Regulatory limbo: Digital markets are fast expanding. We need an umbrella law for platforms

Regulatory limbo: Digital markets are fast expanding. We need an umbrella law for platforms
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One consequence of lockdowns imposed across the world to cope with Covid was the quickening pace of economic transactions shifting from physical to digital marketplaces. Eighteen months since the pandemic hit societies have irrevocably moved towards more engagements online. However, regulatory architecture hasn’t kept pace. It has large gaps when it comes to dealing with digital markets. This isn’t new. The regulatory architecture always lagged technological advances. But now we have reached a stage where the slow pace of regulatory retooling may have an adverse impact on the nature of digital markets.

Digital markets have a set of unique features that make the need for a new regulatory architecture essential. They offer hitherto unavailable economies of scale where following a high initial cost, incremental customers can be added at practically no cost. This makes for the so-called network effect: Increase in the number of participants concurrently enhances the value of a service. Also, the ability to accumulate huge amounts of data on users offers economies of scope inconceivable for a dominant firm in a traditional industry like steel or cement. To illustrate, Amazon started as an online bookstore less than three decades ago and is now among the world’s top five firms by sales.

If unique features of digital markets allow for a remarkable pace of growth, they also confer a set of advantages to first movers that can potentially choke competition. In this context, the danger comes from large digital platforms that start off as mere intermediaries but later also compete against businesses using their platform. There’s an inherent conflict of interest in simultaneously being player and referee. These platforms, or digital gatekeepers as they are referred to, have been the focus of standalone laws. It’s an area where India’s regulatory architecture is non-existent.

There’s one key piece of the architecture that’s in limbo. The Personal Data Protection Bill was introduced in Parliament in December 2019 and referred to a joint committee of both Houses. After 66 sittings, a report still hasn’t come in. The inaction in regulatory space means that early-mover advantages accruing to some firms may weaken the competitive nature of the market. Ad hoc regulations covering platforms in standalone areas such as e-commerce may create new distortions. A sector-specific approach is a bad idea. What India needs is a comprehensive umbrella legislation to cover digital platforms. A delay could lead to irreversible distortions.

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This piece appeared as an editorial opinion in the print edition of The Times of India.



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