India's digital policy framework needs a data-first approach

India's ambitious digital transformation journey stands at a critical juncture, with multiple regulatory frameworks being crafted to govern its expanding digital economy. A striking example is the Digital Personal Data Protection Act (DPDPA), which despite being enacted in August 2023, remains virtually ineffective due to delayed implementation rules, affecting over 85 per cent of data fiduciaries who have already begun compliance preparations, according to the Esya Centre Report dated May 2024. This regulatory uncertainty has created significant challenges for businesses, particularly startups and emerging tech companies that have invested substantial resources in anticipation of the new regime.

ALSO READ: A global leadership opportunity in the AI age beckons India

However, the current approach to policy formulation, particularly in the technology sector, reveals a pressing need for more comprehensive economic modelling and data-driven decision-making. Recent developments in digital regulation highlight the importance of balancing protective measures with growth imperatives, especially considering India's digital economy's projected significant scale over the next few years. The stakes are particularly high given that India's digital economy is expected to contribute 20 per cent of the GDP by 2026.

Looking beyond the EU model: A growth-centric approach

India's inclination to adopt European Union-style regulatory frameworks requires careful reconsideration. While the EU's Digital Markets Act offers a template, it emerges from a markedly different economic context, with industry reports indicating a concerning 4,000 per cent increase in search response times following DMA implementation, as per a report by The Indian Express. These performance issues have had cascading effects on European businesses, particularly small enterprises that rely heavily on digital platforms for customer acquisition and growth.

ALSO READ: This is India’s most digital-ready city. And surprise, it’s not Bengaluru or Gurugram

The European approach, though comprehensive, has coincided with relatively stagnant tech innovation and limited growth in digital sectors. The proposed Indian framework could impact companies with a global turnover of $30 billion or more, or those with a market capitalisation exceeding $75 billion, thresholds that could inadvertently capture growing domestic players, according to the Ministry of Corporate Affairs Draft Bill, 2024. This becomes particularly problematic when considering India's unique digital ecosystem, characterised by rapid innovation and emerging unicorns that need regulatory space to experiment and scale.

For a rapidly evolving digital economy like India's, with its vast untapped potential and emerging innovators, adopting growth-inhibiting regulations could prove counter-productive. The proposed framework's scope could affect as many as 50 companies, including domestic tech platforms, far exceeding the original intent of regulating only a handful of influential tech gatekeepers, as per The Mint. This broad regulatory net risks stifling domestic innovation precisely when Indian tech companies are beginning to make their mark on the global stage.

Balancing protection and innovation: The implementation challenge

The delayed implementation of DPDP rules and the ongoing deliberations around the Digital Competition Bill exemplify the complexities of digital regulation. The current regulatory proposal sets significant thresholds -- Rs 4,000 crore turnover in India or Rs 16,000 crore gross merchandise value -- potentially affecting numerous growing domestic companies, as per Draft Digital Competition Bill, 2024. These thresholds, while seemingly high, could quickly become relevant for fast-growing Indian startups, potentially forcing them to alter their growth strategies or face burdensome compliance requirements.

The proposed systemically significant digital enterprise (SSDE) framework, with its broad definitional scope, could inadvertently capture domestic startups in its regulatory net. This becomes particularly concerning when considering that even successful Indian platforms commanding millions of users could face stricter compliance standards, potentially hampering their growth trajectory, according to Asia Internet Coalition Report, 2023. The framework's current design might force companies to choose between rapid scaling and avoiding regulatory oversight, creating unintended barriers to innovation.

What India needs is a regulatory framework that enables domestic companies to emerge as global leaders---creating the next TikTok or WhatsApp---rather than constraining them with restrictive compliance requirements at crucial growth stages. The Competition Commission of India's recent enforcement actions, including a Rs 1,337 crore fine on Google, demonstrate that existing frameworks can effectively address anti-competitive practices without stifling innovation, as per CCI Order, 2023. This suggests that targeted enforcement of existing regulations might be more effective than introducing new, broad-ranging frameworks.

Embracing data-led policymaking

As India's economy continues its dynamic evolution, with concurrent transformations across sectors, the importance of data-led policymaking cannot be overstated. The emergence of AI technologies presents unprecedented opportunities and challenges, making it crucial for regulatory frameworks to be both robust and adaptable. This requires a sophisticated understanding of market dynamics, technological capabilities, and the real-world impacts of regulatory interventions.

The path forward lies in developing sophisticated economic models that can accurately predict policy impacts, gathering comprehensive market data, and maintaining continuous monitoring mechanisms. This data-first approach would enable policymakers to craft regulations that protect consumer interests while fostering innovation and growth, according to CUTS International Analysis, 2024. Regular impact assessments and feedback loops should be built into the regulatory framework to ensure it remains effective and relevant.

For India to achieve its digital ambitions while ensuring fair markets, the focus must shift from prescriptive regulation to evidence-based policymaking. Only through this approach can we create an environment where businesses can thrive, innovate, and scale globally while maintaining appropriate safeguards for consumers and competition. This balanced approach will be crucial in positioning India as a global leader in the digital economy while ensuring sustainable and inclusive growth.

Oliver Browne is the CEO of Pragmatic Policy Group and Sumit Kaushik is a research scholar at O.P. Jindal Global University