The budget emphasises the need to support MSMEs by providing technology to help them grow and compete both domestically and internationally. However, legislative proposals like the Draft Digital Competition Bill, 2024, could undermine MSMEs' ability to leverage digital technologies for revenue generation and customer acquisition.

The bill aims to place operational restrictions on large digital platforms, which could affect their ability to target ads effectively.

A survey of 300 MSMEs in India, conducted by the Esya Centre -- a New Delhi-based tech policy focussed think tank --  found that 90 percent rely on targeted ad services offered by digital platforms for domestic customer acquisition, and 85 percent reported that these ads positively impact revenue generation.

A majority (61 percent) indicated that a law reducing the efficacy of targeted advertising would negatively affect their businesses. If the Government seeks to boost the prospects of MSMEs, it must reconsider proposed legislation like the DDCB that could hinder their growth.

Next, certain budget allocations are likely to impede the effective rollout of data protection legislation. For instance, the budget allocates a mere Rs 2 crore for the Data Protection Board (DPB). The DPB is responsible for deciding on matters of non-compliance with the Digital Personal Data Protection Act, 2023.

The financial memorandum of the Digital Personal Data Protection Bill, 2023, estimated the financial implication of establishing and running the Board at Rs 25 crore for initial capital expenditure and Rs 10 crore annually for recurring expenses. Given these initial estimations, it is uncertain how the DPB will operate with such a low budget.

It may be that the Ministry of Electronics and Information Technology (MEITY) will initially internalise a significant portion of the DPB's functions. However, this raises separation of power concerns, as the executive cannot perform judicial functions.

It may also impact cross-border data transfers with jurisdictions like the European Union (EU), which requires the presence of an independent supervisory authority in another jurisdiction if the personal data of EU citizens is to be transferred there.

Concerns have already been raised about the DPB's independence since its members are appointed by the government. The low budgetary outlay props up further questions around the authority’s operational autonomy, potentially complicating cross-border data flows between the EU and India. 

The low outlay may also create a crisis of capacity in the DPB, similar to other specialised tribunals such as the erstwhile Intellectual Property Appellate Board (IPAB). Section 19(3) of the DPDPA requires board members and the chairperson to have technical and practical expertise in data governance and information and communication technology.

However, the limited outlay in the 24-25 budget may make it challenging to recruit individuals with such specialized skills. This situation mirrors the challenges faced by the IPAB, which struggled to find technical members for years.

The IPAB, initially formed to hear trademark registry appeals and later patent and copyright cases, often lacked the technical members required for a quorum, causing significant delays in adjudications. Similarly, the DPB may also experience delays as the government might struggle to find multiple qualified technical members. 

Finally, in a bid to improve India’s competitiveness in attracting foreign investment, the Government did away with the equalisation levy in e-commerce. The levy was a 2 percent direct tax on digital transactions with non-residents. At the same time, the budget speech also seemed to suggest that there will be an added emphasis on digital public infrastructure (DPI) in the sector.

The implications of the announcement are uncertain, particularly as there is already a DPI initiative in e-commerce – the Open Network for Digital Commerce (ONDC). ONDC is an open protocol that allows two independent e-commerce entities to communicate and transact with consumers.

This contrasts the existing e-commerce model where both consumers and sellers interact through a single marketplace. ONDC is currently not mandatory, that is, sellers and marketplaces can opt to be a part of the platform.

However, the proposal in the budget to develop “population scale” DPI suggests that the Government may be considering making it mandatory. The move would possibly chill investment in e-commerce as it would disincentivise investment in the creation of exclusive platforms for selling goods online. 

The Union Budget 24-25 reveals a complex interplay between fiscal priorities and technology policy. While the budget emphasises support for MSMEs and digital public infrastructure, conflicting legislative proposals and inadequate budget allocations for key initiatives like the Data Protection Board could hinder progress.

The Draft Digital Competition Bill, 2024, for instance, poses challenges for MSMEs' use of digital technologies, and the limited funding for the Data Protection Board raises concerns about its effectiveness and independence.

To align fiscal strategies with technology policy, the government must address these conflicts, ensure sufficient resources for the DPB, and clarify its stance on digital public infrastructure in e-commerce. By doing so, it can foster a balanced environment that promotes technological growth and economic prosperity, ensuring that the budget's goals are not undermined by contradictory policy and practice.

(Meghna Bal is  is Director of the Esya Centre, a tech-policy focussed think tank. Views are personal)