From Ex-Post to Ex-Ante: India's Draft Digital Competition Bill 2024

- by Utsav Biswas, Student at National Law University, Odisha

Introduction

The digital economy has become integral in today’s society, where people are not only socially connected, but engage in economic activities too, substantially contributing to India’s GDP growth.

Statistical forecasts project that the digital economy will reach 20% of India's GDP by 2026, which indicates India will soon emerge as a digital revolution leader. However, many challenges will also arise, and the prominent ones would be the anti-competitive behavior, unfair trade practices, and prejudiced policies of various businesses.

The Competition Act, 2002 (“The Act”) stands as the fundamental legislative instrument to curb practices that negatively influence the competition. The Act found one of its key elements in making the Competition Commission of India (“CCI”) a national competition enforcement institution which deals with the anti-competitive practices in the Indian market.

To address this, in February 2023, the Ministry of Corporate Affairs (“MCA”) constituted a Committee on Digital Competition Law (“CDCL”) to examine the need for a distinct law on competition in digital markets. The CDCL deliberated on the issue for a year and in March 2024 released its report as well as the Draft Digital Competition Bill 2024 (“The Bill”).

The major deliberation that the CDCL did was the potential introduction of an ex-ante framework as opposed to an ex-post framework for the Bill.

Through this blog, the author aims to discuss the key highlights of the bill, followed by some of the challenges that the bill is bringing forward along with solutions for the same.

What is an Ex-Ante Framework?

The Latin phrase “Ex-Ante” literally means before the event which signifies that any action can be taken even before any conduct occurs compared to “Ex-Post” which means after the event and most jurisdictions, including India, have adopted an ‘after-the-fact’ structure, where the CCI can only take enforcement action after anti-competitive conduct occurs.

When assessing competition in digital markets the CDCL supported the forward-thinking regulations that prevent potential anticompetitive behaviours and to prevent digital enterprises from committing anticompetitive conduct, the CDCL proposed adding pre-emptive enforcement capabilities to CCI authority i.e. ‘before the fact structure’.

The ex-ante competition regulatory system is inspired by the EU’s Digital Markets Act. The CDCL supported this method as digital markets have unique features, such as economies of scale, where higher production lowers unit costs and economies of scope, where offering multiple products reduces overall costs. Fast growth becomes a typical result of digital market participants because they scale up their operations more rapidly than traditional market operators. Digital market growth depends on network effects which result from higher service value as user numbers rises.

The current framework has allowed offenders to evade swift observation because markets shift quickly toward monopolization by incumbents which delayed investigations. The CDCL, through Chapter III of the Bill introduces ex-ante regulations that act as preventative duties, that would extend the ex-post enforcement structure while maintaining an existing post-event enforcement system.

Introduction of Systemically Significant Digital Enterprises (“SSDE”)

Big established businesses command market advantages, thanks to their extensive data-driven customer networks and large user bases. New entrants must compete not only on pricing and service quality but also against established user bases. Hence, the Committee established a requirement to find businesses that hold control over digital markets through specific thresholds based on revenue and market capitalization and user counts combined with other elements.

In the Indian context, the term ‘SSDE’ is used, the same is borrowed from the EU Digital Markets Act, where some of the enterprises are termed as “gatekeepers,” which suggests that they have such a dominant presence in the market (the act designated Alphabet, Amazon, Apple etc as gatekeepers) that makes the entry of new enterprises difficult by acting as a barrier for them to enter the market.

The definitions of SSDE under Section 3 of the Bill apply to Core Digital Services (“CDS”) detailed in Schedule I. First, this definition relies on financial standards which include turnover and global turnover, as well as gross merchandise value and global market capitalization across the last three fiscal years. Second, it utilises user metrics such as enterprise end users and business users active during the concerned period. Digital enterprises that operate over specified financial or user metrics become SSDEs and must comply with mandatory self-reporting requirements.

However, the CCI can independently establish a digital enterprise as a dominant enterprise even if the qualifying requirements of section 3 aren't fulfilled, if it believes that there is sufficient presence in those certain digital markets.  An enterprise can be classified by the CCI as an SSDE by evaluating factors like customer volume, market size, capabilities and the number of end-users and dependencies among users. Additionally, it considers economic dominance levels and user confinement scenarios based on business logic and market structure along with substitution costs between competitors to determine suitable classifications.

Other Anti-Competitive Practices

With reference to the practices of Anti-steering & Self-preferencing under section 9 of the Bill, SSDEs must maintain strict neutrality in procurement services, ensuring no preference for their own products or business lines unless they extend the same treatment to external partners. They are also prohibited from using anti-steering tactics, such as offering exclusive discounts to favor their products. SSDE initiatives should also borne in mind to keep the platforms accessible without creating barriers to unrelated platforms.

