THE IMPACT OF COMPETITION LAW REFORMS ON INDIA’S ECONOMIC GROWTH AND DEVELOPMENT BY - RIYA YADAV & MAYUR SHRESTHA
THE IMPACT OF COMPETITION LAW REFORMS ON
INDIA’S ECONOMIC GROWTH AND DEVELOPMENT
AUTHORED BY - RIYA
YADAV & MAYUR SHRESTHA
ABSTRACT
This
paper discusses the impact of the 2023 Amendments to the Indian Competition Act
2002 on business entities. The amendments introduced new regulations such as commitments
and settlements, deal value thresholds, and stricter enforcement for
hub-and-spoke cartels. The Competition Commission of India (CCI) is responsible
for implementing these amendments. The paper argues that the success of these
amendments depends on how the CCI implements them. The CCI needs to adopt a
balanced approach that fosters economic growth while also maintaining healthy
competition in the market. Some of the amendments, such as commitments and
settlements, are seen as business-friendly because they offer companies
alternative ways to resolve disputes with the CCI. Other amendments, such as
deal value thresholds, have been criticized for adding an unnecessary
regulatory burden on businesses. The paper concludes that the ultimate impact
of the 2023 Amendments will depend on how the CCI chooses to implement them.
The CCI needs to find a way to balance the need for efficient regulation with
the need to promote economic growth.
INTRODUCTION
India
is rapidly establishing itself as an increasingly significant hub for
international investment. The Indian government has continuously worked to
maintain a welcoming and less onerous business environment in an effort to
maintain the momentum. In order to promote "ease of doing business in
India," this involves lowering corporate tax rates, alleviating the
liquidity issues faced by banks and non-banking financial companies (NBFCs),
reforming the laws governing foreign direct investment (FDI), and relaxing
compliance requirements.
India's
regulatory framework for competition was recently updated after more than ten
years, bringing about significant changes that will affect business entities. A
number of antitrust countries are still debating the modifications brought
about by the 2023 Amendments to the Indian Competition Act 2002. There are a
number of business-friendly changes in the 2023 Amendments, including
commitments and settlements, accelerated merger review timelines, and the
introduction of a leniency-plus regime. Other changes, like deal value
thresholds, penalties on global turnover, and increased liability for hubs in
"hub-and-spoke" cartels, are intended to achieve stricter enforcement
and more regulatory oversight.
In
order to ensure sure that competition enforcement does not impede
"economic growth," as defined by the Preamble to the Act, the
Competition Commission of India (CCI), the organization charged with fostering
and preserving healthy markets that support the expansion exhibited by the
Indian government,
must take a balanced stance. The effect of the Amendments on the Indian market
is examined in this article. We specifically look at how the CCI adopted these
tools and modified them to meet the needs of the Indian economy.
IMPACT OF THE 2023 AMENDMENTS
I.
COMMITMENTS
AND SETTLEMENTS
The
establishment of obligations and resolution procedures for claims of
anti-competitive vertical agreements and abuse of dominance is at the forefront
of the 2023 Amendments. These do not apply to cartels, in contrast to other
regions of the world.
Prior
to the parties receiving the Director General's (DG) inquiry report, the CCI
can now collect commitments for ongoing investigations. Businesses under
investigation can resolve the CCI's initial concerns about competition with
commitments rather than taking part in protracted inquiries. In a similar vein,
a business can settle proceedings after receiving the DG Report but prior to
the CCI issuing its final order by implementing a settlement mechanism. When a
settlement is reached, the company consents to pay a sum that may be less than
the highest fine the CCI might levy in that specific instance. Additionally,
commitment and settlement orders absolve the company of any infringement
findings; but, in the event of a settlement, the company may be subject to a
compensatory damages action.
The
implementation of commitments and settlements offers the CCI two main
advantages:
It
expedites market correction and saves time and money.
The
CCI's limited resources are saved-
not just before the CCI but also during the appellate stage, which can take
years to resolve, by using the preliminary assessment of a potential
infringement to weed out cases that are unlikely to hurt the competition.
Regarding market rectification, the CCI has emphasized the necessity of promptly
putting remedial measures into place as soon as competitive harm is discovered.
