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Everything you need to know about internet policy & regulation: March 2021

The month of March saw significant shifts in internet policy and regulation in India, with the full impact of the IT Rules 2021 unfolding. The government also threw cryptocurrency businesses in a tizzy as its plans to ban private cryptocurrencies surfaced. We bring MediaNama subscribers a report on what has gone down in the past month. 

I. An Orbit Change: Information Technology Rules 2021

The IT Rules (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 were notified late in February. Although a major overhaul was not unprecedented, the rules, which are legally meant to regulate intermediaries, brought publishers of news and digital content into their fold. For the first time, digital news publications and streaming services have to abide by a self-regulatory framework, in which user complaints against their content can be bumped up to the central government. Moreover, the government has given itself the power to block content, a provision many suspect will create a chilling effect and prior restraint regime. Here is what we have learnt since the rules were passed.  

  1. It was the Indian government’s paranoia about what digital news publications were reporting that prompted the digital media clampdown in the new IT Rules. A report by a group of ministers, which included RS Prasad and Prakash Javadekar, recognised the need to neutralise people writing against the government. The 26% cap on FDI in digital media was done to ensure that online media was not ‘biased’. 
  2. Legacy media organisations lobbied the Indian government on how digital media entities, whom they viewed as competition and a threat, could be reigned in. They made proposals on how the 26% FDI limit should be implemented and other specific regulations to do so. For instance, the Times Group and Digital News Publishers Association specifically requested that news aggregators such as DailyHunt be brought into the fold of the IT Rules. 
  3. The I&B Ministry told the Parliamentary Committee on IT that it was the industry that demanded a level playing field with regard to OTT streaming and digital news platforms. Press, TV, and films are regulated, but new platforms are not, the Ministry noted. Multiple petitions pending in the high courts and the Supreme Court were additional prompts. 
  4. In a worrying signal for streaming services, the I&B Ministry revealed that it acted on over a hundred complaints on TV content in the last three years. Although TV content falls under the supposedly self-regulatory Broadcast Content Complaints Committee, a government inter-ministerial committee sits above the BCCC. Such an inter-ministerial committee will be created for OTT streaming services (and digital news outlets) soon, portending similar censorship for streaming platforms.
  5. In a worrying disclosure, the government told Parliament that it blocked 9,849 websites and social media accounts in 2020 under Section 69A of the IT Act. This represents a 270% increase in blocked URLs in a single year arising from government orders under Section 69A, the very provision which has been now been expanded to cover digital media publishers and streaming services. 

What the government has been saying 

  1. I&B minister Prakash Javadekar, after a meeting with the OTT industry, claimed that they have welcomed the rules. But streaming services have uniformly refused or ignored requests for comment on their reaction to the Rules. If Javadekar’s characterisation of the meeting is accurate, it essentially means that streaming services have largely agreed to comply with the Intermediary Rules.
  2. Javadekar also took the liberty to declare that traditional news publishers welcomed the rules, after a meeting with the DNPA, which represents traditional media organisations like Dainik Bhaskar, NDTV, Times of India, Hindustan Times and Malayala Manorama, which also have significant online presence. 
  3. After the Manipur government threatened a journalist working with a YouTube news channel with action under the new rules, the central government did not miss a beat. A day after the notice was sent, the I&B ministry clarified that only it — not state governments — had powers to issue notices to media companies under the new rules. The journalist was first served with a notice from the state government, then with a notice from the central government stating that the notice was withdrawn.
  4. Unsurprisingly, the IT Ministry told Parliament that it has not studied the impact that government control on social media could have. 

We spoke to legal and industry experts about how far the Rules would be able to stretch its arms. Here’s what we learnt. 

