Introduction
India’s digital economy is experiencing a transformative surge, positioning the nation as a global leader in digital innovation and connectivity. With a population exceeding 1.4 billion, India boasts over 820 million internet users, making it one of the largest digital markets worldwide.
This vast user base is driven by a young, tech-savvy demographic increasingly reliant on smartphones and digital platforms. As of mid-2024, India has over 650 million smartphone users, and internet subscribers have surpassed 950 million, fueling exponential growth in sectors such as e-commerce, digital payments, and fintech.
The Indian government has been instrumental in this digital revolution through initiatives like Digital India, Make in India, and Startup India, which focus on building digital infrastructure, promoting innovation, and empowering citizens with digital literacy. The National Digital Communication Policy (NDCP) 2018 has further accelerated this growth by expanding broadband access across urban and rural areas, ensuring broader connectivity.
The economic impact of this digital transformation is profound. According to the Reserve Bank of India’s Report on Currency and Finance 2023-24, the digital economy currently contributes approximately 10% to India’s GDP, a figure projected to double to 20% by 2026. A separate estimate from the Ministry of Electronics and Information Technology (MeitY) suggests that by 2029-30, the digital economy will account for nearly one-fifth of national income, measured as Gross Value Added (GVA).
In 2022-23, the digital economy was valued at INR 31.64 lakh crore (approximately USD 402 billion) and employed 14.67 million workers, representing 2.55% of the workforce. This growth is propelled by India’s large user base, high adoption rates, and robust Digital Public Infrastructures (DPIs) like Aadhaar, Unified Payments Interface (UPI), and DigiLocker, which have facilitated inclusive digital access across gender and geographical divides.
Globally, India’s digitalization efforts have earned significant recognition. The State of India’s Digital Economy Report 2024 by the Indian Council for Research on International Economic Relations (ICRIER) ranks India third among G20 nations in aggregate digitalization, reflecting its substantial progress. However, at the user level, India ranks twelfth, indicating that while the overall digital economy is robust, individual user experiences require further enhancement.
At the sub-national level, states such as Karnataka, Maharashtra, Telangana, Gujarat, and Haryana lead in digitalization, highlighting regional disparities that policymakers must address to ensure equitable growth. Notably, the dispersion in digitalization across Indian states is less pronounced than among G20 countries, suggesting a relatively uniform digital development within India.
The digital economy’s expansion is further driven by the rise of global capability centers (GCCs), with India hosting 55% of the world’s GCCs, which provide critical services like IT support and research for multinational corporations. The rapid adoption of technologies such as artificial intelligence (AI), cloud computing, and blockchain is also a key growth driver.
However, this rapid digitalization has raised concerns about the dominance of large tech companies, which can leverage network effects and data advantages to stifle competition. To address these challenges, the Ministry of Corporate Affairs introduced the draft Digital Competition Bill, 2024 on March 12, 2024, proposing ex-ante regulation to govern Systemically Significant Digital Enterprises (SSDEs). Modeled after the European Union’s Digital Markets Act (DMA), the bill aims to ensure fair competition while fostering innovation, though it has sparked debates over compliance costs and its impact on startups.
Understanding Ex-Ante Regulation and Its Role in Digital Competition
Defining Ex-Ante Regulation in Digital Markets
Ex-ante regulation refers to a proactive regulatory strategy where rules are established to prevent potential issues before they arise, contrasting with ex-post regulation, which addresses violations after they occur. In digital markets, ex-ante regulation targets anticompetitive behaviors by large digital platforms, often termed “gatekeepers,” to maintain fair competition and protect consumers.
Digital markets are characterized by network effects—where a platform’s value increases with more users—data-driven economies, and rapid scalability, which can lead to market dominance by a few players. These traits necessitate preemptive measures to prevent monopolistic practices that could harm smaller competitors and consumers. The European Union’s Digital Markets Act (DMA), adopted in September 2022 and effective from November 2022, exemplifies this approach by imposing obligations on gatekeepers to curb practices like self-preferencing, restricting third-party apps, and misusing business user data.
Ex-Ante vs. Ex-Post Regulation: The Need for a Shift in India
India’s current competition framework, governed by the Competition Act, 2002, operates on an ex-post basis, where the Competition Commission of India (CCI) investigates and penalizes anti-competitive practices after they occur. However, digital markets evolve rapidly, and by the time ex-post measures are enforced, dominant players may have already consolidated market power, a phenomenon known as “market tipping.” The Committee on Digital Competition Law (CDCL), established to study digital market regulation, highlighted the limitations of ex-post enforcement in addressing these dynamics.
