A ‘Make in India’ approach to craft digitally sound regulations for sustainable growth

Adopting a tech-forward regulation approach is that it significantly reduces regulatory burden.

By Tanaya Sethi and Bhaavi Agrawal 

A defining feature of the past ‘techade’ of India's growth story has been the mass onboarding to Digital Public Infrastructure (DPI). Digital platforms like Aadhaar, Unified Payments Interface (UPI), and DigiLocker have achieved remarkable scale and success, significantly reducing the digital divide. This success is not by chance. It is a result of a well-thought-out framework that embodies policy goals of inclusivity, transparency, open access, and public-private sector collaboration. This framework has unleashed disruptive growth, especially in payments. Unlike any other country in the world, digital transactions in India (through UPI) grew from just one million (0.1 crore) transactions in 2016, to ten billion (1,000 crores) in 2023, with transactions worth over Rs 182 trillion (~USD 2.17 trillion) being processed in 2023 alone.

The Need for Unique Regulation

This magnitude of growth is impressive by all measures, to say the least. But if experience has any part to play in India’s growth story, then we know that technological growth without regulation will not be sustainable. Given that, India has a unique growth story to tell, how we think about regulation must also be unique. Regulation in fast-paced technological products or protocols can only be seamless and effective if regulation is itself embedded in the code. And to do that, all the players must agree to the rules of the game before it is played. More so, because while technology is faster to scale, it doesn't require any less investment than physical infrastructure. This means that the stakeholder buy-in is not only necessary but critical for DPI to work.

Advantages of Tech-Forward Regulation

Talking about the regulation, embedding regulatory principles in the code means that there is interoperability and transparency from the get-go. For instance, UPI makes GPay and PhonePe interoperable and ensures seamless integration of payment apps, fintech companies, and banks. This can only be achieved by releasing open standards, fostering a conducive regulatory environment, and refining protocols like UPI based on industry feedback. The openness of standards and protocols not only provides a breeding ground for innovation and competition, but it also reduces the need for ex-post regulations since all the players have to follow the rules for their apps/ services to work.

Another massive advantage of adopting a tech-forward regulation approach is that it significantly reduces regulatory burden. This benefit has widespread implications for digital regulations including the proposed digital competition law. The draft Digital Competition Bill, 2024 (DCB) contemplates an ex ante framework of regulation that creates self-reporting obligations for players that command a predefined degree of market power. The underlying theme of the DCB could become counterproductive in digital markets which are characterized by a winner-takes-all outcome - wherein a  few large players amass market power just by virtue of how these markets function and how network effects play out. However, creating obligations for such players simply shifts the regulatory burden to private players.

Challenges with Current Digital Competition Law

So why not do what we know better and what works better? Go the DPI way! For example, India has a vast number of players who can sell products online but don't have the scale to pay commissions to established players. The answer is simply to onboard them to India’s solution for e-commerce i.e., the Open Network for Digital Commerce (ONDC) where businesses can access customers without paying any platform fees. The Namma Yatri app already exemplifies a success story on how this can be done. NammaYatri, a ride-hailing app, launched by the auto-driver community of Bangalore last year, is powered by ONDC. Unlike Uber and Ola, for rides booked on NammaYatri, the driver receives the full amount paid by the customer. Given its easy-to-use interface, customers and auto/ cab drivers in Bangalore have started preferring NammaYatri to the two incumbent players. This is a glaring example of how India is challenging the market power of digital platforms and replacing them with its own networks/ protocols.

India is solution-ready when it comes to tackling digital monopolies. Empowering our protocols with rich discussions around the required regulations which are self-executing and getting a buy-in from all stakeholders is clearly the way to go. India stands a chance to set an example for the world by framing digital regulations in its own unique way and framing them right. It's an opportunity to change the perception that regulations can't catch up with technology. We hope that the next round of consultations on DCB benefit from this perspective.

(By Tanaya Sethi, Counsel, and Bhaavi Agrawal, Associate at Economic Laws Practice.)

Views are personal and do not represent the stand of this publication.