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Vallari Dronamraju*
(This is the second post of a three-part series)
I. INTRODUCTION
This is the second of a three-part series on the ongoing debate on India’s proposed Digital Competition Bill (“DCB”). The first piece unpacks the false choice between regulation and innovation in the context of the DCB, finding that regulation can benefit innovation and lack of regulation can hinder innovation. However, the success of such regulation hinges on thoughtful policy design choices, such as considerations of state capacity and the chosen regulatory architecture. This second piece focuses on state capacity within the CCI as a foundational requirement for the DCB’s implementation. It explores areas such as the CCI’s staffing, monetary resources and domain expertise in digital markets, finding that each of these factors requires significant bolstering, and makes concomitant recommendations. The third piece will analyse the principles-based approach adopted by the DCB, and offer recommendations to ensure that this relatively novel regulatory design meets with implementational success.
The evolution of the internet in the past two decades has been extraordinary. The basic functionalities of Web 1.0 gave way to a participative age of Web 2.0, when social media giants like Facebook, YouTube and Instagram ruled the roost. Today, Web 3.0 advancements such as AI have taken center stage.
During this transformative era, antitrust regulators adopted a “wait and watch” approach, posing little interference to the growth of the internet. Consequently, a handful of Big Tech giants have come to dominate digital markets. However, mounting concerns over their anti-competitive practices have spurred regulators to intensify scrutiny over Big Tech.
The DCB’s quest for fairer digital markets hinges on the success of its implementing regulator: the CCI. Since the pivot from passive to proactive regulation of digital markets has occurred in a condensed time frame, competition regulators have arguably needed more time to develop the requisite capacity. This necessitates deeper questions into state capacity within the CCI to enforce the DCB effectively.
II. INADEQUATE STATE CAPACITY FOR DEVELOPMENTS IN THE DIGITAL MARKETPLACE
Generally, a state demonstrates its capacity by using its extractive potential to mobilise resources, distribute goods and services and regulate the economy. Remarkably, the Indian state successfully performs complex tasks such as conducting census and general elections for a population of 1.2 billion. In sharp contrast, the Indian state is “flailing” in other realms, especially in policy design and implementation.
One contributor to this phenomenon is the wide-ranging discretion conferred on the implementing regulator, such as the CCI, rooted in the belief that it has the requisite sectoral expertise. As such, the DCB provides only broad principles of obligations for SSDEs and ADEs, leaving the specifics to be fashioned by the CCI through implementing regulations. This discretionary power may play out in several ways: the CCI is empowered to impose differential obligations on SSDEs compared to ADEs. Alternatively, the CCI is also empowered to exempt entities from compliance with the obligations under the DCB.
Evidently, the DCB accords wide-ranging discretion to the CCI in determining the content of the obligations for SSDEs and ADEs. This heightened focus on delegated legislation may lead to a fear among stakeholders that regulatory discretion could be misused. Indeed, inadequacies in CCI’s regulations may be counterproductive, fracturing the DCB’s intent of creating fair digital markets for all players. For instance, poorly designed regulations may result in disproportionately high compliance costs, hurt small businesses’ interests, or discourage startups.
III. BETTERING STATE CAPABILITY IN DIGITAL MARKETS
Enforcing the DCB is a tricky task that requires making careful choices to balance different stakeholder interests and comprehensively understand digital markets' dynamisms. For instance, Instagram changed its algorithm to prioritise original content over reposted content and give higher rankings to reels from smaller accounts. Similarly, Google restructured itself under a new parent entity, Alphabet, to provide itself with greater freedom for riskier research and investments, such as driverless cars. Such changes will affect how these companies comply with obligations under the DCB. Concomitantly, the CCI will also need to keep pace with these developments to monitor such compliance. Here, the uphill battle for the CCI is understanding what makes Big Tech ‘Big Tech’.
Therefore, simply assuming that the CCI already can enforce the DCB may be unreasonable. In this regard, three key measures to bolster the CCI’s capacity are increasing staffing, sharpening domain expertise in digital markets and augmenting financial resources.
At the outset, the CCI Annual Report 2022-23 reveals worrying findings on staffing: 1/3rd of the total number of required officer positions lie vacant. Further, CCI’s existing pool comprises officers from law, economics and financial analysts. There is a glaring absence of technology experts. The CCI has set the stage to bridge this gap by onboarding technology experts in its dedicated wing for digital markets enforcement: the Digital Markets Data Unit. Reassuringly, this stance is akin to internal best practices. For instance, the EU is currently enforcing the Digital Markets Act (“DMA”) which is similar to the DCB. As such, the EU actively recruits technology specialists and data scientists to enforce the DMA. In this context, the CCI requires a planned increase in staffing coupled with onboarding technology experts for optimal implementation of the DCB.