The CCI’s experience with cases like Google’s self-preferencing, which took years to resolve, underscores the need for faster, proactive measures. Ex-ante regulation, as proposed in the Digital Competition Bill 2024, aims to intervene early, setting rules to prevent anti-competitive behaviors before they disrupt markets. However, this shift raises concerns about over-regulation, as stringent rules could burden businesses with compliance costs, potentially stifling innovation, particularly for startups.
The Rationale for Ex-Ante Regulation in India’s Digital Economy
India’s digital economy, with over 820 million internet users and a projected contribution of 20% to GDP by 2026, is a critical driver of national growth. The rapid expansion of digital platforms, fueled by low data costs (averaging Rs 13.32 per GB) and high mobile data consumption (24.1 GB per user per month in 2023), has created opportunities for innovation but also risks of market concentration. Large tech companies can leverage network effects and data advantages to dominate markets, sidelining smaller competitors.
The CDCL’s report emphasized that ex-ante regulation is essential to prevent such dominance, ensuring a level playing field that fosters innovation and protects consumers. The Digital Competition Bill 2024, inspired by the EU’s DMA, seeks to achieve these goals by regulating SSDEs, though its implementation must balance regulatory oversight with the need to support India’s vibrant startup ecosystem.
Overview of India’s Digital Competition Bill 2024
Objectives and Scope of the Digital Competition Bill
The Digital Competition Bill 2024 is a proposed legislation aimed at regulating India’s digital markets to ensure fair competition and prevent anti-competitive practices by large digital enterprises. Released for public consultation on March 12, 2024, by the Ministry of Corporate Affairs, the bill introduces ex-ante regulation to address issues proactively, moving away from the reactive ex-post approach of the Competition Act, 2002.
The bill’s primary objective is to regulate Systemically Significant Digital Enterprises (SSDEs) that provide Core Digital Services, such as online search engines, social networking platforms, video-sharing platforms, cloud services, advertising services, and online intermediation services.
By targeting these platforms, the bill seeks to prevent practices like self-preferencing, where a platform prioritizes its own products, and data misuse, where non-public business user data is used to gain competitive advantages. The bill, still in draft form, is under review following the closure of public consultation on May 15, 2024, with potential amendments based on stakeholder feedback.
Identifying Systemically Significant Digital Enterprises (SSDEs)
The bill employs a “twin test” to designate SSDEs, combining quantitative and qualitative criteria. Quantitatively, an enterprise qualifies as an SSDE if it has over 10 million end-users or 10,000 business users in India, a threshold that has sparked debate for potentially encompassing many Indian startups.
Qualitatively, the CCI considers factors such as economic power, network effects, barriers to entry, and market influence, allowing flexibility to designate enterprises that may not meet numerical thresholds but wield significant control. Enterprises must self-report within 90 days of meeting these criteria, and SSDE designation lasts three years, renewable unless revoked. This dual approach aims to capture both established tech giants and emerging players with substantial market impact, ensuring comprehensive regulation of influential digital platforms.
Core Digital Services Regulated by the Bill
The bill regulates a defined set of Core Digital Services critical to India’s digital economy. These include online search engines, which facilitate information access; social networking platforms, which connect millions of users; video-sharing platforms, which dominate content consumption; cloud services, which support data storage and computing; advertising services, which drive digital revenue; and online intermediation services, such as e-commerce marketplaces.
The Central Government retains the authority to update this list periodically to reflect technological advancements, ensuring the bill remains relevant in a rapidly evolving digital landscape. This flexibility is crucial for addressing emerging services that may pose competitive risks in the future.
Obligations and Penalties for SSDEs
SSDEs face stringent obligations to maintain fair competition. They are prohibited from self-preferencing, ensuring their own products or services are not unfairly prioritized over third-party offerings. They must allow users to download, install, and use third-party applications without restrictions, promoting user choice. Anti-steering policies, which prevent business users from promoting their services to end-users, are banned, fostering open competition.