Businesses
who feel they have compelling reasons to contest their lawsuits are not
discouraged by commitments or settlements. These methods offer an additional
choice to not challenge the DG Report's cost-benefit analysis or CCI's
preliminary findings. In contrast to the directives that the CCI may make in
its final ruling without consulting the firms, the businesses are able to offer
more practically achievable corrective measures. Businesses can use these tools
to determine the commercial significance of continuing to challenge the
"alleged" anti-competitive behaviour. It might be wise to make
promises and modify its behaviour in a way that is more acceptable to the CCI
if it just leads to a technical infraction and does not provide businesses with
any significant advantages. In a similar vein, settlements give companies
another chance to reach a mutually acceptable result without engaging in
protracted adversarial proceedings with the CCI.
For
instance, the CCI provided comprehensive guidelines regarding the use and
supply of spare parts by auto dealers in the Autoparts
case. There have been worries expressed about how these guidelines may affect
drivers' safety. Even
though the CCI's order was issued more than nine years ago, the Supreme Court
of India has halted its execution and has not yet rendered a decision.
Other jurisdictions' experience indicates that authorities have addressed
competitive harm quickly by utilizing commitments and settlements in their own
jurisdictions. For instance, the European Commission first believed that
Gazprom had misused its power by trying to divide the natural gas markets in
Europe. Gazprom pledged to eliminate contractual limitations on cross-border
gas resale, ease gas flows to and from remote markets, set up a procedure that
guarantees competitive gas prices, and stop using its dominance in the natural
gas supply as leverage.
The
CCI may need to be more accommodating when it comes to adopting realistic
pledges and settlements if the settlements and commitments regime is to be
successful. The CCI may consider:
·
being open to considering
novel remedies (as opposed to the traditional ‘cease and desist’) that
businesses may suggest;
·
implementing
business-friendly timelines to comprehensively understand market harm and
suggest effective remedies (particularly for global companies who may need to
consider the multi-jurisdictional impact of remedies offered);
·
adopting a
business-friendly approach in deciding the settlement amount, which does not
discourage businesses from avoiding adversarial proceedings and risking the
imposition of a penalty that the CCI may impose.
II.
DEAL
VALUE THRESHOLD
A
transaction value-based criterion for notice of deals above a deal value of INR
20 billion, when the target has significant business operations in India, was
added by the 2023 Amendments. The deal value barrier is sector- agnostic,
however it was introduced in response to the growing number of acquisitions by
major internet firms.
Competition authorities throughout the world, including in India, have taken
notice of mergers like Facebook and Instagram, Facebook and WhatsApp, and
others. This is due to the fact that large IT corporations' purchases of
start-ups or businesses with lower asset values usually fail to meet
conventional turnover-based requirements, which activate the CCI's merger
control mechanism. The best method to broaden the CCI's net to include
transactions where the value of the transactions does not match the target's
assets and turnover seemed to be deal value thresholds.
The
CCI's ultimate goals are to stop any actions that might significantly harm competition
and to encourage and maintain it. To this end, the CCI has sufficient ex post
powers. There is no evidence worldwide that the implementation of transaction
size-based thresholds has prevented possible harm to competition: in Germany,
little extra alerts were submitted for evaluation, furthermore,
none of the extra notices in Austria were discovered to be related to digital
acquisitions or to anti-competitive behaviour. The US Federal Trade Commission
even approved the WhatsApp/Facebook combination.
and the European Commission. Another
common justification for implementing a transaction-based threshold is to avoid
a "killer acquisition" in the digital industry. It
can be argued that this is a reasonable efficiency reasoning because data indicates
that acquisitions in the digital sector usually result in the integration of
the target's services into the acquirer's suite of services rather than
"killing" the target's services.
For example, Facebook now offers a full range of social media services,
including WhatsApp's communication capabilities as an add-on. Consequently,
there is currently scant evidence that the implementation of a
transaction-based barrier has a beneficial effect on preserving healthy
competition.
For
investments that were previously exempt because of a notably low asset value
and goal turnover, a deal value threshold adds a new regulatory requirement. As
a result, the standstill requirement outlined in the Act will apply to stated
transactions, requiring the parties to wait for CCI's permission before
concluding the deal. The CCI is well aware that the implementation of a deal
value threshold may result in an increase in regulatory burden. The
criterion of'substantial business operation' would help ensure that transacting
parties are not overburdened with unnecessary notifications and that only those
transactions with significant economic links to India are caught by the
threshold," said the former chairperson of the CCI. Clear
rules for triggering notifications below the deal value level are necessary to
ensure regulatory confidence among transacting parties and to outweigh the
regulatory burden. The SBO criteria, which are defined as any entity having
more than 10% of (1) the number of users, consumers, or visitors; (2) the gross
merchandise value; or (3) turnover in India, were established in draft
regulations that the regulator made available for consultation.
