There has been a concerted attempt by the ruling dispensation to usher in far reaching expansive regulatory frameworks to govern each and every aspect of India’s digital ecosystem.
From the draft telecom bill to the proposed e-commerce rules to the personal data protection bill and others, these new policy frameworks seek to regulate the physical infrastructure that forms the backbone of Digital India, the platforms that dominate all forms of digital interactions from communication to retail, the underlying payments channels that facilitate these transactions, and the management of the data generated.
While the precise nature of the provisions proposed in each of these policies varies, when seen as part of a larger mosaic, the underlying philosophy that drives or motivates the more contentious aspects of these policies seems to be the same. This appears to be a strategic choice, driven by the desire to exercise more control over every aspect of the digital ecosystem, a preference for domestic firms and a desire to promote national champions while limiting the influence and dominance of Big Tech.
Take the case of the draft telecom bill. The bill proposes to bring OTT communication platforms under its ambit, subjecting them to rules similar to those governing telecom operators, including licencing. The explanations offered for favouring such a regulatory architecture range from those based on economic arguments such as the need to “create a level playing field” to the state asserting its sovereign right in matters concerning “national security”.
However, neither of these explanations holds water. The former assumes a false equivalence between telcos and OTT platforms, while there are better ways of tackling concerns over the latter. But, the insistence on licencing, not regulation, seems to indicate a desire to bring Big Tech platforms such as WhatsApp to heel. Considering the wide-ranging ramifications, it is conceivable that this may simply be a negotiating tactic. It is possible that these onerous provisions are eventually watered down, but only after extracting concessions from Big Tech.
The same intention — curbing the dominance of Big Tech — rather than any sound economic logic appears to be behind the decision to impose caps on market shares of payment platforms. UPI is, after all, interoperable. Barriers to entry are low. And there are no charges for payments made through the platform. How, then, will consumers benefit from another player increasing its market share? If at all competition is being affected, it is a consequence of the flawed MDR (merchant discount rate) policy regime. Moreover, market concentration, which is a consequence of network effects, is prevalent across most tech markets.
And surely, if market concentration restricts competition then the same argument should be extended to telecom operators. Why not usher in competition there? The policy framework could have facilitated a dramatic expansion in the ownership of spectrum, perhaps even to players other than telcos such as pension funds — the spectrum owned by these firms could then be leased by telecom operators as per their requirement. Or is the policy framework guided by the notion that competition will now be ushered in only by the entry, perhaps inorganically, of another Indian conglomerate?
The same motives seem to inspire the more contentious provisions of the personal data protection bill. The proposed data localisation norms are guided by the desire to exercise greater control over cross-border data flows. Increasing data storage requirements (a copy of sensitive personal data needs to be stored within India), and imposing strict restrictions (critical personal data needs to be processed only in India) would only increase the compliance burden of Big Tech.
In a similar vein, the provisions of the e-commerce bill seem to have been drafted to shield domestic players, while handicapping foreign-owned e-commerce platforms. The fall-back liability clause for instance or the imposition of restrictions on flash sales are all meant to restrict the operations of foreign-owned platforms.
By imposing such onerous regulations, introducing licencing requirements, erecting high entry barriers and intervening when there is no market failure, these bills seek to tilt the balance of power rather than create a level playing field. And in all of this, a few domestic players stand to benefit the most.
This policy approach towards the digital ecosystem, and perhaps the larger economy, indicates that the ruling dispensation is more at ease with a market structure that is dominated by Indian firms, even if it is a duopoly, rather than one where foreign players hold considerable sway. Though, one must ask, who is considered to be an Indian firm in this ecosystem?
Is a company of Indian origin where the majority ownership rests with foreign investors considered to be Indian? What about a company of Indian origin that is acquired by a foreign player or one that receives significant funding from Big Tech but where the Indian promoters retain majority ownership? And what about a fully-owned Indian subsidiary of a foreign company?
The policy apparatus seeks to differentiate between them. But shouldn’t the same rules apply to all? Why draw such lines of demarcation? And why is such demarcation limited only to the digital realm and not extended to other sectors such as banking?
This form of industrial policy which favours a few chosen domestic players while constraining foreign competition could well lead to an era of inefficient, uncompetitive goods and services. This would go against the government’s stated desire to build and nurture a vibrant digital economy. Continuing with this approach would be a mistake. It is the consumers that will ultimately suffer.
ishan.bakshi@expressindia.com