SSDEs must treat all users transparently and non-discriminatorily, ensuring equitable access to platform features. Data-related obligations include not using non-public business user data to compete and enabling data portability to facilitate user mobility. Non-compliance carries severe penalties, including fines up to 1% of global turnover, daily fines of up to Rs 1 lakh (capped at Rs 10 crore), or imprisonment for up to three years, reflecting the bill’s strong enforcement stance.
| Aspect | Details |
| SSDE Criteria | Over 10 million end-users or 10,000 business users in India; qualitative factors like economic power |
| Core Digital Services | Search engines, social media, video-sharing, cloud, advertising, intermediation |
| Key Obligations | No self-preferencing, allow third-party apps, fair treatment, data portability |
| Penalties | Up to 1% global turnover, Rs 1 lakh/day (max Rs 10 crore), or 3 years imprisonment |
Compliance Challenges for SSDEs Under the Digital Competition Bill
Challenges for Global Tech Giants
Global tech giants like Google, Amazon, and Meta face significant compliance challenges under the Digital Competition Bill 2024. The bill’s obligations require substantial operational changes, such as redesigning algorithms to eliminate self-preferencing, which could alter how search results or product listings are displayed. Ensuring data portability—allowing users to transfer data to competing platforms—demands complex technical solutions, increasing development costs.
Allowing unrestricted third-party app installations could disrupt revenue models reliant on app store commissions, as seen with Google Play and Apple’s App Store. Additionally, aligning with India’s regulations while complying with global frameworks like the EU’s DMA creates a complex compliance landscape, as differing requirements may lead to operational inconsistencies. Big Tech has voiced concerns that these obligations shift focus from innovation to regulatory compliance, potentially slowing the development of new features and services.
Impact on India’s Startup Ecosystem
India’s startup ecosystem, with over 115,000 startups and 1.2 million jobs, is a cornerstone of its digital economy. However, the bill’s low SSDE threshold—10 million end-users or 10,000 business users—could classify many growing startups as SSDEs, subjecting them to the same regulatory scrutiny as global giants. This designation imposes significant compliance costs, requiring startups to hire legal and technical teams to navigate obligations like data portability and non-discrimination.
These costs could divert resources from product development, market expansion, and customer acquisition, slowing growth. The regulatory burden may also deter venture capital and private equity investments, as investors may perceive increased risks in startups facing stringent regulations. Stakeholders argue that this could undermine India’s ambition to foster a trillion-dollar digital economy, as startups are critical drivers of innovation and job creation.
Balancing Innovation and Regulation
The bill aims to protect smaller players from Big Tech dominance, but its broad scope risks harming the startups it seeks to support. A startup with 10 million users, a modest figure in India’s 820-million internet user base, could face the same obligations as global giants, creating an uneven burden. Stakeholders recommend raising the SSDE threshold and tailoring obligations to the scale of enterprises to mitigate these risks.
The EU’s DMA offers lessons, having faced criticism for high compliance costs and unintended impacts on user experience, such as claims of a 4,000% increase in Google search times. India’s “wait-and-watch” approach, observing the DMA’s implementation, aims to refine its framework to avoid similar pitfalls, ensuring that regulation fosters competition without stifling innovation.
Comparative Analysis: Ex-Ante vs. Ex-Post Regulation
Advantages and Disadvantages of Ex-Ante Regulation
Ex-ante regulation offers a proactive approach to maintaining competition in digital markets by setting rules to prevent anti-competitive behaviors before they occur. This is particularly effective in digital markets, where rapid scalability and network effects can lead to market tipping, allowing dominant players to entrench their positions. Ex-ante measures ensure fair competition and protect consumers by addressing issues early.
However, the approach risks over-regulation, as broad or vague rules may impose unnecessary compliance burdens, particularly on smaller enterprises. Ex-post regulation, in contrast, allows flexibility and evidence-based enforcement, investigating specific violations after they occur. Its disadvantage lies in its reactive nature, which is often too slow to address the fast-paced dynamics of digital markets, allowing harm to persist during lengthy investigations.
| Regulation Type | Advantages | Disadvantages |
| Ex-Ante | Prevents market tipping, ensures fair competition | Risk of over-regulation, high compliance costs |
| Ex-Post | Flexible, evidence-based enforcement | Slow to address rapid market changes |
Suitability for India’s Digital Economy
India’s digital economy, projected to contribute 20% to GDP by 2026, is dynamic and rapidly growing, making ex-ante regulation a suitable tool to prevent monopolistic practices. The CCI’s ex-post framework under the Competition Act, 2002, has struggled to keep pace with digital market challenges, as seen in prolonged cases against tech giants.