  1. The Rules are ultra vires and outside the scope of the parent IT Act. The power to make subordinate legislation flows from the parent Act. In this case, the IT Act does not define what digital media, neither does it grant powers to make rules for digital media or for publishers. However, the government has expanded the definition of intermediaries to include digital media companies since they use the internet, which is governed by the IT Act. 
  2. One could even argue that digital news publications have tougher rules to follow as compared to traditional news organisations, since they are now subject to government blocking orders on law enforcement grounds. Under the three-tier redressal system, the ultimate authority will rest with bureaucrats at the I&B Ministry. 
  3. The government has extended its powers under Section 69A of the IT Act to issue orders, including content blocking orders, to digital media companies and to streaming services. 
  4. Large social media platforms such as YouTube or Facebook may end up over censoring live content, since the rules require them to proactively monitor harmful content. 
  5. Foreign news and online content publishers could incur significant costs and may need to formally register now that they are subject to Indian law. They will now be answerable to the I&B Ministry. Noteworthy foreign publications like the Washington Post and New York Times will likely need to have personnel to address grievances and ensure compliance with the rules. Some may even end up registering themselves in India. 
  6. Independent online news commentators such as Faye D’Souza and Akash Banerjee, and even standup comedians, could be subject to censorship under the new rules. 
  7. Online collaboration and messaging tools such as Slack, Microsoft Teams, Flock, Jive are likely to be affected since the rules essentially treat business messaging tools the same way as they treat a platform like Facebook or Twitter.

What has the fallout been so far? 

  1. OTT streaming services like Netflix and Amazon Prime Video are vetting scripts and content to weed out and delete content that might get them into trouble with Indian viewers. This could bear out the worst fear of content regulation, that streaming services will muzzle creators’ voices in anticipation of outrage, all before regulations even go into force in India. 

Legal challenges 

  1. At least four online news publications have approached different high courts, challenging the scope and content of the new rules. So far, petitions have been filed by The Quint in the Delhi High Court; Foundation for Independent Journalism (The Wire) and Dhanya Rajendran (editor of The News Minute) in the Delhi High Court; LiveLaw in Kerala HC; and Truth Pro Foundation India, which operates Kannada news portal Pratidhvani, in Karnataka HC. 

Read our complete guide to the IT Rules 2021.

II. Online Gaming and Gambling 

The Online Rummy Federation, which counts Junglee Rummy, Mobile Premier League and Paytm First Games among its members, was asked to remove at least two ads that violated guidelines issued by the Advertising Standards Council of India, India’s self-regulatory body for advertising. ASCI’s rules require that ads about real money gaming need to carry disclaimers about financial risk and addiction disclaimers, among other things. Following a consumer complaint, the regulator shot down the Federation’s argument that disclaimers were unnecessary since the ad in question did not name or promote any rummy company. For another ad, it shot down TORF’s claims that rummy companies did not run any bots. It reasoned that TORF was making safety claims about the companies that are its members. Besides, only a certifying or standards body can make such assertions and TORF isn’t one, it said.  

Earlier in March, Kerala outlawed online rummy for stakes in response to a petition calling out the regulatory grey areas in the game. The state removed the skill-games exemption for online rummy, in another blow for the online rummy industry. Moreover, Rajasthan and now Uttar Pradesh are considering laws regulating online gambling or games involving stakes. 

The Meghalaya government has pulled out all stops for online gaming/gambling. In a bid to collect for tax revenue, the North-East India state has enacted the Meghalaya Regulation of Gaming Ordinance, establishing a licensing and regulatory regime for online games, skill and chance based. 

Dream11’s Harsh Jain said the company will not raise fresh capital from Chinese investors. The real-money fantasy gaming platform counts Chinese technology giant Tencent among its early investors. 

III. TRAI SMS Spam Regulations 

Early in March, telecom companies began implementing the TRAI’s SMS spam regulations, leading to a disruption in banking and payment services. Telcos began to “scrub” SMS-es that were not registered with their blockchain systems. 25-30% of all SMSs were not delivered, leading to 30-40% transaction failures across channels. The TRAI had to put the implementation on hold for at least a week; Indiamart and marketing company called Shivtel have sued TRAI at the Delhi High Court, essentially fighting back against what they see as a law that could hurt core aspects of their business, which is powered by SMS messages.

IV. E-commerce Policy 

India’s latest draft e-commerce policy proposes that companies in India must ensure equal treatment to all sellers and vendors, and prohibits algorithms that prioritise select players. The draft policy comes at a time when Amazon, one of the biggest e-commerce companies in the country, is under scrutiny for allegedly giving preferential treatment to some sellers, at the expense of others.

