Bengaluru, August 9, 2024 – The India SME Forum hosted a roundtable in New Delhi on Wednesday, for stakeholders to discuss the implications of India’s proposed Digital Competition Bill on MSMEs and startups. The participants expressed concerns over the impact of the Bill on MSMEs competitiveness in India and global markets, and the potential detrimental effect on their ability to serve consumers. The Bill’s intent is to regulate and provide a level playing field however it is being used as a measure to solve commercial disputes between private parties. This can derail the vibrant MSME ecosystem in India.

“With large companies moving out of China, India is blessed with a great opportunity to gain from the exodus. Any regulation like DCB will act as a stumbling block in the country’s efforts to attract FDI, and promote global competitiveness of MSMEs,” said Mr. Vinod Kumar, President, India SME Forum (ISF), expressing concerns emanating from the DCB proposal.

MSMEs gathered at the roundtable, highlighted the essential role of supportive regulations in facilitating the growth of small businesses. Experts emphasised the necessity of policies and regulations that empower MSMEs, enabling them to digitise and sustainably utilise digital services, thereby maintaining competitiveness in domestic and export markets.

Aditi Madan, Founder, Director, Blue Pine Foods Pvt Ltd., expressed concerns regarding over-regulation of online markets, stating, “Regulations which are probably meant for larger companies will also have an indirect effect on startups and SMEs, and these unintended consequences will upset the innovation and certainty in the ecosystem. Proposals like the DCB are likely to further impede and compound existing issues faced by product startups looking to access new markets, accessing capital and scale their operations.”

Insights were shared from an upcoming survey-report examining the potential implications of India’s proposed Digital Competition Bill for Indian businesses deploying digital tools as a key driver of business growth and expansion. Preliminary observations from the study show that 82.2% of business users believe that digital services have enhanced their ability to compete effectively in markets, while 74.3% of business users believe that digital services have enhanced their ability to differentiate themselves from their competitors.

Acknowledging MSMEs’ and startups’ substantial contribution to India’s macroeconomic goals, participants urged the Government to continue with a light-touch regulatory approach that enables innovation and experimentation. Noting the relatively limited extent of consultation on the Digital Competition Bill, participants emphasised the importance of extensive and inclusive pre-legislative consultations, that educate MSMEs and startups on the implications of policy and legislative proposals, while promoting greater involvement by MSMEs and startups.

Members of ISF, the largest association of SMEs in India, were not only concerned with the immediate impact of the Bill, but also felt that it could be a deterrent for India’s Viksit Bharat goals.

In his closing remarks, Mr. Kumar, urged the Government to carefully consider the potential impact of new policy proposals on MSMEs and startups, ensure adequate representation of the concerns and perspectives of SME stakeholder groups in pending policy proposals such as the proposed Digital Competition Bill, and take note of the unintended but harmful consequences of untested frameworks.

Quotable Quotes from the discussion

Vinod Kumar, President, India SME Forum: There is a sense of unease among MSMEs regarding the Draft Digital Competition Bill, as they are unsure about its potential impact. In India, the majority of enterprises are micro, with only a tiny fraction being medium or small enterprises. Many MSMEs are concerned about the proposed ex-ante regulations, especially those related to personal data usage. They argue that data is crucial for services like predictive analysis and targeted advertising, which are vital for their business operations. Furthermore, provisions like the unbundling of digital products could make essential services unaffordable for smaller businesses. The bill appears to be similar to international regulations. The Indian ecosystem is vastly different from that of developed economies, and reliance on international models could be detrimental to the country’s MSMEs.

Amit Agrawal, Founder at DSI Robotics: The Digital Competition Bill is somewhat of a safety paradox and can result in an undue compliance burden for small businesses, as has happened in the past. For instance, the government’s decision to prohibit digital platforms from saving credit card information, while intended to prevent fraud, created significant challenges for SMEs. A firm managing multiple subscriptions now faces the burden of manually authorizing payments each month. This shift from automated to manual payments is highly inconvenient, causing delays and potential missed payments. This highlights a paradox where measures aimed at increasing security inadvertently hinder business operations.

Aditi Madan, Founder, Director, Blue Pine Foods Pvt Ltd: The policy priorities, particularly in the digital market economy, needs to ensure that SMEs have access to relevant information. The focus should be on directly engaging with SMEs during policy creation to ensure their needs and perspectives are adequately addressed.

Debashish Das, Founder & CEO, ElenchusHR Solutions: Overly stringent regulations could adversely impact businesses by forcing them back to manual processes reminiscent of the 70s and 80s. This would increase costs and reduce operational efficiency. India’s unique economy, with its diverse cultural and regional nuances, cannot adopt a one-size-fits-all approach based on foreign laws. Policies must consider the specific needs and inputs of the MSME sector to be effective and beneficial.