While evaluating the potential ramifications of the draft Digital Competition Bill (DCB), industry experts at a recent event delved into the complex dynamics between small and large enterprises in the digital age, underscoring their crucial role in fostering mutual growth and innovation.
Emphasising how the rapid evolution of technology and digital platforms has significantly transformed the business landscape, experts at the Digital India Foundation’s event agreed that small enterprises collaborating with large established players create a more integrated and dynamic market ecosystem.
However, the draft DCB, with its focus on curtailing the data and bundling practices of Systemically Significant Digital Enterprises (SSDEs), threatens to disrupt this symbiotic relationship between MSMEs and large digital platforms.
BW Businessworld reached out to industry stakeholders to know more about the possible impact of DCB on the sector. They noted that the relationship between MSMEs and large digital platforms is mutually beneficial, providing us with essential tools and reach while contributing to their growth. The DCB disrupts this win-win situation with unnecessary restrictions, leading to higher costs and fewer opportunities for MSMEs.
“What MSMEs need is not restrictions, but support,” said Vinod Kumar, President, India SME Forum and Trustee and President, First India. He added, “Targeted ads are crucial for us. The DCB will cripple them, forcing us to spend more on less effective generic ads. Bundled services are cost-effective solutions and DCB's attack on bundling will force us to find more expensive alternatives. This bill throws out the baby with the bathwater.”
Notably, with ample resources, large platforms constantly innovate, offering MSMEs new features and tools. However, there is a rising concern among the stakeholders that the DCB will stifle this innovation by hindering its growth. The DCB may create a false sense of "fairness" but will limit choices for small businesses. Experts noted that the DCB removes valuable services provided by big platforms.
“The DCB might lead to a reduction in the collaborative efforts that have significantly benefited both MSMEs and large digital platforms. For instance, many MSMEs leverage the extensive logistics and marketing capabilities of platforms like Amazon and Flipkart to reach a broader customer base. These collaborations have enabled MSMEs to scale rapidly without substantial upfront investments in infrastructure. Conversely, large platforms benefit from the diverse product offerings and localized services provided by MSMEs, enriching their ecosystem,” said Ravinder Goyal, Co-founder, Erekrut.
The DCB is being introduced to curb the anti-competitive practices that have permeated the digital enterprise space in India. Practices like platforms controlling search ranking and promoting favourable treatments to their partner vendors, exclusive service agreements with large platforms, restriction on users to access third-party applications and forcing users to opt for bundled services, etc. Over the years, these practices have fostered a symbiotic relationship between MSMEs and large digital.
DCB intends to create a level playing field for MSMEs to compete without being suppressed by large digital platforms and the new bill will disrupt the current dynamics.
“Although it will also open up opportunities and lift market barriers to the majority of enterprises, indirectly the disruption will force MSMEs to invest in infrastructure and capacity to match the services they enjoy due to their collaboration. It will also affect their access to low-cost customer acquisition and marketing channels. As such, they will face additional costs in maintaining sales channels, acquiring customers, and ramping up marketing activities,” stated Sandeep Agrawal, Co-founder & Director Teamlease, RegTech.
Digital Competition Bill To Hurt Digital Economy?
Large digital platforms bring much-needed resources, support, and opportunities to the startup ecosystem. From access to advanced technologies, such as cloud computing and software development kits (SDKs), marketplaces and distribution channels, and investment to mentorship and industry expertise, these platforms have given stable environments and foundations for these startups to grow quickly. Whether through app stores or e-commerce platforms, these large digital companies have placed themselves at the bedrock of innovation in their respective sectors.
“The direct impact of restrictions under DCB will affect the technical and financial support available to these partner startups and MSMEs. The interconnected nature of the startup ecosystem relies on continuous interaction and support among various stakeholders. Disruptions to this network can slow down the pace of innovation for a small percentage of MSMEs,” mentioned RegTech’s Agrawal.
However, with a large number of MSMEs working towards innovation and disruption, the effect on the growth rate can be expected to be negligible. A fair market with equal opportunities will function similarly to the current dynamic wherein startups with the best service/ product get support from investors. However, large platforms will not be allowed to get rid of competition to consolidate their position. Additionally, with the government coming up with incentives and schemes to promote MSMEs and startups, there is a low possibility of innovation dying out.
While highlighting the impact of the Draft Digital Competition Bill, 2024 on MSMEs in India, Esya Centre's survey revealed that about 60 per cent reported potential adverse impacts from restrictions on data usage and bundling which will adversely impact digital advertising or single sign-on, underscoring the necessity for careful consideration in regulatory frameworks.
Alarmingly, 74 per cent of surveyed MSMEs did not engage in the Committee Digital Competition Law (CDCL) consultation, with 22 per cent unaware of its existence. Policy decisions must be made with comprehensive consultations, ensuring the voices of these essential businesses are heard and their growth is supported, experts stated.
“Instead of attacking platforms, the government should invest in programs that help MSMEs leverage digital tools and marketing effectively. Data privacy is a concern, but it can be addressed without crippling the entire digital ecosystem. MSMEs need clear data protection laws, not a sledgehammer approach. The DCB will hurt MSMEs, hurt platforms, and ultimately hurt the Indian digital economy. We urge the government to scrap this bill and work with stakeholders to find a better solution,” Kumar noted.
To ensure the DCB supports MSMEs without stifling beneficial collaborations, Erekrut’s Goyal recommended implementing phased compliance requirements to give MSMEs time to adapt, providing financial assistance or subsidies to MSMEs for any additional compliance costs, encouraging large digital platforms to continue their support for MSMEs through partnerships and innovation programs and establishing clear guidelines to prevent anti-competitive practices without overly restricting beneficial data and bundling practices.
“The government must engage with stakeholders, including MSMEs and large digital platforms, to ensure the DCB fosters a balanced and supportive ecosystem. Collaborative efforts and continuous dialogue can help refine the bill to achieve its goals without unintended negative impacts on innovation and growth,” Goyal stated.
What Next?
The future outlook for MSMEs in a regulatory environment shaped by the DCB is marred with challenges and concerns. Unbundling services might lead to higher costs for MSMEs, making it more difficult for them to afford the digital tools they need to grow. The cash-strapped sector has an estimated Rs 10.7 lakh crore which is 5.9 per cent of the gross value added (GVA) of Indian businesses is locked up annually as delayed payments from buyers to MSME suppliers, according to a report by D&B and Game.
“Navigating complex regulations could be challenging for MSMEs, requiring additional resources and expertise that many small businesses may lack. Restrictions on data sharing and bundling could stifle the collaborative and innovative environment fostered by large platforms, limiting MSMEs' access to essential tools and resources,” Kumar told BW.
Talking about the future outlook for MSMEs in a regulatory environment shaped by the DCB, Goyal stated that it will depend on how the regulations are implemented and enforced. If the government can balance regulation with support, MSMEs could benefit from a fairer competitive landscape. However, if the regulations are too stringent, MSMEs might struggle with increased costs and reduced market access, hindering their growth and potential.
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