India SME Forum: Concerns Over Digital Competition Bill

India SME Forum (ISF), India’s largest non-governmental, not-for-profit organization for small and medium businesses, wrote to the Ministry of Corporate Affairs, highlighting the adverse effects of the proposed Digital Competition Bill (DCB) on MSMEs' ability to access and compete in emerging markets. MSMEs play a vital role in India's ambition to achieve a USD 5 trillion economy by 2030, especially by leveraging e-commerce for global competitiveness. However, the DCB poses a threat to MSMEs, risking their ability to realize these opportunities and hindering India's e-commerce growth trajectory.

The forum invited experts both legal and academic to educate its 10 million members on the impact of the bill. The experts highlighted that the draft provisions disincentives the MSMEs to grow their businesses as they would attract deeper scrutiny by the lawmakers. As the provisions are focused on digital services, it limits the ability of SMEs to extract value from digital platforms and deter from adopting digital trade. This approach could hamper investments and growth in the Indian e-commerce sector, depriving MSMEs of the potential benefits of e-commerce expansion. Additionally, it's crucial to address the limited scope of consultation and the absence of MSME representatives in these discussions. Including MSME representatives in future consultations can ensure their voices are heard and their unique challenges are considered in regulatory decision-making processes.

DMA Impact Analysis

Meghna Bal, Head of Research, Esya Centre, said, “The Bill approaches competition from a very narrow frame, only considering competitive dynamics between businesses and digital platforms and neglecting the synergies between these entities. There is a provision in the bill which limits the ability of platforms to use data, for targeted advertising, We found in our study that MSMEs in India are extremely reliant on targeted advertising offered by large digital platforms, for things like revenue generation, customer acquisition, cost saving etc, they say that they find advertising on these platforms more cost saving, and accessible than tradition advertising media. So, when asked if there was all that came that reduced the efficacy of targeted advertising, how would they be impacted and 61% of them indicate that they would be negatively impacted, 61% of them indicated that they would be negatively impacted. We need to realise that the DMA is an extremely experimental legislation, the EU sees themselves as first movers in regulatory innovation but that doesn't mean they get it right. We should get the context of Indian markets right because the purpose of regulations is to prevent market failure, not cause it.”

Shreya Suri, Partner, Indus Law, highlighted,“While the draft bill appears to intend as an ex-ante legislation, the concern is that a lot of the ex-ante provisions and obligations are left to the additional codes of conduct to be framed in the context of the different kind of core digital services identified. Ultimately, a large portion of what we seem to be looking at in this draft legislation appears to be limited to identification parameters and enforcement provisions, which in itself are substantially similar to what the Competition Act already prescribes. The draft legislation requires more deliberations for a market like India. The quantitative thresholds (which seem to be even lower than what the DMA prescribes for certain pertinent categories) suggested may not work especially given the size of population and sheer number of digital users in the Indian context, which is significant in comparison and must be considered. Overall, it is imperative to look at what works for the Indian market and what does not."

Prof. Viswanath Pingali, Associate Professor, Indian Institute of Management Ahmedabad also said, “A significant advantage that big platforms offer small and medium enterprises lies primarily in their capacity to lower transaction costs. Our recent survey of approximately 1,400 MSMEs revealed that businesses more engaged on digital platforms and invested in digital advertising tend to serve a broader geographic area and exhibit higher export rates compared to their less digitally active counterparts. Furthermore, these platforms bring in an essential element of trust into MSME transactions. However, regulations imposing a blanket ban on practices such as tying and bundling, which are integral to these platforms, might ostensibly foster competition but inadvertently undermine this trust by complicating resolution processes previously streamlined by platform services. This regulatory approach could significantly erode the trust element that platforms have built, particularly affecting smaller firms that disproportionately rely on digital advertising and platform services for their market reach and discovery. They are saying that they will not take a one-size-fits-all solution but take a case-by-case basis, but we have to realise that this could harm the MSMEs and startups as policy uncertainties predominantly harm small businesses, who are least equipped to navigate or forecast the implications of such changes, thus amplifying their vulnerabilities in an already challenging marketplace.”

Highlighting the various possibilities and impact on MSMEs, Vinod Kumar, President, India SME Forum, and Trustee and President, FIRST India, said, “As an economy India is not used to paying for everything, and hence companies resort to bundling to lower the costs for consumers, for example Outlook service as part of Microsoft 365. He highlighted that the current framework is too early for MSME's in India.”

Highlighting the international experience of countries with respect to ex-ante regulations, Vinod Kumar said that countries such as Japan and Singapore are reconsidering the ex-ante approach.

On the involvement of various stakeholders in the consultation process, he also highlighted that MSMEs have had very limited involvement in the consultation process, and this could lead to regulations being framed which do not represent their viewpoints.