Digital competition bill may have indirect impact on startups: Experts

The government released the draft Digital Competition Bill for consultation on March 12

The additional obligations and the hefty penalties proposed for technology behemoths in the draft Digital Competition Bill, introduced to curtail anti-competitive practices by Big Tech, may have an indirect impact on startups and smaller companies, experts opined.

This comes at a time when several Indian companies such as Swiggy, Flipkart, Oyo and Zomato have said that they were opposed to the introduction of an ex-ante digital antitrust regulation, stating that it would have an adverse effect on India's startup and growing tech industry.  Ex-ante regulation refers to measures that are implemented in anticipation of potential issues.

In the draft bill, restrictions have been introduced for Systematically Significant Digital Enterprises (SSDEs) in self preferencing, usage of non-public data of users, on tying and bundling and so on. A company offering certain digital services can be declared an SSDE if thresholds that are proposed in the bill are crossed for 3 consecutive financial years.

If such companies are non-compliant to these additional obligations, then the bill has proposed penalties to the tune of up to 10 percent of its global turnover, and three years of imprisonment in some cases.

"The extent to which the law will end up designating startups as SSDEs is unclear. However, the bill will very likely have an indirect impact on startups. For instance, the extent to which small startups can leverage the benefits that large tech companies provide them may be impacted if the latter's business operations are excessively curtailed," Bhoomika Aggarwal, senior research associate at The Dialogue said.

"For instance, one may look at the prohibition on tying and bundling (in the bill), which states that platforms are not allowed to 'incentivise' business users to "use its other products/services or, those of related parties or third parties" with which it has arrangements, alongside its core digital service," she added.

"If platforms can't offer enticing incentives for using both their delivery and discovery services, they might struggle to offer financially affordable logistics support to small sellers and restaurants," Aggarwal said.

Alay Razvi, Partner, Accord Juris LLP said, "Though this act will bringing in transparency and opportunities for startups and companies but there is also a flip side.  The regulation might disincentivise startups from scaling only to avoid additional regulations."

A similar opinion was voiced by Indian companies when the Committee for Digital Competition Law (CDCL) opened a consultation process in 2023 to gauge whether the country needs a separate law to tackle anti-competitive practices by Big Tech.

Swiggy and Bundl Technologies in the consultation had said that an ex-ante regime "would cause a chilling effect on startup industry".  Ex-ante regulations may pose a risk of incorrect/misplaced regulation of smaller homegrown players which provide digital technology-enabled products and services," Swiggy had said.

Similarly, Oyo was also not in favour of such a law, saying that broad regulations may disincentivise innovation.

However, Sagardeep Rathi, Partner, Khaitan & Co said that startups will not be immediately subjected directly to the obligations proposed in the bill.

"Given the proposed sufficiently high thresholds, only a handful of digital entities are likely to be within the ambit of the law. The draft law ensures that smaller startups or innovators are not immediately subjected to obligations until they consistently breach the thresholds for at least three years," he added.