The number of transactions reported to the CCI is expected to rise as a result
of these low-level criteria. The SBO criteria may be able to provide more
clarification after stakeholder engagements, ensuring that deal value
threshold-based notifications only identify transactions that can potentially
have anti-competitive impacts and do not overload the CCI with technical
notices.
HUB AND SPOKE CARTELS
The
definition of cartels has been broadened by the 2023 Amendments to explicitly
include non-competing enterprises as long as they are involved in or plan to be
involved in the cartel. One category of companies that could be directly
impacted by this shift is digital platforms that offer services to rival
businesses. If digital platforms allow information exchange among their service
receivers, they may now be regarded as a component of a cartel.
Determining
whether specific vertical agreements—such as exclusive agreements or
restrictions on retailer pricing—should be regarded as hub-and-spoke cartels or
vertical limitations may prove challenging for competition regulators.
Essentially, it may be assumed that digital platforms engage in price fixing
and market allocation since they need to maintain resale prices or provide
exclusivity, respectively. The CCI takes a per se approach for cartels, even
though claims of vertical constraint are evaluated using the "rule of
reason," which involves weighing pro-competitive outcomes. Online digital
platforms will probably face an increased burden of compliance as a result.
Therefore,
it seems sense to think about using this strategy only in cases when there is
evidence of cooperation and a technical "meeting of the criteria." In
light of the hefty fines, it would be beneficial for companies if the CCI
published comprehensive rules and best practices for platform markets to
prevent regulatory ambiguity and inform platform companies of the potential for
cartel violations to be discovered against them. Digital platforms should also
be aware of their conduct and market behavior while interacting with several
rival businesses.
III.
EXPEDITED
MERGER REVIEW TIMELINES
The CCI
now has 150 calendar days instead of the previous 210 days to make a decision
on a transaction. The combination shall be "deemed" accepted if the
CCI does not issue an order within these timeframes. In addition, it was
challenging to finish stock market transactions without facing gun-jumping
fines due to the suspensory merger control regime in place. The 2023 Amendment
permits a deviation from standstill commitments for (1) an open offer or (2)
the purchase of shares or securities through a sequence of transactions on a
regulated stock exchange, acknowledging transactional impracticality. Although
the accelerated timetables are a good thing, the CCI officials might find the
shorter timelines burdensome. Making good use of the pre-filing consultations
would be one method to achieve a compromise between shortened schedules and
providing officers at the regulator with adequate review time. In order to
speed up the formal review process and reduce the number of follow-up
information requests, parties may attempt to hold meaningful pre-filing
consultations with the CCI and utilize that process to address any expected
issues raised by the CCI during review.
CONCLUSION
In
the World Bank's "ease of doing business" rating, the Indian
government is eager to make India a prominent jurisdiction.
The goal of the 2023 Amendments similarly appears to be to make conducting
business easier while preserving strong competition in the market.
The
key is implementation: the CCI's enforcement priorities will ultimately
determine the 2023 Amendments' actual impact. An economy's ability to grow is
hampered by regulatory ambiguity and overzealous oversight. Although
corporations are less willing to invest in jurisdictions with a higher
regulatory burden and longer compliance deadlines, it is true that strong
market competition accelerates economic growth by boosting the productive and
allocative efficiency of firms. While preserving healthy competition in the
market, the 2023 Amendments give the CCI the resources it needs to encourage
business in India and lessen regulatory burdens. How the CCI will reconcile
efficient regulation with economic expansion is still up in the air.
REFERENCES
·
Crémer, Jacques, de
Montjoye, Yves-Alexandre and Schweitzer, Heike. Competition Policy for
the digital era: Final report. Luxembourg: Publications Office of the
European Union, 2019.
·
OECD (2020), “Start-ups,
Killer Acquisitions and Merger Control”, OECD Roundtables on
Competition Policy Papers, No. 248, OECD Publishing, Paris, https://doi.org/10.1787/dac52a99-en.