Ex-ante regulation, as proposed in the Digital Competition Bill, enables early intervention, fostering a competitive environment that supports innovation and consumer choice. However, the framework must be tailored to avoid overburdening startups, which are vital to India’s digital growth. Clear, evidence-based rules and stakeholder engagement are essential to ensure that ex-ante regulation achieves its goals without unintended consequences.
Global Perspectives and Lessons
International frameworks provide valuable insights for India. The EU’s DMA, effective since 2022, has successfully regulated gatekeepers but faced criticism for high compliance costs and user experience impacts. Japan and Australia are exploring ex-ante frameworks, emphasizing data transparency and fair competition, offering models for India to consider.
Brazil’s proposed digital competition bill includes unique measures like a 2% tax on large platforms’ revenues to fund regulatory enforcement, highlighting innovative approaches. India can draw on these experiences to refine its bill, ensuring that it aligns with global best practices while addressing local needs, such as supporting its startup ecosystem and fostering digital inclusion.
The Way Forward: Recommendations for India’s Digital Competition Framework
Engaging Stakeholders for a Balanced Framework
The Digital Competition Bill’s public consultation, closed on May 15, 2024, received input from over 100 stakeholders, including digital businesses, startups, and legal experts. This engagement is critical for refining the bill to balance competition and innovation. The government must continue to involve stakeholders in ongoing discussions to address concerns about compliance costs and regulatory scope.
Establishing a formal dialogue mechanism, similar to the EU’s compliance workshops for the DMA, could facilitate collaboration between the CCI and SSDEs, ensuring that obligations are clear and feasible. Publishing non-confidential engagement reports can enhance transparency and mitigate risks of regulatory capture, building trust in the regulatory process.
Refining the Bill to Support Innovation
To address stakeholder concerns, the bill should consider raising the SSDE threshold to exclude smaller startups, focusing regulatory scrutiny on entities with significant market power. Clarifying obligations, such as specifying technical requirements for data portability, can reduce compliance ambiguity. Incorporating interoperability mandates, as seen in the DMA, could enhance competition by allowing seamless interaction between platforms.
Including provisions for most-favored-nation (MFN) clause prohibitions could prevent platforms from enforcing restrictive pricing policies. In exceptional cases, structural remedies like divestitures could be considered to address persistent anti-competitive behavior. These refinements can ensure that the bill promotes fair competition without stifling innovation.
Future Outlook and Potential Amendments
The bill is likely to undergo amendments based on stakeholder feedback and lessons from global frameworks. Raising the SSDE threshold, enhancing regulatory dialogue, and adopting evidence-based regulation are potential changes that could strengthen the framework. India’s approach aligns with its ambition to lead in digital regulation, positioning it alongside jurisdictions like the EU, Japan, and Australia.
By fostering a competitive digital market that supports its trillion-dollar digital economy vision, India can set a global standard for balancing regulation and innovation. Continued monitoring of international developments and stakeholder engagement will be key to the bill’s success.
Conclusion: Shaping the Future of Digital Competition in India
The Digital Competition Bill 2024 represents a bold step toward regulating India’s digital markets through ex-ante measures. By targeting Systemically Significant Digital Enterprises, the bill aims to curb anti-competitive practices and foster a fair competitive environment.
However, its implementation must address significant compliance challenges, particularly for startups, to avoid stifling innovation. The EU’s DMA provides valuable lessons, highlighting the need for careful calibration to minimize compliance costs and unintended impacts. India’s approach, tailored to its unique digital economy, reflects a commitment to balancing competition and innovation.
As the bill progresses through the legislative process, stakeholder engagement and international insights will shape its final form. By refining the SSDE threshold, clarifying obligations, and adopting evidence-based regulation, India can create a robust digital competition framework that supports its trillion-dollar digital economy vision.
Positioning itself as a leader in digital regulation, India has the opportunity to set a global benchmark, ensuring that its digital markets are both competitive and innovative. The success of this framework will depend on its ability to foster a dynamic digital ecosystem that benefits businesses, consumers, and the broader economy.
Explore our comprehensive guide to Competition Law in India, covering key concepts, regulations, and case studies to enhance your understanding and compliance.
