India’s digital policy needs data, not assumptions
This article is authored by Viswanath Pingali, professor of Economics, Indian Institute of Management, Ahmedabad (IIMA).
India’s small businesses rely on social media for affordable growth, but assumption-based regulations risk raising advertising costs and stifling innovation. Policymakers must adopt data-driven approaches to ensure competition laws support micro, small and medium enterprises (MSMEs) rather than unintentionally harming them through broad and sweeping restrictions.
In a recent study, my co-authors and I surveyed nearly 1,400 non-tech startups across India to understand their use of social media for business growth. The findings were clear: The smaller the firm, the more crucial social media advertising becomes. This can also be inferred from analysing the pitches of the ventures showcased on Shark Tank India, where digital marketing is a lifeline for startups operating on tight budgets. Social media lowers advertising costs and enables small businesses to reach customers faster. Unfortunately, Indian regulators do not recognise this in their actions, which rely too frequently on assumptions instead of real-world data.
In this context, the Competition Commission of India’s (CCI) November 2024 order prohibiting WhatsApp (a Meta subsidiary) from sharing user data with Facebook and Instagram is significant. When regulators aim to address potential antitrust concerns, they should intervene based on empirical evidence rather than theoretical conjecture. Competition law seeks to protect consumers, and in digital markets, small businesses that depend on targeted advertising are also consumers of digital platforms. Thus, it is crucial to assess with data how competition regulations will impact MSMEs before imposing broad restrictions. Since these small businesses play a pivotal role in India's growth story, any policy potentially harming them should be analysed more carefully, especially with empirical studies.
The National Company Law Appellate Tribunal (NCLAT) partially stayed the CCI order but maintained the mandatory opt-in requirement for data sharing beyond WhatsApp. While this ruling addresses immediate concerns about crucial MSME advertising, it fails to address the broader need for evidence-based policymaking. The opt-in requirement potentially discourages consumers from allowing beneficial data-sharing practices that enhance cybersecurity and platform integrity. The unintended consequence is that small businesses may suffer from reduced advertising effectiveness and higher customer acquisition costs.
A recurring theme in digital competition cases is the reliance on what is termed default bias — the assumption that users passively accept preset configurations rather than actively making choices. While default bias exists, its universality and the assumption that consumers are not thinking are debatable. Evidence from India suggests otherwise: Indian consumers download more apps per capita than users in several other economies, including the European Union. Indian users actively explore their digital environment, downloading many apps instead of passively relying on pre-installed options as the default. Policymakers must recognise that regulation based on behavioural assumptions may not reflect actual user behaviour in India.
Another assumption underlying the WhatsApp-CCI case is that restricting Meta’s data-sharing practices will enhance competition. However, there is no empirical evidence to support this claim. Instead, such restrictions could backfire and inadvertently harm MSMEs by increasing advertising costs and reducing the efficiency of digital marketing. If small businesses lose access to targeted advertising, they will struggle to reach the right customers, making it harder for them to compete against large competitors with bigger advertising budgets.
India’s digital landscape is distinct due to our diverse geography, economy, languages, and cultural factors. Imported regulatory frameworks from Western markets may not align with India’s realities.
While platforms rely on reducing transaction costs across all geographies, in emerging economies, they play a prominent role in establishing trust, through which not-so-established businesses gain traction with potential customers. In this context, policies that govern the Indian digital ecosystem ought to be different from those of the other geographies, including those that limit data integration without viable alternatives. This could disrupt digital commerce without delivering tangible benefits.
Further, our survey indicates that small businesses increasingly prefer to interact with multiple platforms for the same service—a practise known as multihoming. (For instance, businesses prefer both Instagram and YouTube for advertising.) We observe this between established platforms and between established and emerging platforms, indicating that competition among platforms is still emerging. Therefore, instead of imposing one-size-fits-all regulations, including those practised in other jurisdictions, India should adopt a nuanced approach that considers how businesses and consumers interact with technology in practise.
India must transition from assumption-based policymaking to a data-driven regulatory framework. Regulators must conduct detailed studies to measure real-world effects on businesses and consumers before imposing sweeping restrictions, ensuring empirical evidence guides policy decisions and that interventions improve competition rather than create inefficiencies. Regulation should focus on enabling small businesses to thrive in the digital economy – not restricting the tools they depend on.
Basing regulations on assumptions rather than data risks creating economic inefficiencies, stifling innovation, and inadvertently harming the very businesses and consumers policymakers aim to protect. A forward-thinking, evidence-based approach is essential for crafting effective digital policies that foster competition and economic growth.
India aims for rapid progress in the coming decade, but this requires data-driven, cooperative regulation.
This article is authored by Viswanath Pingali, professor of Economics, Indian Institute of Management, Ahmedabad (IIMA).