Separately, the Parliamentary Committee on Subordinate Legislation flagged predatory pricing by e-commerce giants and consumers’ data privacy and security as pressing issues in its report on the Consumer Protection (E-commerce) Rules, 2020.

V. Financial Technology and Payments 

The RBI appointed an external advisory committee to evaluate applications for universal bank and small finance bank (SFB) licenses. While corporate houses may also want to enter the space, several of India’s payments banks may choose to convert into a small finance bank and begin lending on their own balance sheets. 

The regulator also approached Google, fintech lenders and non-bank lenders to submit their inputs on how best to regulate digital lending apps. Over the past months, Google has banned over 400 digital lending apps from its app store, following complaints of harassment by purported employees of these apps emerged. RBI governor Shaktikanta Das said that the growth of digital lending fintechs, who act as service providers for customers or banks, will increasingly emerge as critical pieces in the financial sector.

VI. MobiKwik’s Data Breach: Smoke and Mirrors 

Sensitive data belonging to millions of cardholders and users stored on MobiKwik’s servers were compromised and put up for sale online. MobiKwik is in the midst of preparing for an initial public offering in the second half of this year. The leaked database contained 36 million files containing the KYC of over 3 million merchants, 99 million users’  phone numbers, emails, hashed passwords, addresses, bank accounts and card details, and 40 million card details. While MobiKwik continued to deny the breach and even blamed users for being callous, the RBI ordered a third-party forensic audit into the allegations. 

Industry experts told us that the entire regulatory system needs to be strengthened, business models need a rethink and that companies need to be made more accountable, whether through the courts or through internal governance practices.

VII. Cyber Security 

The Home Ministry revealed that CERT-in tracked over a million cyber security incidents in 2020, a sharp rise from the ~390,000 incidents tracked in 2019. The Indian government also disclosed that the COVID-19 pandemic affected the implementation of its cybersecurity project, the National Cyber Coordination Centre (NCCC), leading the government to revise down funds required by half in the financial year 2020-21. The Parliamentary Committee on IT noted expressed concern at the fact that the NCCC was allotted budgets only in FY18 although it was approved in 2015. It further noted that its implementation has been delayed citing shortage of funds, just as cyber attacks on critical infrastructure are increasing.

VIII. Net4 India 

The National Company Law Tribunal (NCLT) has stopped ICANN, which accredits domain registrars like Net 4, from terminating Net4 India’s rights to issue domain names. In February, ICANN announced that come March 13, Net 4’s accreditation would be terminated because of the registrar’s frequent delays in paying dues and serving users. But insolvency professionals working with Net 4, which is embroiled in bankruptcy proceedings, rushed to get the termination stayed, a request that the NCLT granted. As a result, many customers whose domains are registered with Net 4 continue to not have access to their domains. 

IX. Google Play Commission 

Google’s 30% “tax” on in-app purchases, which created a furore among Indian startups, has been halved to 15%. The caveat being that it is only for the first $1 million of revenue in a year.

X. Cryptocurrencies

The cryptocurrency industry was thrown into a tizzy ever since the government said a new law would ban “private” cryptocurrencies. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will ban “private” crypto-currencies while at the same time providing the RBI with the requisite legal powers to develop a central bank-backed digital currency (CBDC), according to an update from Parliament. 

XI. Policy Updates 

  1. The Telegraph Act of 1885, the foundational legislation governing telecommunications in India, might get a wide-ranging amendment in order to prepare the Indian government and telecom industry for 5G networks. A team headed by the National Law University, Delhi’s vice-chancellor Srikrishna Deva Rao will come up with a draft of changes for public consultation. 
  2. Privately managed provident, superannuation, and gratuity funds can now invest 5% of their corpus in alternative investment funds (AIFs) such as venture capital funds, SME funds, infrastructure funds, and so on. 
  3. A Cinematograph Amendment Bill, 2021, will bring in steeper penalties for piracy.
  4. Foreign companies will not have to pay the 2% equalisation levy on goods that are sourced from India.

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