Designing a new digital governance framework

ECONOMY/ GOVERNANCE

Topic: General Studies 2,3:

• Awareness in the fields of IT
• Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Designing a new digital governance framework

Context: India’s digital markets have witnessed three paradigm shifts this year

How had India’s digital market changed in 2020?

• COVID-19 crisis turned into opportunity: 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. 
• Ban on Chinese apps: 200 applications, which originated in China, including popular communications and entertainment platforms, have been banned due to security considerations. 
• Growing Opposition to US Tech Dominance: 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

Do You Know?

• In 2000, India had no digital unicorns, no platforms and less than one per cent of its citizens had access to the internet. 
• Today in India, there are 700 million broadband subscribers and sees over 400 million unique site/app visits every month, 97% of which are directed at data and content-driven entertainment
• Seven of the top eight global firms in terms of market capitalisation use data-centric business models, and are either American or Chinese.

Why US and China dominate the digital market?

• Presence of Platformisation: The 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. 
• Network Effect of Platformisation: 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. 
• Virtuous Cycle aided by government: Content precipitates a virtuous cycle of consumption and production, and links digitalisation to the knowledge economy that is aided by Policy impetus provided by US & Chinese governments.

Where does India lag in terms of evolving Digital Market?

• Intense Competition: There are five Chinese and 13 American counterparts for every digital business in India that generates over a billion dollar in annual revenues.
• Outdated Policy: India’s Information Technology (IT) Act, 2000, a 20-year-old law, theoretically governs all digital applications. There is a need for legal reform because our digital ecosystem has developed beyond recognition. 
• The modernisation of the legal framework for IT offers an unparalleled chance to generate economic gains from fast growing digital market in India (Domestic digital transactions grew at a Compound Annual Growth Rate (CAGR) of 29.4% between FY 2018-FY 2020)

What should be the guiding principle for modernisation of legal framework for IT?

• Traditional legal-regulatory constructs, based on licences and controls, are rule-based legal framework that allows for easier enforcement but is rigid and prevents innovation.
• The present times call for new legal framework that has the agility and leeway to accommodate the pace of technological change in the digital economy. Thus, there we need a new regulatory constructs to deal with digital market.
• One such regulatory regime is Value-based Legal framework that is more resilient to changes in technology and business models but requires thoughtful calibration and state capacity for enforcement.
• Such a policy design will provide legal certainty and also supports innovation. 
• India’s position on network neutrality (that has been repealed in USA) is an example of values-based regulatory framework
• 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

Way Ahead

India can compete effectively in the global digital economy if following steps are taken

• Promote Paltformisation: Product businesses must become platforms, single utility platforms must transition to multi-utility ones, and these must achieve global scale. 
• Leverage the export orientation of IT sector: India has a strong IT base, which is already export-oriented, and new platforms can ride on its coattails to access global markets.

• Principles-led approach to digital governance: India will have to prioritise bold new principles over prescriptive rules and build new capacities for associated regulatory oversight.