Should India tighten its grip over international technology companies, or will this approach backfire and cause them to reconsider growth plans in India? Freny Patel reports
India is entering 2023 with policy changes that could tighten the government’s grip on global and domestic technology companies. The question is whether the time is ripe for India to mimic its counterparts in the West, especially when the country needs foreign capital as it aims to become a USD5 trillion economy by 2024.
As India tables new policies in 2023, global tech giants – already under intense regulatory scrutiny worldwide – see the domestic government, regulators and local lobby groups targeting them to rein in their increasing dominance.
One of the key amendments in the draft Competition Amendment Bill, expected to be passed in the budget session of parliament, is aimed at capturing the M&A activity of the new age economy through the concept of a deal-value threshold set at INR20 billion (USD250 million).
Technology giants like Amazon, Apple, Google, Meta, Twitter and others will also find themselves at the receiving end should a proposal of the parliamentary standing committee on finance to introduce , similar to the EU’s Digital Market Act, see the light of day.
Aimed at curbing anticompetitive practices in digital markets, the committee had proposed ex ante regulations and a new category of intermediaries labelled “systemically important digital intermediaries”, which could negatively influence competitive conduct in the digital ecosystem.
“India has joined the world laboratory when it comes to regulating Big Tech, there are so many cross-border similarities, but as many Indian specificities,” Payal Malik, economic adviser and head of the economic division at the Competition Commission of India (CCI), said at a competition law conference last year.
Malik advocates forward-looking regulations to complement existing antitrust rules in light of the rising number of cases in the digital economy.
As rules of engagement between the platforms and their users are exploitative, ex ante regulations will help address issues related to the imbalance in bargaining power, asymmetric information, and gatekeepers in the digital economy, she says in a commentary piece in the Financial Express.
However, the Asia Internet Coalition (AIC) has criticised the digital competition bill, saying that the recommendations proposed would restrict competition and innovation. The AIC is an industry body comprising leading internet and technology giants including Google, Amazon, Meta, Booking.com, Expedia, Grab, LinkedIn, Twitter, Yahoo and Apple.
The coalition’s managing director, Jeff Paine, has said India’s government should first observe whether overseas regulatory developments have brought about desired benefits, which could outweigh the costs in light of the proposed bills. He was referring to both the Digital Competition Act and India’s fourth attempt to draft the Digital Personal Data Protection Bill.
Data localisation controversy
While the latest draft of India’s data protection bill could be seen as a win for global technology majors that had lobbied hard against data localisation, the inclusion of “white listing” certain notified countries and territories for the free flow of data has created more uncertainty.
The Digital Personal Data Protection Bill gives the government the power to notify such countries where cross-border data transfers may be executed, on an assessment of factors to be specified at a later stage.
This might be a cause of concern for companies storing their data outside India since the factors of assessment are yet to be specified, says Bagmisikha Puhan, a New Delhi-based associate partner at TMT Law Practice.
Until such time that countries are notified, the question remains whether companies should operate under the seeming system of data localisation, says Puhan.
“Country-by-country discussions could result in time-consuming conversations,” she points out, suggesting instead that the transfer of personal data outside India should include the option to approve blocks of countries or nations already adhering to multilateral regimes that protect data privacy, or that have been adjudged as adequate destinations.
“This could speed critical data transfer arrangements, add business certainty and continuity, and thereby enhance India’s investment climate, promoting India as a data centre and analytics hub,” says Puhan.
If the list of restricted countries is narrow and limited only to a few jurisdictions, it may not harm data transfers and digital trade, says Trilegal’s Bengaluru-based partner, Jyotsna Jayaram.
“The proposed bill does away with the ambiguities surrounding storage, copying and mirroring of data, and simplifies the process essentially enabling the transfer of data out of India to a specific list of countries, which seems to be based on the concept of adequacy,” says Jayaram.
The Confederation of All India Traders (CAIT) has come down heavily on the latest data protection bill, emphasising the necessity to impose restrictions on cross-border data flows. This would ensure that user data are not misused, especially from the endless and unchecked process, confederation secretary Praveen Khandelwal has said.
