Competition bill will hamper Indian SMEs’ ability to compete overseas
A leading industry group representing 10 million Indian SMEs has warned the government that implementing the Digital Competition Bill (DCB) will hamper their ability to access and compete in emerging markets.
India SME Forum (ISF), the country’s largest non-governmental, not-for-profit organisation for small and medium businesses, recently wrote to the Ministry of Corporate Affairs saying the DCB poses a threat to MSMEs, risking their ability to exploit opportunities and hindering India’s e-commerce growth.
Provisions in the bill, proposed by the EU, limit the ability of platforms to use data for targeted advertising, which is detrimental to MSMEs that are reliant on targeted advertising offered by large digital platforms.
The forum invited legal and academic experts to educate its members on the impact of the bill. The experts highlighted that the draft provisions will disincentivise MSMEs to grow their businesses as they would attract deeper scrutiny from lawmakers. As the provisions are focused on digital services, it limits the ability of SMEs to extract value from digital platforms and could deter them from adopting digital trade.
Meghna Bal, Head of Research at think tank the 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.
“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 savings, etc. – they say that they find advertising on these platforms more accessible than tradition advertising media. So, when asked, 61% of them indicated that they would be negatively impacted.”
She added: “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, a Partner at Indus Law, told the forum: “The draft legislation requires more deliberations for a market like India. The quantitative thresholds 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.”
And Viswanath Pingali, Associate Professor, Indian Institute of Management Ahmedabad, 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.”
Tying occurs when a supplier makes the sale of one product (the tying product) conditional upon the purchase of another (the tied product) from the supplier (meaning the tying product is not sold separately). Bundling refers to situations where a package of two or more products is offered at a discount.
Pingali added: “We have to realise that this could harm the MSMEs and start-ups 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.”
Vinod Kumar, President, India SME Forum, and Trustee and President, FIRST India, said 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.
