The explosive growth of digital platforms has revolutionised the way we live, work, and interact. While offering undeniable benefits in terms of convenience, choice, and innovation, the dominance of a few tech giants has also raised concerns about unfair market practices, stifling of competition, and potential harm to smaller businesses, especially micro, small, and medium enterprises (MSMEs).

Concerns about dominance by large tech companies have led to the proposal of a new Digital Competition Bill (DCB) aimed at regulating these digital behemoths and fostering a more level playing field. However, recently, India SME Forum (ISF) expressed concerns over the proposed Bill. Let us look at the pros and cons of the Bill with special reference to MSMEs.

The draft Digital Competition Bill, released in March 2024, identifies large digital platforms as ‘Systemically Significant Digital Enterprises’ (SSDEs) based on factors like market share and user base. The Bill proposes to prohibit anti-competitive practices like self-preferencing (promoting the platform’s own products over competitors) and data discrimination against businesses ( those indulging in such discriminatory practices will be outlawed). Further it aims to promote interoperability.

Platforms will need to ensure data portability, allowing users and businesses to move their data seamlessly to other platforms. The Bill mandates greater transparency in how algorithms rank content and how platforms utilise user data. Finally, the Bill further aims to empower the Competition Commission of India (CCI) by granting enhanced powers to investigate and penalise violations. This legislation represents a significant shift from India’s current reactive regulatory system towards an ‘ex-ante’ framework by empowering authorities to intervene before potential anti-competitive behaviours cause harm. Inspired by efforts such as the European Union’s Digital Markets Act, the Bill signifies a crucial step in creating a fair and more competitive landscape within the nation’s digital ecosystem.

Impact on MSMEs

The Bill restricts practices like self-preferencing by large platforms, which could give MSMEs a better chance to compete and showcase their offerings. Curbing anti-competitive practices by Big Tech could significantly improve access to online marketplaces for MSMEs. The Bill encourages fair data access and sharing practices. The data portability can empower MSMEs to leverage their data for better marketing, customer insights, and improved offerings.

Increased transparency in platform algorithms can help MSMEs understand how their products are displayed and ranked. This allows them to optimise their listings and potentially reach a wider audience, and reduce reliance on gatekeepers. A more balanced digital landscape could allow MSMEs to build independent online presences and diversify their customer base.

Challenges and concerns: Navigating new regulations could be a challenge for smaller businesses with limited resources. The effectiveness of the Bill in creating a truly balanced market remains to be seen. Stricter regulations might stifle innovation by large platforms, potentially limiting the adoption of new features and functionalities that could benefit MSMEs. Significant changes to dominant platforms could disrupt existing business models and potentially require MSMEs to invest more in adapting their online operations.

The road ahead

The success of the Digital Competition Bill hinges on a nuanced approach. Regulations should target specific anti-competitive behaviours impacting Indian MSMEs, without hindering overall innovation. The Bill needs clear definitions of SSDEs to avoid unintended consequences for smaller digital businesses. A tiered regulatory approach could be implemented, with stricter rules for large platforms and simpler compliance for MSMEs.

Initiatives to equip MSMEs with digital marketing skills and e-commerce knowledge will be crucial to capitalise on the new opportunities. The proposed Bill holds promise for a more equitable digital marketplace.

Saravanan is a professor of finance and accounting at IIM Tiruchirappalli, and Williams is the Head of India at Sernova Financial