4 min readApr 1, 2026 04:58 PM IST
First published on: Apr 1, 2026 at 04:58 PM IST
By Meghna Bal and Avneet Oberoi
On March 30, the Ministry of Electronics and Information Technology (MeitY) released the latest set of draft amendments to the IT Rules. Among other things, the draft amendments require digital intermediary platforms to comply with clarifications or advisories issued by the Ministry from time to time. Advisories are a relatively new instrument of governance that have emerged over the last couple of years. They typically follow major incidents involving emerging technologies. For instance, a series of advisories was issued in 2024 and 2025 in response to different incidents involving deepfakes and artificial intelligence. Because advisories tend to be reactionary, they focus on expedited enforcement rather than measured governance. Illustratively, a March 2024 advisory introduced a licensing regime for AI systems that would have brought AI development in the country to a standstill.
Unlike rules and laws, advisories typically lack procedural safeguards such as prior consultation, a clearly defined scope, or predictable timelines. This allows them to be issued quickly. While the appeal of such governance tools is understandable, given the rapid pace of the digital world, they can create a shifting compliance landscape for firms. This makes it difficult for businesses to anticipate regulatory changes, assess compliance obligations, and plan investments. As a result, governance through advisories risks introducing a significant degree of regulatory uncertainty, which raises serious economic concerns.
Economic scholarship indicates that uncertainty in online rules introduces friction in the form of reduced efficiencies and higher transaction costs. These effects are not confined to digital markets, as they are deeply interlinked with the physical economy. Vast swathes of the real economy market their products online. A 2023 BCG report estimates that more than 2.5 million digital creators influence $350-400 billion of annual household consumption, a figure expected to reach $1 trillion by 2030. Our research at the Esya Centre shows that an overwhelming majority of Indian MSMEs depend on targeted advertising on digital platforms to drive revenue and acquire customers, both domestically and internationally.
The fact that the draft amendments to the IT Rules introduce such an ad hoc and uncertain mode of online governance suggests that their broader economic implications may not have been fully considered. Evidence indicates that when the interlinkages between the digital and physical economy are overlooked, regulatory effects spill over well beyond digital markets. A study by the Esya Centre found that 85 per cent of surveyed firms — across both data-intensive and traditional sectors — expected compliance costs arising from gaps in the Digital Personal Data Protection Act, 2023, to significantly affect their turnover. Another study on the impact of restrictions on targeted advertising on digital platforms for children found that firms producing goods such as toys and entertainment content could face substantial revenue losses.
Experience suggests that the governance model proposed by the draft amendments to the IT Rules, which involves advisory governance, may effectively operate as governance by fiat, where advisories are issued rapidly in response to specific incidents without prior warning. The resulting uncertainty may pose a challenge to businesses that rely on digital platforms for market signalling and customer acquisition, as the ensuing increase in transaction costs will lead to a higher cost of marketing products online. Over time, this could suppress investment and output, potentially forcing smaller firms to exit as they are unable to accurately price regulatory risk.
The digital world cannot be governed through ever-changing rules that fail to engage with their wider implications. Decision-makers must meaningfully engage with the complexity of digital governance, which includes an appreciation for the dynamism and technicality of digital markets, and their interdependencies with physical ones. Overlooking these intricacies threatens to undermine growth, turning regulatory uncertainty into systemic economic risk.
Bal is director, and Oberoi is a research assistant, Esya Centre, a New Delhi-based think tank
