MSMEs Fear Disruptions from Digital Competition Bill Restrictions, Study Urges Reassessment

The Union Government’s proposed Digital Competition Bill (DCB) of 2024 requires a comprehensive reassessment as it proposes changes that could potentially spook India’s rising digital economy, according to a study by Dialogue, a public policy think-tank. Based on a survey of 300 businesses using digital services covered under DCB, the study analyses the implications of the proposed Bill for small businesses in India.

The businesses surveyed as part of the study fear that some of the proposals in the DCB could have a negative impact across their operations. For instance, prohibiting tying, the practice of selling one product or service as a mandatory addition to another or bundling, that is, offering multiple products or services together at a discounted price, could unleash several adverse repercussions. These include increased costs for the MSMEs, reduced options for customers and greater challenges in providing secure and efficient services. As a result, it recommends a more balanced and tailored approach to regulation.

What is the Proposed Digital Competition Bill?

The Digital Competition Bill, 2024 aims to prevent anti-competitive practices in digital markets and curb market dominance by tech companies. It includes core digital services, including online search engines, social networking services, video-sharing platforms and more. The Bill has been proposed with an aim to ensure a level playing field and prevent unfair practices that stifle competition in digital markets.

Currently such concerns are addressed by the Competition Commission of India (CCI) through an evidence-based antitrust framework under the Competition Act of 2002. The DCB, however, proposes to adopt an ex-ante approach of asking all qualifying digital service providers, called ‘Systemically Significant Digital Enterprises,’ to follow a set of obligations and prohibitions, regardless of whether there is evidence that their practices harm competition. An ex-ante provision is basically a regulation or a law that empowers the government to take pre-emptive action based on its prediction or forecast of an event.

How the Proposed Changes under DCB Can Impact MSMEs Negatively

Under the Digital Personal Data Protection Act, 2023, companies are forbidden from processing any personal content without the consent of users. On the other hand, the draft DCB’s data usage rules could overwhelm users with repeated consent requests making them less likely to engage. In other words, it could cause ‘consent fatigue.’

This could, in turn, limit the ability of digital platforms to personalise ad placements effectively, limiting the communication reach of small businesses. More than 70 per cent of the businesses in the study felt that the negative impact of any regulation that hampers their ability to target their customers with digital advertising will be huge while 29.6 per cent of them believed that the impact will be strongly adverse. The DCB could also limit the ability of social media services to o­ffer integrated services like advertising tools and online storefronts.

What the Study Recommends

Based on the findings of the survey, the study recommends the government to “reconsider the necessity of the proposed digital competition bill, given the risk of hindering a key economic driver based on unsubstantiated claims of unfairness.” It also suggests that proactive enforcement should be prioritised by the CCI in sectors under the current competition law, where dissatisfaction among small businesses exists.

The study was conducted by surveying over 300 respondents who use digital services under the DBC. A majority of the respondents were MSMEs and startups which use digital services in their regular operations. After analysing all the responses, the study calls for the adoption of specific and focused anti-competitive practices for small businesses in the Indian market as opposed to pre-emptive over-arching regulations.