India’s digital markets have witnessed three paradigm shifts this year. First, there has been rapid digitalisation of traditional sectors, as a response to Covid-19, leading to the phenomenal growth of markets such as edtech, healthtech, telemedicine and digital on-boarding. Second, 200 applications, which originated in China, including popular communications and entertainment platforms, have been banned due to security considerations. Finally, a growing set of voices advocate less dependence on American platforms such as Google that can single-handedly determine the market potential for digital start-ups. All these changes point to the need for a suitable policy response.
Nimble-footedness is a key characteristic of competitive digital businesses, which deserves reflection in policy design. Businesses that offer multiple use-cases, products and services account for a large share of the economic value generated in global digital markets. Seven of the top eight global firms in terms of market capitalisation use data-centric business models, and are either American or Chinese. The global digital economy is unfortunately a caricature of the traditional economy. The United States (US) and China dominate because their market conditions are conducive for “platformisation” — stacking multiple services into single catch-all applications such as Facebook or WeChat. There are five Chinese and 13 American counterparts for every digital business in India that generates over a billion dollar in annual revenues.
Platformisation of digital India is contingent on the availability of adequate data and content. The combination of organised datasets and compelling content unlocks network effects that help digital businesses achieve scale. Datasets allow companies to anticipate market dynamics, tailor custom offerings, minimise transaction costs and maximise enterprise efficiency. Content precipitates a virtuous cycle of consumption and production, and links digitalisation to the knowledge economy. To access or generate data and content, entrepreneurs need the ability to evolve business models and take risks.
India’s Information Technology (IT) Act, 2000, a 20-year-old law, theoretically governs all digital applications. It grants legal recognition to e-commerce and is the legislative basis for fundamental rules and regulations. Parliament enacted this omnibus law to promote the early digital economy’s growth in India. India’s IT leadership has identified the need for legal reform because our digital ecosystem has developed beyond recognition. In 2000, India had no digital unicorns, no platforms and less than one per cent of its citizens had access to the internet. Conversely, with around 700 million broadband subscribers today, India sees over 400 million unique site/app visits every month, 97% of which are directed at data and content-driven entertainment. Domestic digital transactions grew at a Compound Annual Growth Rate (CAGR) of 29.4% between FY 2018-FY 2020. The modernisation of the legal framework for IT offers an unparalleled chance to generate economic gains from this frenetic pace of activity, by removing legacy hurdles. A new framework will require a concerted focus on modern design.
Traditional legal-regulatory constructs, based on licences and controls, suffer from a lack of agility and leeway to accommodate the pace of technological change in the digital economy. Governments all around the world are exploring ways to address this problem.
This includes detailed discussions in the United Kingdom (UK)’s House of Lords and the European Union (EU)’s European Commission on the merits of wider goals-based or principles-based statutes versus narrower rules-based ones.
The former requires thoughtful calibration and state capacity for enforcement, but is more resilient to changes in technology and business models. The latter allows for easier enforcement but is rigid and prevents innovation.
In deliberations with top executives, jurists and academics, we found most enthusiasm for a principles-based approach. India can compete effectively in the global digital economy if three criteria are met: Product businesses must become platforms, single utility platforms must transition to multi-utility ones, and these must achieve global scale. India has a strong IT base, which is already export-oriented, and new platforms can ride on its coattails to access global markets. However, the three criteria necessitate policy design that provides legal certainty and supports innovation. In other words, India will have to prioritise bold new principles over prescriptive rules and build new capacities for associated regulatory oversight.
India has already shown the gumption to embrace a principles-led approach to digital governance in technical areas such as network-neutrality, despite its repeal in the US. The Telecom Regulatory Authority of India has also reaffirmed the need for a light-touch regulatory framework for digital applications. Future principles could include constructs such as “platform neutrality” to ensure that large platforms do not become gatekeepers in digital markets, combined with the wider use of “fair, reasonable and non-discriminatory” terms to govern business conduct. The country has a historic opportunity to define high-impact principles for governing digital applications. These can serve as a template for other digital markets, even as they foster a level- playing field at home.
Arvind Gupta is head, Digital India Foundation, and Vivan Sharan, advisor, Esya Centre
The views expressed are personal