Digital Public Goods (DPG) are non-excludable and non-rivalrous. The UN defines DPGs as “Open source software, open data, open AI models, open standards and open content that adhere to privacy and other applicable international and domestic laws, standards and best practices, and do no harm, and help attain the SDGs
Until now, the state only enters into an otherwise free market ether to check some form of market failure or to ensure equity through regulation. Regulation is typically a legal command to firms to adhere to certain norms of behaviour in a marketplace. For instance, in the telecommunications sector, a firm with Significant Market Power (SMP) cannot price its products/services below cost price. Where regulation is aimed at checking the wrongful exercise of market power, it complements competition law. Regulation may also enjoin positive duties. Universal Service Obligation (essentially a form of cross-subsidy) is one such example through which states ensure that rural and unprofitable areas too access telecommunications services.
The creation and promotion of digital public goods for the purpose of addressing rising concentration in digital markets, however, is a new phenomenon being witnessed in India.
Broadly speaking, those markets that are prone to concentration due to their economic characteristics or fail to cater to the marginalised despite their potential to promote welfare are suitable candidates for regulation. Hitherto, telecommunications and energy are the traditional favourites of regulation.
Digital markets, due to their technological and corresponding features, are prone to concentration. The world over, jurisdictions such as the EU, Germany, US and Korea are struggling to create rules that would ensure that digital markets stay competitive. India is a prominent stakeholder in this process with its lucrative digital markets. Intriguingly, efforts to discipline e-commerce are conspicuously missing despite the Market Study on E-commerce in India having flagged issues that could only be addressed through ex ante mechanisms. What is, however, remarkable and unparalleled in India is an effort to create digital public goods aimed at protecting and promoting competition in digital markets.
An Application Programming Interface (API) is a set of routines, protocols, and tools built into a software application that enables it to communicate easily with other applications. APIs ease the flow of data by describing the kinds of data that can be retrieved, how to retrieve it, and the format in which data will be shared.
Universal Service Obligation (essentially a form of cross-subsidy) is one such example through which states ensure that rural and unprofitable areas too access telecommunications services.
IndiaStack is a set of open and standardised APIs that act as open highways for data transfer. While previous layers of IndiaStack such as Aadhar, eKYC and Digilocker were not necessarily meant to foster competition, Unified Payments Interface (UPI) and the latest DEPA are examples where standardised APIs are aimed to foster competition.
DEPA is a techno-legal architecture—a joint public-private effort— that is aimed at breaking data silos by allowing seamless data transfer between data controllers and data users through an intermediary called Consent Manager (CM). CM acts as a dashboard where a user can track her consent, decide the scope and also withdraw the consent. The data transfer happens through APIs with the consent of the data user. In this architecture, APIs play a crucial role. Standardised and open APIs provide for an interoperable system, where new data users and data providers can ‘plug in’ into the data-sharing ecosystem without any hassle.
Based on the DEPA model, the Account Aggregator system in the financial sector in India went live on 2nd September. AAs are a class of Non-Banking Financial Companies (NBFCs) that act as a dashboard where a user can not only see her entire financial data from different entities called Financial Information Providers (FIPs), such as banks, mutual funds, insurance providers and tax/GST platform, but can also consent to share this data with a Financial Information User (FIU), such as personal finance management, wealth management and robo advisors. This is akin to Open Banking in the UK, implemented by the Competition and Markets Authority (CMA). The immediate benefit of open banking is increased competition—now third-party applications can compete with big banks by accessing a customer’s accounts to make payments, or find better deals on loans and other services and products.
DEPA is a techno-legal architecture—a joint public-private effort— that is aimed at breaking data silos by allowing seamless data transfer between data controllers and data users through an intermediary called Consent Manager (CM).
In the financial sector, the Reserve Bank of India (RBI) took the lead in standardising APIs and made them available to all. In addition, the Ministry of Electronics and Information Technology (MeitY) set out a consent artefact (a machine-readable electronic document that specifies the parameters and scope of data share that a user consents to in any data sharing transaction).
While the immediate motivation behind DEPA is to give users more control over their data, competition is a natural outcome. Fostering competition through digital public goods is more immediately visible in the Open Network for Digital Commerce (ONDC) initiative. ONDC is a government-supported e-commerce platform. ONDC aims to integrate different e-commerce ecosystems into one solution. This means it will be akin to a ‘platform of platforms’. It is an open e-commerce platform that provides interoperability in the sense that a buyer registered on Amazon may directly purchase goods from a seller who sells on Flipkart. ONDC is planned as an open network developed on open-sourced methodology, using open specifications and open network protocols independent of any specific platform. Once again, this architecture will be based on open APIs.
As soon as a seller features on any nodal e-commerce platform, it automatically features on ONDC. The ONDC architect can check several practices that have kept antitrust agencies busy the world over. Listing on ONDC means sellers are not subjected to the rules/guidelines of nodal platforms—this is the most critical feature. This may avoid, self-preferencing, downgrading in ranking, deplatforming, exclusive dealing etc.
ONDC is a government-supported e-commerce platform. ONDC aims to integrate different e-commerce ecosystems into one solution. This means it will be akin to a ‘platform of platforms’.
Because of the presence of indirect network effects, big platforms remain lucrative. ONDC, a ‘platform of platforms’, hits at this most critical competitive advantage. Additionally, transactions taking place on ONDC mean that the related data will stay with the network.
Inducing competition through an open and standardised ecosystem, aside from open banking, has never been attempted before anywhere in the world. At first, this phenomenon looks promising and offers as a substitute or complement to directly regulate digital markets that are prone to concentration and the accompanying adverse effects on welfare. The proverbial devil, however, is in detail. The effect of open digital ecosystems needs to be studied minutely to assess the long-term adverse effects, if any, on the optimal incentive of the private players to innovate and also on cyber security.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Vikas Kathuria was Fellow at ORF. He researches and writes on tech policy and competition law.Read More +