An Attempt to Shift the Balance of Power: How the Government Tries to Control Big Tech

There has been a concerted attempt by the ruling dispensation to usher in far-reaching expansive regulatory frameworks to govern every aspect of India’s digital ecosystem.

From the Telecommunications Bill and proposed e-commerce rules to the Personal Data Protection and other Bills, 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 payment channels that facilitate these transactions, and the management of the data generated.

Although the precise nature of the provisions proposed in each of these policies varies, when viewed as part of a larger mosaic, the underlying philosophy that animates or motivates the most controversial aspects of these policies appears to be the same. This seems to be a strategic choice, driven by a desire to exert more control over all aspects of the digital ecosystem, a preference for national companies and a desire to promote national champions while limiting influence and domination. of Big Tech.

Take the case of the telecommunications bill. The bill proposes to include OTT communication platforms within its scope, subjecting them to rules similar to those governing telecom operators, including licensing. Explanations put forward for favoring such a regulatory architecture range from those based on economic arguments such as the need to “create a level playing field” to the assertion by the state of its sovereign right in matters of “national security”.

However, none of these explanations hold water. The former assumes a false equivalence between telcos and OTT platforms, while there are better ways to address concerns about the latter. But the insistence on licensing, not regulation, seems to indicate a desire to rein in Big Tech platforms such as WhatsApp. Given the vast ramifications, it is conceivable that this is simply a negotiation tactic. It’s possible that these onerous provisions will eventually be watered down, but only after getting concessions from Big Tech.

The same intention – to curb the dominance of Big Tech – rather than sound economic logic seems to be behind the decision to impose caps on the market shares of payment platforms. UPI is, after all, interoperable. Barriers to entry are low. And there are no fees for payments made through the platform. How, then, will consumers benefit from another player increasing its market share? If competition is affected, it is a consequence of the flawed MDR (Merchant Discount Rate) policy regime. Moreover, market concentration, which is a consequence of network effects, prevails in most technology markets.

And certainly, if market concentration restricts competition, the same argument should be extended to telecommunications operators. Why not introduce competition? The policy framework could have facilitated a dramatic expansion of spectrum ownership, perhaps even to actors other than telecom operators such as pension funds – spectrum owned by these companies could then be leased by telecom operators according to their needs. Or is the policy framework guided by the idea that competition will now only be introduced by the entry, perhaps inorganic, of another Indian conglomerate?

The same motivations seem to inspire the more contentious provisions of the Personal Data Protection Bill. The proposed data localization standards are driven by the desire to exercise greater control over cross-border data flows. Increasing data storage requirements (a copy of sensitive personal data must be stored in India) and imposing strict restrictions (critical personal data must be processed only in India) would only increase the compliance burden of Big Tech.

Along the same lines, the provisions of the e-commerce bill appear to have been drafted to protect domestic players, while handicapping foreign-owned e-commerce platforms. The fallback liability clause, for example, or the imposition of restrictions on flash sales are all aimed at restricting the operations of foreign platforms.

By imposing such onerous regulations, introducing licensing requirements, erecting high barriers to entry and intervening where there is no market failure, these bills seek to tilt the balance of power rather than creating a level playing field. And in all of this, a few domestic players will benefit the most.

This political approach to the digital ecosystem, and perhaps the economy at large, indicates that the ruling dispensation is more comfortable with a market structure dominated by Indian companies, even s It’s a duopoly, rather than a structure where foreign players wield considerable influence. However, one has to ask, who is considered an Indian company in this ecosystem?

Is a company of Indian origin majority-owned by foreign investors considered Indian? What about a company of Indian origin that is bought by a foreign player or that receives significant funding from Big Tech but whose Indian promoters remain in the majority? And what about a 100% Indian subsidiary of a foreign company?

The political apparatus seeks to differentiate them. But shouldn’t the same rules apply to everyone? Why draw such dividing lines? And why is such a demarcation limited to the digital domain alone and not extended to other sectors such as banking?

This form of industrial policy that favors a few select domestic players while limiting foreign competition could well lead to an era of inefficient and uncompetitive goods and services. This would run counter to the government’s stated desire to build and nurture a vibrant digital economy. To continue on this path would be a mistake. It is consumers who will ultimately suffer.

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