Harbingers of prosperity?

Over the past five years, platforms have become an indispensable part of urban life, transforming the way we shop, commute, access services, and interact with each other. From e-commerce giants like Flipkart, Amazon, and eBay to food delivery apps like Zomato and Swiggy, ride-hailing services like OLA and Uber, and social media platforms like Facebook and Google, these names have become household staples. The platform economy has also given rise to a new wave of unicorns in India, with over 70 per cent of them built around platforms.

Today, five of the world's top ten largest companies by market capitalisation are platform-based, underscoring the significance of this shift. This phenomenon is driving a new paradigm for globalisation, often referred to as technology-driven globalisation.

India's thriving platform economy

According to NITI Aayog's 2022 report, "India's Booming Gig and Platform Economy," the country is emerging as a hub for platform work, with a rising gig economy. India's e-commerce market is projected to reach USD 0.1 trillion in the next five years, contributing to the global e-commerce market, which is expected to reach USD 6.5 trillion during the same period.

A recent analysis by Boston Consulting Group reveals the platform economy's vast potential in India. The sector has the potential to support up to 90 million jobs in the non-farm sector, harnessing India's demographic dividend and transacting over USD 250 billion in labour volume. This growth is expected to contribute an additional 1.25 per cent to India's GDP in the long run. In a country where unemployment and informal labour have long plagued the job market, the platform economy has proven to be a vital source of job creation.

A win-win for companies, but not for workers

The platform economy has given rise to the gig economy, characterised by short-term, flexible work arrangements. Gig workers enjoy the flexibility to choose their work schedule and location, but this freedom comes at a cost. They lack social and income security, leaving them vulnerable to exploitation. For companies, the gig economy is a lucrative arrangement. They incur minimal fixed costs and can control expenses by avoiding social and income security benefits for workers. However, this arrangement leaves workers without essential protections, including paid leaves, gratuity, health and maternity benefits, and life and disability insurance.

Despite the growth of India's platform economy, workers' rights remain neglected. The Fair work India Ratings 2022 Report notes that not a single platform has acknowledged workers' associations. The Social Security Act of 2008 excludes gig workers from its purview, denying them access to essential benefits and protections. Unlike employees with formal agreements, gig workers lack the authority to resolve conflicts, address complaints, protect themselves against occupational diseases, and access insurance coverage.

India's gig economy has witnessed significant growth, and the government has taken steps to provide social security to platform workers. The Code on Social Security statute, initiated in 2020, mandates platform-based businesses to establish a social security fund, contributing 1 per cent to 2 per cent of their annual revenue.

Although this clause hasn't been implemented yet, some states have introduced similar bills to bring platform-based gig workers under a legal framework. Rajasthan, Jharkhand, and Karnataka have taken the lead, with Delhi, Telangana, and Kerala following suit.

To further strengthen this initiative, the Government of India should consider fine-tuning the Code on Social Security and implementing it across all states. This would provide a uniform framework for platform workers, ensuring they receive the social security benefits they deserve.

Gaps in regulation

Notably, the existing regulations governing working conditions and dispute resolution procedures do not address sexual harassment in the workplace. This omission is concerning, given the reported instances of harassment faced by women platform-based gig workers, particularly those working in clients' homes or in transportation. Furthermore, the draft laws overlook aggregators providing paid domestic and care work services, leaving a significant gap in regulation.

Regulatory framework: key considerations

Effective regulation of online platforms necessitates addressing critical issues, including consumer protection, data privacy, foreign investments, and taxation.

Several laws and regulations govern online platforms in India. The Information Technology Act of 2000, along with the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, provides a framework for online intermediaries. Additionally, the Legal Metrology Act of 2009 and the Legal Metrology (Packed Commodities) Rules, 2011, regulate e-commerce transactions. The Consumer Protection Act of 2019, along with the Consumer Protection (E-Commerce) Rules, 2020, protects consumers' rights in e-commerce. Furthermore, the Digital Personal Data Protection Act of 2023, the Competition (Amendment) Act, 2023, and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, address data protection, competition, and foreign investment aspects.

The taxation of online platforms remains a pressing concern. Prior to 2016, platform transactions were exempt from taxation in India. The introduction of the "Equalisation Levy" (EL) in 2016 marked a significant shift. Initially, non-resident companies without a permanent establishment (PE) in India were subject to a 6 per cent EL on internet advertising and related fees.

Expansion of the equalisation levy

The Indian government took a significant step by broadening the definition of the Equalisation Levy (EL) to include e-commerce sales of goods and services provided by non-resident operators to Indian customers, effective April 1, 2020. Additionally, India has agreed to a 2 per cent digital tax under the Indo-US Digital Tax Pact.

The Government of Rajasthan has enacted legislation that includes a provision to impose up to 2 per cent tax on the revenue earned by digital platforms operating in the state. The proceeds from this tax will provide social security benefits to platform-based gig workers.

India's platform economy has faced allegations of concentration of power, abuse of dominance, predatory pricing, and tax avoidance. Initially, the Competition Commission of India prioritised innovation over competition in similar cases. However, the enactment of the Competition (Amendment) Act of 2023 has addressed some of the shortcomings in the Competition Act of 2002, providing a more effective framework for dealing with anti-competitive practices in platform-type market structures.

The way forward

As a developing economy, India needs a thriving platform economy. However, uniform competition is essential for healthy growth. To support the expanding platform economy, India requires more robust legal and regulatory frameworks, coupled with a well-defined policy focus.

The "Budget 2025" presents a timely opportunity for the government to outline its policy vision for the platform economy, recognising the positive impact these companies have on the economy. Only time will reveal how these developments unfold.

Fr. John Felix Raj is the Vice Chancellor of St. Xavier’s University, Kolkata, and Sovik Mukherjee is an Assistant Professor of Economics in the Faculty of Commerce and Management at St. Xavier’s University, Kolkata. Views expressed are personal