Startups Vs Big Tech: MCA's Draft Digital Competition Bill Targets Fair Play

The Ministry of Corporate Affairs (MCA) has taken a significant step in addressing concerns related to anti-competitive practices by big tech companies. Following the recommendations of the Parliamentary Standing Committee on Finance, the MCA established the Committee on Digital Competition Law (CDCL) to explore the necessity of a distinct law regulating competition in digital markets.

The CDCL, chaired by the Secretary of MCA, has recently submitted its report along with the Draft Bill on Digital Competition Law.

On March 12, MCA unveiled the draft Digital Competition Bill for public consultation, addressing anti-competitive practices of Big Tech firms. The proposed legislation focuses on regulating larger companies based on factors like turnover, gross merchandise value, global market capitalization, and user numbers.

This initiative arises amidst ongoing disputes between Big Tech firms and Indian companies, such as the recent delisting and subsequent restoration of several Indian apps by Google due to billing policy non-compliance. The draft bill is a key CDCL report submitted to the MCA on February 27.

Background: A Decade of Evolution in Competition Law

After a decade of implementing the Competition Act, the MCA formed the Competition Law Review Committee (CLRC) to reassess and propose amendments to the Indian competition regime. The CLRC's 2019 report highlighted the need for regulatory best practices, especially in the context of new-age digital markets and 'big data.' However, at that time, the CLRC suggested periodic reviews of global trends instead of immediate legislative interventions.

Startup Impact and Recognition

The CDCL acknowledged the transformative impact of the digitalization of the Indian economy, particularly the rise of start-ups. With over 1.19 lakh startups in India, the committee recognized their potential to significantly contribute to the country's GDP, job creation, and innovation. India's Digital Public Goods, such as Aadhaar, Unified Payments Interface (UPI), and Open Network for Digital Commerce, have provided a platform for start-ups to thrive.

"During the course of its deliberations, the Committee noted that the digitalisation of the Indian economy has led to the emergence of start-ups which have immense capacity to contribute substantially to the growth of the country’s GDP. Start-ups not only create wealth and employment, but they also foster innovation in order to succeed against well-established players. Today, India has over 1.19 lakh start-ups and counting," the draft Digital Competition Bill highlights.

The Committee in the report had observed that India’s Digital Public Goods such as Aadhaar, Unified Payments Interface (“UPI”), and Open Network for Digital Commerce, have created a platform for Indian startups to build products and solutions which serve the remotest parts of the country and drive India towards a trillion dollar digital economy.

The Committee also took note of the Indian IT services industry, which grew from under USD 100 million to USD 250 billion in revenue in barely three decades, creating the world’s largest pool of high[1]quality tech talent.

Challenges Faced by Startups

Despite the exponential growth of startups, the CDCL observed that the digital market is increasingly concentrated, with a few major players holding significant control. This concentration creates an imbalance in bargaining power, causing smaller digital enterprises and startups to become dependent on larger counterparts, leading to information asymmetry in the digital market.

"The CLRC in its report had recognised that the acquisition of smaller successful start-ups by dominant firms in the digital space tends to escape regulatory scrutiny because they often do not meet the asset and turnover-based thresholds provided under the Competition Act and because the CCI does not have any power to assess transactions which are not required to be notified.

In light of the same, the CLRC Report had recommended for the introduction of new thresholds based on broad parameters for merger notification under the Competition Act.13 Accepting this recommendation, the Competition (Amendment) Act, 2023 introduced a deal value threshold of INR 2,000 crore for notifying a transaction to the CCI if the entity being acquired has ‘substantial business operations’ in India," the Draft Bill proposes.

Committee Recommendations: Balancing Growth and Regulation

Recognizing the importance of carefully crafted policy measures, the CDCL emphasized addressing anti-competitive conduct by existing large digital enterprises without hindering the growth of emerging digital enterprises. To achieve this balance, the committee proposed specific recommendations.

Exemptions by the Central Government

The CDCL deliberated on the exemption powers of the Central Government, suggesting an overarching power to exempt certain enterprises from the Draft Bill in the interest of security or public interest. While considering the classification of start-ups as a distinct class, the committee concluded that a blanket exemption might not be suitable due to the current ambiguity in defining startups.

"The Committee also deliberated if start-ups as a distinct class of enterprises should be statutorily exempt from the Draft DCB. However, the Committee concluded that blanket exemption for start-ups should not be encoded as the legal criteria for start-ups is presently amorphous. Further, it is doubtful that any enterprise which meets the financial thresholds stated in Section 3(2)(a) of the Draft DCB would continue to be classified as a start-up. 

In light of the above, the Committee recommends that the Draft DCB should empower the Central Government to exempt certain enterprises or classes of enterprises from the purview of the Draft DCB, in a manner analogous to Section 54 of the Competition Act," the draft bill states.

Empowering the Central Government

In line with Section 54 of the Competition Act, the CDCL recommends empowering the Central Government to exempt certain enterprises or classes of enterprises from the purview of the Draft Bill. This discretionary power would enable a nuanced approach, ensuring that exemptions are granted based on specific criteria and not impeding the growth of potential global players in the digital market.

Seeking Public Comments

The MCA is now inviting public comments on the CDCL report and the Draft Bill on Digital Competition Law. This inclusive approach aims to gather insights from various stakeholders, including industry experts, legal professionals, and the general public, to refine and finalize the proposed legislation.

As India strives towards becoming a trillion-dollar digital economy, the government's proactive measures in addressing digital competition challenges signify a commitment to fostering a healthy and competitive business environment. The CDCL's recommendations, if implemented thoughtfully, could pave the way for a robust regulatory framework that supports innovation, protects smaller enterprises, and ensures fair competition in the rapidly evolving digital landscape. The call for public comments demonstrates a commitment to transparency and collaboration in shaping the future of digital competition in India.

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