Such limitations on cross-border data flows are essential for developing nations like India, Khandelwal noted, adding there is no evidence to indicate that the unrestricted transfer of personnel has benefited anyone except Big Tech.
Nothing set in stone
Rahul Rai, a New Delhi-based partner and co-founder at Axiom5 Law Chambers, says that the Indian government is discussing these issues, but is not necessarily rushing into any one set of rules or regulations.
The Indian government recently constituted a 16-member inter-ministerial panel to examine the need for separate legislation on competition in digital markets, and whether existing provisions in the 2002 Competition Act are sufficient to deal with the challenges emerging from the digital ecosystem.
“India may come up with something more suited to its domestic needs,” says Rai, who is also a member of this panel. “India’s competition amendment bill itself has taken almost four years. Similarly, laws on data protection and privacy have been in the works for a while.”
The latest draft is the fourth iteration of India’s data privacy law since the draft 2018 Personal Data Protection Bill put forward by the Justice Srikrishna Committee.
“There is nothing wrong with the government targeting technology firms with specific regulations,” says Rai. “As a sovereign nation, India must plug legislative gaps.”
Meta’s president of global affairs and former UK deputy prime minister, Nick Clegg, recently said that while politics cannot move as fast as technology, it is necessary to minimise the gap. “Rules are needed,” he said, urging decision-makers not to repeat a pattern where the tech industry moves forward constructing the new platforms and metaverse, and 20 years later the rule makers decide the rules on data portability and interoperability in the metaverse when it comes to data use. He was speaking in the context of India’s draft data protection bill.
But while Clegg feels regulations should be in line with the growth of technology, officials of other tech giants say otherwise.
WhatsApp, Signal, Telegram, Zoom and Facetime could fall under increased government surveillance as the draft Indian Telecommunication Bill, 2022, broadens the definition of telecoms services to include social media and communication platforms.
As the distinction between a voice call and a data call has practically disappeared, domestic telecoms players have pressurised the government for a level playing field as the platform economy provides free calling services.
An official at one leading global technology company tells India Business Law Journal that “the narrative isn’t actually against Big Tech, but rather it’s against what is large”.
In the case of non-traditional industries, markets generally tend to be characterised by one or two large firms. The possibility of incumbents abusing their position is thus enhanced, says Rai. “Therefore, governments exploring ways to pre-empt such situations are not entirely misplaced,” he says.
India has antitrust legislation, but the question being asked is whether the existing rules are sufficient to meet the challenges of the digital economy.
India isn’t alone, says Rai, as this question is being asked by regulators across the Atlantic, both in Europe and the US, and across various jurisdictions in Asia.
India introducing new legislation that mimics Europe’s stringent though untested Digital Market Act (DMA), and adopting China’s style of governance by expanding its surveillance through the Digital Personal Data Protection Bill and the Telecommunications Bill has left technology giants apprehensive.
Europe took about five years to come up with a framework like the DMA, but the Indian government’s intention to duplicate these regulations in a developing economy could have a catastrophic impact, warns Vaibhav Choukse, a New Delhi-based partner and head of the competition law practice at JSA.
In every economic legislation, there will always be trade-offs. It is necessary to identify the trade-offs and understand the potential consequences before finalising the legislation, says Rai.
Choukse points out that there is no empirical evidence to suggest that restricting the operational practices of Big Tech companies will foster healthy competition among all players in the digital ecosystem in a developing market like India.
“The government needs to take a step back and ponder whether India does need one more regulation, as over-regulation may reduce innovation in the long term,” he says.
With so much proposed legislation to regulate Big Tech, he notes the government seems to be bringing undue pressure, which might discourage companies from expanding in India and harm India’s vision to be a USD5 trillion economy in 2024. New legislation targeting technology giants could force them to relook at their India strategy and future investments.
During a court hearing over the fate of WhatsApp’s privacy policy change, Harish Salve, representing Meta’s messaging app, did not rule out the possibility of the US tech giant closing down operations in India if it did not choose to follow India’s new privacy policy legislation.