The second consideration is the necessity of conducting knowledge-building on digital markets by conducting market studies. The DCB applies only to specific digital services, called ‘Core Digital Services’, (“CDS”) such as online intermediation services, web browsers, and advertising services. Given the distinct anti-competitive practices and concerns in each of these services, the regulations for each CDS will require considerable tailoring. To achieve this, the CCI requires detailed knowledge of each CDS through market studies. Remarkably, the CCI is cognisant of this imperative and has already launched a market study in AI, which is touted to be a potential future inclusion in the list of CDS.
Meeting the dual needs of increased staffing and knowledge-building necessitates an increase in CCI’s funds. The CCI Annual Report offers insights into the present state of the CCI’s finances, housed in the Competition Fund. The primary source of CCI’s finances stems from grants provided by the Central Government, showcasing an upward progressive trend: INR 4702 lakh in 2022-23, INR 4600 lakh in 2021-22, and INR 4615 lakh in 2020-21 (approximately EUR 50 million). Additionally, CCI’s financial inflows also stem from applications under the Competition Act, 2002, such as for combinations, settlements and commitments, and interest.
The CCI’s monetary squeeze can be contextualised when compared to the DMA, which is similar to the DCB. In 2023, the European Commission allocated a budget of EUR 163.8 million for competition enforcement, including for the DMA, a significant comparison to the meager EUR 50 million currently available with the CCI. Despite both regulators being tasked with implementing laws of a similar magnitude, the CCI operates with 1/3rd of the funds available to the EC.
The threefold measures discussed above are well–poised to establish strong groundwork for the CCI in effectively enforcing the DCB. However, it is fanciful to assume that these measures can be achieved swiftly or easily. Various external factors come into play, particularly in addressing the CCI's financial constraints. For instance, the consistent upward revisions of CCI fee slabs for applications in recent years suggest limited potential for substantial revenue generation through this avenue. Similarly, there is no certainty of an increase in the CCI’s primary source of finances from the Central Government. This is because the scope of grants from Parliament to the Central Government, and in turn from the Central Government to the CCI, are solely at the discretion of the legislature.
Given the inherent challenges of substantially increasing state capacity, the CCI must explore alternative approaches. Its primary consideration should be to reduce its regulatory scope under the DCB and focus on aspects that it currently possesses the requisite capacity to regulate. For instance, the CCI already demonstrates laudable expertise in online intermediation services, since it has conducted a flurry of investigations. Notably, in 2023, match-making app Truly Madly Deeply and payment site Paytm successfully challenged Google’s service fee for app store payments after a thorough CCI investigation. Similarly, the CCI has already conducted a market study in the domain of online intermediation services for e-commerce.
Concurrently, the CCI should continue with its long-term strategy of enhancing its capacity to meet the complete demands of implementing the DCB through increased staffing, augmented financial resources, and enhanced domain expertise in digital markets.
IV. THE ROAD AHEAD FOR STATE CAPACITY IN THE DIGITAL REVOLUTION
Enforcement of the DCB promises to be a mammoth task for the CCI, particularly amidst India’s “flailing” state capacity in policy design and implementation. The primary mechanisms to bolster state capacity within the CCI are recruiting additional officers, expanding financial resources and augmenting technical expertise for digital markets. However, achieving these ambitious goals will require time and strategic planning, since several competing considerations are at play. Illustratively, improper regulations may have the counterproductive outcome of hampering innovation or disproportionately high compliance costs.
Therefore, the CCI ought to consider initially narrowing its regulatory scope to the aspects of the DCB wherein it already possesses adequate capacity to regulate. Such a stance will result in successful regulatory interventions, and instill market confidence in the DCB. Simultaneously, the CCI should persist in its efforts to progressively enhance its capacity to match the full demands of the DCB, gradually expanding its regulatory scope. This balanced approach will place the CCI in good stead to navigate the complexities of digital markets while steadily strengthening its ability to enforce the DCB comprehensively.
* Vallari Dronamraju is a Research Fellow with the Corporate Law and Financial Regulation team at Vidhi Centre for Legal Policy, vallari.dronamraju@vidhilegalpolicy.in. The author was a part of the team which assisted the MCA in the preparation of the CDCL report.
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