional platform access like purchase or use of other platform services that are not part of the platform.

Economic need for a Digital Competition Act

Anti-competition practices tend to impact the economy in many ways including but not limited to inflation, increase in CPI etc. There are several key impacts of the economy that lead to a negative impact on the market and the economy as a whole.

Reduced competition is one of the key impacts of economic inhibition due to unfair practices and the impact of this can be seen in many ways. Reduced competition leads to big firms setting prices, which can lead to higher prices for goods and services, resulting in  inflationary conditions. This can lead to companies being complacent of the consumer choices and causing lesser innovation in the market. Innovation is key to any growth in  an economy, and competition among companies is an incubator of innovations. When there is less competition in the market there may be less motivation for the companies as competition fosters innovations and improvements for companies to outperform their competitors.

Finally, Market concentration, where a small number of dominating businesses hold a sizable portion of the market, which is sometimes caused by less competition. Companies may be able to coordinate prices or engage in collusive behaviour in concentrated markets, which can increase inflationary pressures and  may be able to maintain higher prices in an environment where there is little competition and more market power, which supports inflation.

Another impact of unfair practices on the economy is weak economic resilience. Competition leads to a dynamic and resilient economy. Competition fosters innovation and technological growth which can enhance the economic  stability of a country. Anti-competition practices can lead to weakening of the country’s resilience towards economic shocks and disturbances. Companies might be less equipped to handle market swings and shifts in consumer demand in a less competitive environment. Businesses may rely largely on a restricted variety of goods or services when there are fewer rivals. This raises the possibility of an economic  crisis  during difficult times and makes them more vulnerable to economic downturns or changes in market dynamics. A labour market with fewer work prospects can result from decreased competitiveness. There may be fewer new businesses setting up and fewer employment positions available when dominant organisations encounter little competition. This can lead to lower wage growth, fewer pay mobility, and lower economic resilience for both individuals and communities.

Short term Effects of Introducing the Digital Competition Act

While predicting the actual short-term impact of the policy is difficult as impact might depend on the provisions and implementation of the act but the following can be the negative impact of the policy in short run:

1.  The introduction of a digital competition act could disrupt established business practices and require companies to adjust their operations to comply with new regulation. The new regulation can lead to additional operation costs to the company in short-term and operational disruptions as companies navigate.

2. In response to the act, they might decide to merge so as to reduce the adjustment cost as a result of change in policy. This will further  reduce the competition in the market, and will result in market concentration in the short run.

3.  The implementation of a Digital Competition Act in the US or Europe could lead to trade disputes with countries that have different regulatory frameworks or perceive the act as protectionist. This could result in retaliatory measures, affecting global trade and potentially disrupting supply chains in the short term.

4.  The introduction of new regulations and compliance requirements may divert resources and attention away from innovation and product development. Companies may need to allocate more resources to ensure compliance, resulting in a temporary slowdown in new product launches and technological advancements.

Long term Impact of Introducing the Digital Competition Act

The ultimate objective of the aforementioned legislation is to generate a favourable outcome for the economy over an extended period of time. The implementation of more stringent regulations and the promotion of fair competition within the economy are anticipated to result in a durable and vigorous economic system. The aforementioned may yield several enduring beneficial effects.

1. The Digital Competition Act has the potential to foster equitable competition within the digital market through the mitigation of anti-competitive behaviours. The establishment of a level playing field for businesses has the potential to foster innovation, reduce prices, and ultimately yield benefits for consumers while promoting economic growth.
2. The enactment of this legislation has the potential to augment safeguarding measures for consumers by compelling companies to adhere to equitable and lucid business practises. The digital economy can be bolstered by addressing concerns related to data privacy, misleading advertising, and unfair contractual terms, thereby fostering trust and confidence among users.
3. The implementation of a sturdy Digital Competition Act has the potential to augment the global competitiveness of the digital sectors in India. Demonstrating a commitment to fair competition and consumer protection can serve as a means of attracting investments and encouraging global companies to operate within the respective jurisdictions.
4. The establishment and implementation of unambiguous regulations pertaining to digital competition can furnish investors and businesses with a sense of assurance and steadiness. The provision of incentives for research and development, alongside technological advancements, can stimulate investments, resulting in sustained economic expansion, heightened productivity, and job opportunities. Moreover, the aforementioned act has the potential to stimulate market diversification through the prevention of monopolistic practices and the promotion of a broader spectrum of competitors. The diversification of options available to consumers can lead to a wider range of choices, promote product differentiation, and cultivate a more robust and inventive market.

Conclusion

The implementation of a Digital Competition Act is imperative to mitigating the adverse effects of anti-competitive behaviours and promoting a robust and thriving economy. The implementation of certain practices, such as market concentration and decreased competition, can result in significant outcomes, such as inflation, diminished innovation, inadequate economic adaptability, and restricted consumer options. The implementation of a Digital Competition Act by governments can serve as a means to alleviate the aforementioned impacts and cultivate an economic environment that is more competitive and robust.

Furthermore, unambiguous and enforceable regulations pertaining to digital competition offer assurance and consistency to investors and enterprises, encouraging investments in research and development. This phenomenon results in sustained economic expansion, employment generation, and enhanced efficiency. The aforementioned legislation also promotes the expansion of market diversity by inhibiting monopolistic behaviour and cultivating a broader spectrum of contenders. Consequently, this generates a greater array of options for consumers, encourages the development of distinct products, and cultivates a more robust and inventive commercial environment.

Conclusively, the Digital Competition Act plays a crucial role in mitigating the adverse economic effects of anti-competitive behaviour. This initiative facilitates equitable competition, encourages innovative practices, improves safeguarding of consumer interests, and nurtures economic sustainability. Although there may be temporary interruptions, the enduring favourable consequences encompass a stronger, more dynamic, and inventive economy that draws investments and yields advantages for both enterprises and customers. The implementation and enforcement of a comprehensive Digital Competition Act is a crucial measure towards attaining enduring advantages and guaranteeing a flourishing digital economy.

About the Author

Aryan Govindakrishnan is a first-year student at the Jindal School of Government School and Public Policy, pursuing Masters in Economics. His research interests include finance policy and economics.