Digital Competition Bill could negatively impact MSMEs, study finds

The provisions regarding restriction on data usage, and tying and bundling of services by the large digital platforms as proposed by the Digital Competition Bill would adversely impact the micro, small and medium enterprises (MSMEs), a study by technology think tank Esya Centre has said. 

The report, while recommending that the Ministry of Corporate Affairs withdraw the two provisions, has also suggested a wait and watch approach to learn from the experience of the European Union and its experiment with the Digital Markets Act. 

The study said that because the proposed bill does not factor in the symbiotic relationship between digital platforms and MSMEs, it could possibly jeopardise efficiency gains in the sector.

“The proposed law would also lead to significant deadweight losses, as these enterprises would have to recalibrate their online commerce and advertising by diverting resources that could otherwise have been used for value creation,” ESYA centre’s report said.

The report argues that the MSME sector has been able to overcome challenges of limited advertising, market access and low budgets for technological enhancements due to access to large digital platforms such as e-marketplaces and social media networks. 

The survey conducted by Esya found that 61 percent MSMEs surveyed said that limitations placed on targeted advertising of large digital platforms under the DDCB will have a negative impact on them.

MSMEs, the study says, also benefit from a single-sign in system where customers on a retail website for instance, can sign in using a Google, Facebook or Amazon account without having to create an account to complete the purchase.

“This service is useful for MSMEs because it gives them a means to leverage the large user bases of digital platforms as potential customers,” the study said.

It said limiting these services can become a make-or-break factor for many MSMEs, as they are predominantly young micro-enterprises.

Section 15 of the Draft Digital Competition Bill, 2024 prohibits SSDEs from requiring or incentivising business users or end users to use one or more of the Systemically Significant Digital Enterprises’ other products or services. 

This, the report says, would mean that a bundle of products -- say a bundle of Google Cloud, Google single sign-on, and Google Analytics-- would be illegal under the DDCB.

“Bundling exploits cost and value synergies to drive down prices…Unbundling may have the unintended effect of making these services more expensive.

The report said that the limited participation of MSMEs in the initial discussions of the Committee for Digital Competition Law (CDCL) explains why the report downplays the complementarity between MSMEs and large digital platforms. 

“74 per cent of MSMEs surveyed did not participate in the DCL consultations that the Committee on Digital Competition Law (CDCL) conducted, including 22 percent who were not even aware of the existence of the CDCL.”

The report surveyed 300 business proprietors from across India.