India whips Big Tech
Even under the current regulations, India has not been standoffish when it comes to slapping global tech giants with hefty penalties and directives, and even killing their acquisition plans.
Amazon’s attempts to thwart Reliance Industries’ takeover of Future Group’s retail assets came to nought when the CCI, in an unprecedented move, withdrew a 2019 merger approval granted to the US e-commerce giant’s investment in Future Coupons.
Without data protection legislation in place, India managed to stop WhatsApp from enforcing its controversial 2021 privacy policy. Not only did the Indian government step in, but the CCI’s investigation into the alleged abuse of its dominant position has even forced WhatsApp to defer its plans.
Twitter was caught in the line of fire under the provisions of the Information Technology (Intermediary Guidelines) Rules, 2021. It was reprimanded by the Ministry of Electronics and Information Technology (MeitY) for failing to appoint requisite grievance officers in a timely manner, and quickly toed the line for fear of losing a “safe harbour” exemption under section 79 of the Information Technology Act, 2000. The “safe harbour” immunity clause protects an intermediary from being held liable for third-party content on its platform.
The CCI set a precedent when it came down heavily on Google’s Android ecosystem in October 2022. The US search engine was fined USD162 million for abusing its dominant position in the Android operating system, and another USD113 million for its Play Store policies. More importantly, the antitrust watchdog imposed directives that went beyond those imposed by the European Commission in 2018.
There is no requirement for a separate competition law for Big Tech, says Choukse, as the existing competition act, including the proposed amendments, has all the necessary provisions to deal with these issues. There is some degree of justification for ex ante regulations because antitrust investigations followed by penal and conduct-wise action can take time. “Policymakers worldwide are grappling with this, as competitive conditions in the digital market would have slipped so dramatically that the intervention would be meaningless,” says Rai.
However, Big Tech has not been sitting quietly, either. Google attacked the CCI with allegations that it had plagiarised part of the European Commission’s 2018 order in its challenge against the Indian antitrust watchdog’s October 2022 Android abuse of dominance order.
Twitter sued the Indian government last year on grounds that it was abusing its power when asked by the Ministry of Electronics and Information Technology to remove content from its platform.
India is not just taking a chapter from jurisdictions in the West as it proposes to increase regulatory oversight over Big Tech to protect the interests of its citizens and local, traditional businesses.
And close to home, China, Japan and South Korea have taken similar measures to regulate the New Age economy.
China’s central government has adopted an aggressive approach, and has fined several Big Tech giants, including home-grown Alibaba and Tencent, for alleged antitrust violations. Several global social media intermediaries including Google, Facebook, Twitter, WhatsApp and YouTube are banned in China over censorship rules.
Japan intends to ensure competition in the technology ecosystem when it comes to e-commerce and digital advertising. It introduced the Act on Improving Transparency and Fairness of Digital Platforms, effective from February 2021.
South Korea has not lagged in regulating Big Tech companies, particularly in the area of data privacy. Last year, the Personal Information Protection Commission, the country’s privacy watchdog, fined Google and Meta collectively USD72 million for breaching the local data privacy law.
Rethinking regulatory trail
Data represent the most valuable commodity today, and that fight to capitalise, own and control has resulted in increasing regulatory backlashes in the interest of citizens. Governments and regulators across the globe are on the trail of Big Tech as they pursue regulations to break up monopolies, hoping to create competition in a data-driven economy.
Meta’s Clegg points out that data are, as a commodity, not the oil you suck out, burn and then is gone. Instead, it is like air, which cannot be locked up. Locking up data makes a country only poorer, he says, responding to the controversial issue of data localisation.
Can India’s developing economy afford to take on global giants? Would the size of India’s huge open domestic market continue to attract tech giants despite regulatory hurdles?
India will need to find the right balance, being a growing economy, particularly on the technology front, says Rai. “If we want to capitalise on the opportunity, then we need to create a set of rules that find the right balance,” he adds.