Challenges of the 2024 Bill

The biggest challenge is whether the ex-ante model, adopted from the EU, will work in India, given jurisdictional differences and limited evidence of its effectiveness. The situation is further complicated by worries about investment impacts on start-ups in India alongside their potential reluctance to grow their operations after hitting numerical requirements.

Independent business studies indicate that data-related limits and bundling and tying rules would harm MSMEs, because they now depend heavily on Big Tech for operational savings as well as marketing their products.  Earlier, MSMEs leveraged digital platforms for affordable advertising, market access, and technology adoption. However, due to the new restrictions, they must now recalibrate their online operations and divert resources away from value creation to manage compliance, often requiring them to hire costly services from dominant Big Tech firms (Big tech firms are the world's largest and dominant tech companies).

Further, the implementation of ex-ante regulations will likely lead to financial shortages for newly established enterprises. The CDCL's report confirmed that the penetration of digital enterprises displayed inconsistent distribution throughout Indian cities.

Other challenges that the Bill aims to regulate are data usage and mixing capabilities for digital enterprises while setting new boundaries on how they may leverage their data assets. However, many Big Tech firms might need to reshape their platforms due to this limitation and this would slow India's digital market expansion because data-driven companies use consumer data to customize search results.

These limitations could prevent new entities from entering digital markets if digital entities do not prove they depend on user data for damaging competition. Furthermore, Section 12 of the Bill disallows SSDEs from deploying non-public data to compete within their CDS, which blocks self-preferencing practices.

But an exception lies where with the user's consent the businesses can integrate external data sources with their CDS. This implies that user data retention is possible through both data sales to insurers and data sharing with third parties as long as users consensually allow data collection, i.e. with the consumer’s consent, SSDEs may retain user data and sell it to third parties or integrate it into their CDS, effectively bypassing the restrictions on self-preferencing. As a result, the applicability of Section 12 may become void for those specific enterprises in such consent-based scenarios.

Solutions for the Challenges

To deal with the challenge about MSMEs and avoid direct replication of the EU model, India should adopt a phased, context-specific ex-ante framework along with a regulatory sandbox mechanism, which would allow policymakers to assess its impact before full implementation, reducing potential negative effects on start-ups and MSMEs.

Furthermore, the government can support small businesses by offering financial benefits and adaptive training initiatives, helping them adjust to regulatory changes without economic strain, and regularly updated guidelines can ensure a balance between consumer protection and startup growth, preventing industry dominance by major tech firms.

To address the concerns like funding challenges, while keeping in mind the promotion of equal digital enterprise growth across the country, the government should introduce investment-friendly policies and public-private collaboration. Additionally, a regulatory framework based on continuous feedback from businesses and independent studies will help refine existing policies, ensuring they remain flexible, effective, and conducive to innovation.

For the other challenges, regulations should protect consumers while supporting digital market growth. Transparent rules must be enforced to ensure businesses disclose their data policies. Regulatory bodies should oversee these practices rather than banning them.

Other steps that can be taken are introducing a flexible compliance framework where technology firms would be allowed to gradually adjust their operations while maintaining customer-controlled services under platform mixing rules.

Providing the firms with ‘pilot testing programs can also help the platforms to assess the impact of transformational changes, minimising negative market effects during implementation.

Additionally, government policies should also support the new digital market entrants while ensuring smaller businesses are not disadvantaged by restrictive data usage rules. An analytics-driven data-sharing framework featuring user-determined data portability and decentralised marketplace solutions can enable competition while preserving customer profiling capabilities.

For dealing with the concern of consumer protection, new regulations should be passed which will prohibit the use of algorithms that encourage addictive behaviour or excessive spending. This will help counter dark patterns and prevent dominant platforms from exploiting consumer data for purposes beyond what is necessary.

 

Conclusion

To conclude, the ex-ante framework of the Draft Digital Competition Bill 2024 marks a crucial step in regulating India's digital economy. However, its success depends on its ability to adapt to India's unique market dynamics. A well-planned, phased approach is essential to foster innovation while ensuring fair competition.

To address challenges faced by startups and MSMEs, gradual implementation of regulatory sandboxes will allow for flexible compliance and legislative support. This will help mitigate issues related to data usage restrictions and platform adjustments without stifling growth.

A balanced regulatory system with built on transparency, consent-based data policies, and targeted enforcement will drive digital market expansion while safeguarding consumers, small businesses, and fair competition. By fostering an ecosystem that encourages both innovation and accountability, India can shape a thriving digital economy that benefits all stakeholders.

However, it’s not easy to maintain an Ex-Ante regulation in view of the erratic and dynamic changes in the digital market of India as its still in its nascent stage. Although the Bill is promising, markets here are still adapting to the existing regulations and preparing to conform to upcoming ones, like the new Digital Personal Data Protection Act. So, it remains to be seen how CCI legislate this domain.