Introduction
As India’s digital economy experiences unprecedented growth, with over 954.40 million internet users as of March, 2024, the need to regulate digital markets has become more pressing. Digital giants like e-commerce platforms, search engines, and social media companies increasingly dominate these markets, creating both opportunities and challenges. In order to address the rising concerns about anti-competitive behaviour by these large digital enterprises, India’s Ministry of Corporate Affairs set up the Committee on Digital Competition Law in February 2023.
In February 2024, the Committee presented its report, recommending the enactment of a Digital Competition Act. This act is designed to address the limitations of the existing Competition Act, 2002, which primarily adopts an ex-post approach, intervening after anti-competitive conduct occurs. With the fast-paced nature of digital markets, a proactive or ex-ante regulatory framework has become essential to ensuring fair competition and preventing monopolistic practices.
What is the Digital Competition Act?
The proposed Digital Competition Act introduces a forward-looking regulatory framework, to monitor and curb anti-competitive practices in the digital ecosystem. It primarily targets large digital enterprises, or Systemically Significant Digital Enterprises (SSDEs), that have a dominant presence in India’s digital markets.
By introducing specific obligations and a system of oversight, the act ensures that these enterprises cannot exploit their market power to the detriment of competition, innovation, and consumer welfare.
Why India Needs a New Digital Competition Law?
India’s existing Competition Act, 2002, while being comprehensive for the traditional markets, is inadequate for addressing the complexities of the digital economy. Large digital enterprises operate across multiple platforms and sectors, generating vast amounts of consumer data that reinforce their dominance. These enterprises often engage in practices like deep discounting, bundling of services, and prioritizing their own products—practices that stifle competition and harm smaller businesses.
Moreover, digital markets tend to “tip” quickly in favor of a dominant player, creating a “winner-takes-most” outcome. Once a firm establishes dominance, it becomes increasingly difficult for new entrants to compete, leading to market concentration.
Given these dynamics, the Committee recognized the need for an ex-ante regulatory framework to prevent anti-competitive conduct before it causes irreversible harm to the market. This shift from an ex-post enforcement approach to proactive regulation is the foundation of the proposed Digital Competition Act.
Key Features of the Digital Competition Act
1. Ex-ante Regulatory Framework
The Digital Competition Act introduces a proactive regulatory regime that monitors large digital enterprises’ behavior. This framework is designed to prevent anti-competitive practices such as self-preferencing, predatory pricing, and the misuse of consumer data.
2. Designation of Systemically Significant Digital Enterprises (SSDEs)
The law applies to a specific category of companies—those identified as Systemically Significant Digital Enterprises (SSDEs). These are large firms that have a “significant presence” in India’s digital markets based on financial strength and market influence.
3. Core Digital Services Focus
The act identifies certain digital services, termed Core Digital Services, that are particularly prone to monopolistic behavior. These include sectors like e-commerce, social media, digital advertising, and online search engines. Enterprises offering these services will be subject to additional regulations to prevent anti-competitive conduct.
4. Criteria for SSDE Designation
SSDEs will be designated based on two main criteria:
Market Influence: Companies that have a substantial number of end-users or business users in India will be scrutinized more closely.
Significant Financial Strength: Companies with a high India-specific turnover, global market capitalization, or gross merchandise value (GMV).
5. Specific Obligations for SSDEs
The Digital Competition Act sets out specific obligations for SSDEs. These obligations may include:
- Ensuring transparency in ranking algorithms for search engines and e-commerce platforms.
- Prohibiting the bundling of services in a manner that forces consumers to purchase unnecessary add-ons.
- Preventing the misuse of consumer data for commercial advantage, particularly in advertising and marketing.
These obligations aim to ensure that SSDEs operate fairly without exploiting their dominant market positions.
6. Targeted Exemptions
The act is designed to be flexible, allowing for exemptions in cases where compliance would place an undue burden on smaller enterprises. This ensures that the regulatory framework supports innovation and entrepreneurship, particularly for start-ups and smaller digital firms.
7. Penalties and Enforcement
Non-compliance with the ex-ante regulations can result in severe penalties, including fines of up to 10% of global turnover for the violating SSDE. The law also allows for other remedies, such as structural separations within large enterprises to prevent conflicts of interest
8. Strengthening the Competition Commission of India (CCI)
The enforcement of the Digital Competition Act will be handled by the Competition Commission of India (CCI), which will be strengthened with a Digital Markets Unit. This unit will consist of experts in digital technologies, ensuring timely and effective interventions in cases of anti-competitive conduct. Additionally, a dedicated bench within the National Company Law Appellate Tribunal will be set up for quicker resolution of disputes in digital markets.
9. Incorporating International Best Practices
The Committee’s recommendations draw inspiration from international competition laws, particularly the European Union’s Digital Markets Act (DMA) and the United Kingdom’s Digital Markets, Competition and Consumers Bill. By benchmarking against global standards, India’s digital competition law aims to foster a competitive digital economy while aligning with international practices.
10. Impact on Innovation and Smaller Enterprises
The act is careful to strike a balance between regulation and innovation. While the law introduces stringent measures to curb the monopolistic behavior of large digital firms, it also aims to protect small and medium-sized enterprises (SMEs) and start-ups from unnecessary regulatory burdens. By promoting transparency, fairness, and market contestability, the act creates an environment where innovation can thrive without being overshadowed by dominant players.
Conclusion: A Path Forward for India’s Digital Economy
India’s proposed Digital Competition Act marks a significant shift in how the country regulates its burgeoning digital economy. By moving towards ex-ante regulation, the act aims to proactively address anti-competitive practices and prevent the concentration of market power in the hands of a few dominant players.
With this law, India can ensure that its digital markets remain competitive, transparent, and open to innovation. The regulation of Systemically Significant Digital Enterprises (SSDEs), combined with targeted obligations and flexible exemptions, offers a balanced approach that protects consumers and smaller enterprises alike.
By benchmarking its approach against international best practices and enhancing the capabilities of the Competition Commission of India (CCI), India is positioning itself as a leader in digital competition law. The act is not just a response to the challenges posed by Big Tech but also a proactive step toward ensuring that India’s digital economy continues to grow, innovate, and benefit all participants.
We have prepared FAQs that address common questions and provide a comprehensive understanding of India’s proposed Digital Competition Act, its impact on various stakeholders, and its significance in shaping the future of digital markets in India. For more details, please download the FAQs.