Experts Deem Digital Competition Bill A Threat To MSMEs, Startups

Stakeholders from Indian micro, small and medium enterprises (MSMEs) and startups have yet again expressed concerns about the Modi government's Digital Competition Bill (DCB), its negative impact on MSME's competitiveness and global markets and its potentially detrimental effect on their ability to serve consumers. 

While speaking at the India SME Forum's event in New Delhi, small and medium businesses highlight their perspective on technology and competition frameworks. Notably, the bill intends to regulate and provide a level playing field however it is being used as a measure to solve commercial disputes between private parties. This can derail the vibrant MSME ecosystem in India.

“With large companies moving out of China, India is blessed with a great opportunity to gain from the exodus. Any regulation like DCB will act as a stumbling block in the country’s efforts to attract FDI, and promote global competitiveness of MSMEs,” said Vinod Kumar, President, India SME Forum (ISF), expressing concerns emanating from the DCB proposal.

Experts highlighted the essential role of supportive regulations in facilitating the growth of small businesses. They emphasised the necessity of policies and regulations that empower MSMEs, enabling them to digitise and sustainably utilise digital services, thereby maintaining competitiveness in domestic and export markets.

Aditi Madan, Founder and Director, Blue Pine Foods expressed concerns regarding the over-regulation of online markets. She stated, “Regulations which are probably meant for larger companies will also have an indirect effect on startups and SMEs, and these unintended consequences will upset the innovation and certainty in the ecosystem. Proposals like the DCB are likely to further impede and compound existing issues faced by product startups looking to access new markets, accessing capital and scale their operations.”

While citing an upcoming report on the potential implications of proposed DCB for Indian businesses, experts stated that the study shows that 82.2 per cent of business users believe that digital services have enhanced their ability to compete effectively in markets, while 74.3 per cent of business users believe that digital services have enhanced their ability to differentiate themselves from their competitors.

Notably, experts urged the government to continue with a light-touch regulatory approach that enables innovation and experimentation. Noting the relatively limited extent of consultation on the bill, they emphasised the importance of extensive and inclusive pre-legislative consultations, that educate MSMEs and startups on the implications of policy and legislative proposals, while promoting greater involvement by MSMEs and startups.

Interestingly, the members of ISF were not only concerned with the immediate impact of the bill but also felt that it could be a deterrent for India’s Viksit Bharat goals. ISF's Kumar urged the Modi government to carefully consider the potential impact of new policy proposals on MSMEs and startups, ensure adequate representation of the concerns and perspectives of SME stakeholder groups in pending policy proposals such as the proposed Digital Competition Bill, and take note of the unintended but harmful consequences of untested frameworks.

MSMEs Struggling On Many Fronts
After dealing with the deadly impact of the Covid-19 pandemic, delayed payments and controversial 45-day rule, there is a sense of unease among MSMEs regarding the draft bill, as they are unsure about its potential impact. In India, the majority of enterprises are micro, with only a tiny fraction being medium or small enterprises. Many MSMEs are concerned about the proposed ex-ante regulations, especially those related to personal data usage. 

They argue that data is crucial for services like predictive analysis and targeted advertising, which are vital for their business operations. Furthermore, provisions like the unbundling of digital products could make essential services unaffordable for smaller businesses. The bill appears to be similar to international regulations. The Indian ecosystem is vastly different from that of developed economies, and reliance on international models could be detrimental to the country's MSMEs.

While giving an example, Amit Agrawal, Founder, DSI Robotics said, “The government's decision to prohibit digital platforms from saving credit card information, while intended to prevent fraud, created significant challenges for SMEs. A firm managing multiple subscriptions now faces the burden of manually authorizing payments each month. This shift from automated to manual payments is highly inconvenient, causing delays and potential missed payments.”

In India, MSMEs play a vital role in India's ambition to achieve a USD 5 trillion economy by 2030, especially by leveraging ecommerce for global competitiveness. However, this bill poses a threat to MSMEs, risking their ability to realise these opportunities and hindering India's e-commerce growth trajectory. The bill can result in an undue compliance burden for small businesses, as has happened in the past. This highlights a pattern where measures aimed at increasing security inadvertently hinder business operations, experts said.

Debashish Das, Founder and CEO, ElenchusHR Solutions stated, “Overly stringent regulations could adversely impact businesses by forcing them back to manual processes reminiscent of the 70s and 80s. This would increase costs and reduce operational efficiency. India's unique economy, with its diverse cultural and regional nuances, cannot adopt a one-size-fits-all approach based on foreign laws. Policies must consider the specific needs and inputs of the MSME sector to be effective and beneficial.”