Digital Competition Law will lead to over-regulation, stifle innovation, and adversely affect startups: IAMAI

In December, the Parliamentary Standing Committee on Finance released a report that recommended formation of a Digital Competition Law

The Internet and Mobile Association of India (IAMAI), an industry body representing the digital sector in India, has criticised a Parliamentary committee report that urges the government to introduce a new law to tackle Big Tech firms' anti-competitive practices, stating that it would stifle innovation, competition, and affect investments in startups, among others.

IAMAI comprises over 550 members, including Indian arms of Big Tech companies, such as Meta India, Google India, Microsoft India, Twitter India and Apple.

In the draft of IAMAI's submission to the Committee on Digital Competition Law (CDCL), which Moneycontrol has reviewed, the industry body said, "IAMAI is concerned that the recommendations in the Report (of the Parliamentary Standing Committee of Finance) are neither targeted nor proportionate."

"Lack of a well-articulated policy objective, (and) failure to adopt an evidence-based approach to identify the need for the regulation, have led to ambiguous, broad recommendations (in the report), which will stifle innovation, competition and the benefit that accrues to markets and users," the draft submission said.

In December, the Parliamentary Standing Committee on Finance released a report that, apart from the formation of a Digital Competition Law, recommended defining Big Tech companies as Systemically Important Digital Intermediaries (SIDIs) on the basis of their revenues, market capitalisation and end users.

It also urged Big Tech firms to provide advertisers and publishers with access to performance-measuring tools and data necessary for them to carry out independent verification of advertisements.

A few months after that, in February, the government formed the Committee on Digital Competition Law or CDCL, which was tasked with examining the “need for a separate law on competition in digital markets”.

Sources said that this is not the final version of the submission that the IAMAI intends to make to the committee in the coming weeks, and that the final version of the submission may have changes to it.

Overall, in the draft document, the industry body has urged CDCL to undertake a detailed assessment of their submission and also conduct public consultations regarding the matter.

Moneycontrol has reached out to the industry body with queries regarding the matter and this article will be updated when a response is received.

IAMAI's draft submission is in line with how industry body Asia Internet Coalition (AIC), whose members include companies such as Google, Twitter, and Meta, reacted on the matter in January. AIC had termed the Finance Committee's report as 'absolutist' and 'regressive'.

Effect on startups

In several sections of its draft submission, IAMAI also said that this proposed regulation will affect startups adversely.

"Size or scale-based applicability of regulations will not only impact larger players in the market, but will also impact startups. Regulations that kick in as soon as certain financial/size-based thresholds are met, will disincentivise startups from scaling in order to avoid additional regulations," the industry body said.

In another section, while arguing whether it was indeed necessary for a new digital competition law to be introduced, IAMAI said that the objective of India's policy is to "allow Indian start-ups to unlock their full potential".

In that regard, the industry body said, "Regulating any anticipated issues runs the risk of chilling innovation, especially in a rapidly increasing digitisation atmosphere, through over-regulation."

'Inspired by European markets'

The industry body in their report said that the report of the Finance Committee appeared to be heavily inspired by the European Union Digital Markets Act that was implemented in November 2022.

"India is a very different market compared to the European Union. Data collected by the World Bank shows that in 2020, just around 43 percent of the Indian population had connectivity to the internet, while the European Union in 2021 had almost 90 percent connectivity. Micro, small and medium enterprises (MSMEs) in India contribute to 27 percent of India’s overall GDP," the draft submission read.

"Adopting rules from European or other markets, without assessment of the local conditions, will likely harm markets, innovation, economic growth and consumers," it added.

'Report is based on flawed assumptions'

IAMAI, in the draft submission to CDCL also said that the Finance Committee's report was based on flawed assumptions on digital markets, and that it oversimplified the complex and dynamic nature of digital markets and user behaviours.

The industry body said that the report assumed that digital markets have high entry barriers and are winner-takes-all markets. But it was not always the case as network externalities can either reinforce or deplete network scale, it added.

"If only network effects could tip markets in favour of one entity, then Myspace with over 300 million users would not have failed, and Google+ social media app would have succeeded. Snapchat and Tiktok were launched after Facebook, but grew to be Facebook’s significant competitors," IAMAI said in the draft submission.

'Current framework is ample'

IAMAI, in its submission, argued that the current regulatory framework of the Competition Act, 2002, enables the Competition Commission of India (CCI) to investigate any potential anti-competitive conduct by any enterprise, including digital.

However, the draft submission said that having two concurrent regulations applicable to all digital businesses would increase the regulatory costs and not necessarily eliminate anti-competitive conduct.

It said that pre-emptive standards under law can be erroneous, and size-based designation mechanisms risk impacting investments, innovation, consumer choice, and welfare. The Committee must exercise caution when creating such standards, the body added in the draft submission.