Beyond Traditional Metrics: How India’s New Merger Control Framework Struggles With Digital Economy Realities?
Introduction
In today’s globalized world, Mergers and Acquisitions (“M&A”) plays a vital role in expanding, diversifying, and bringing together businesses. Even though M&A may help companies expand strategically in India, it could also cause a strong business to dominate the market, prevent competition, and abuse those in charge. The Competition Commission of India (“CCI”) is empowered by law to examine mergers and acquisitions that satisfy the financial criteria mentioned in Section 5, regarding whether they could create an appreciable adverse effect on competition (“AAEC”) in the relevant market.
Also, it pays attention to M&A events that may influence how the market functions. These standards use defined financial measurements to establish which matters CCI will investigate. The CCI has shown that it is responding to the challenges posed by digital markets and cross-border transactions by introducing a new threshold called the deal value threshold (“DVT”).
Legal Framework: Thresholds under the Competition Act 2002
The Competition Act 2002 empowers the CCI to regulate M&A under Sections 5 and 6. Section 5 defines “combinations” as acquisitions, mergers, or amalgamations exceeding specified asset or turnover thresholds. Domestic thresholds require combined assets of ₹2,500 crore or turnover of ₹7,500 crore in India. For global entities, thresholds are US$1.25 billion in assets (including ₹1,250 crore in India) or US$3.75 billion in turnover including ₹3,750 crore in India). Section 6 prohibits combinations causing an appreciable adverse effect on competition.
The revised Target Exemption Notification exempts combinations involving targets with assets of less than ₹450 crore or turnover of less than ₹1,250 crore from getting reviewed, easing compliance for smaller enterprises. The 2019 green channel mechanism grants automatic approval for combinations lacking horizontal, vertical, or complementary overlaps, enhancing regulatory efficiency. The Competition (Amendment) Act 2023 introduces a deal value threshold of ₹2,000 crore for transactions where the target has ‘substantial business operations in India’ to capture high-value, asset-light transactions, particularly in digital markets, which came into effect from September 2024. This amendment, complemented by safe harbour provisions, aims to streamline M&A activities while addressing anti-competitive risks. These frameworks balance oversight and business facilitation, although challenges persist in regulating digital economy transactions.
A Case Study- The Jet-Etihad Case
In 2013, the Jet-Etihad case proved that the CCI puts its framework to strong use when regulating markets. CCI began investigating Etihad Airways’ 24% purchase of Jet Airways for ₹2,058 crore, as this deal was over the global turnover thresholds required for review. On the India-Abu Dhabi route, CCI found that AAEC could develop because the parties’ combined share reached 62%, which might lead to less competition in a frequently used corridor. At London Heathrow, a severely slot-constrained airport, there was fear that Jet’s strong position could stop other airlines from competing. After consulting with competing airlines and airport operators, the CCI approved the deal only if Jet Airways gave up three slot pairs at Heathrow, remained cautious with code sharing, stabilised fares, and promised to maintain service on important paths. The purpose of these remedies was to protect buyers’ ability to purchase goods and to allow companies into the market. On the other hand, CCI issued a fine of ₹50 crore for gun-jumping to Etihad under Section 43A. The CCI Journal points out that usual thresholds often do not allow data-driven mergers, unlike this incident in aviation, which is why nuanced changes are needed to notice changing digital markets.
Why Thresholds Matter: The Rationale for High Standards
The primary reason behind setting high thresholds for merger notifications in India is to maintain a careful balance between the regulatory control and the convenience of the business. The system has been mechanised in such a manner that both the regulator as well as the business would avoid overburdening with unnecessary filings for small transactions, which cannot likely affect competition in the relevant market by including only large mergers and acquisitions to be reported to the Commission. By having this policy, startups and small companies find it easier to grow and come together, while being checked by fewer regulations, and allowing the CCI to concentrate on significant market activities and transactions. Moreover, the thresholds are updated regularly to reflect economic changes such as inflation and currency fluctuations to keep things relevant over the period.
The introduction of the DVT is a measure to address recent cases in the digital industry that were not captured by the original asset or turnover conditions, so that everyday business operations are not unnecessarily hindered. The overall objective of these high standards is to protect competition in key markets while promoting ease of doing business.
Regulatory Gaps in India’s Threshold-Based Model
Because of the high thresholds in asset and turnover, it becomes challenging to regulate M&A in digital markets since data, not sales, is often what matters most for competition. Such thresholds made it easier for Facebook’s $19 billion acquisition of WhatsApp in 2014 to go unnoticed, as WhatsApp had low turnover. Many times, such “killer acquisitions” of small, innovative startups by big firms are not caught by CCI because the smaller firms do not earn enough to report. A high bar for competitors can drive out new businesses by helping existing businesses take over more control, discouraging new entries, and obstructing fresh new ideas common in platform economies where network effects matter a lot. The study makes clear that using data-based strategies in buying and selling businesses can let major telecommunications companies further dominate the market. Many countries worldwide have updated their rules as they realised traditional levels are not enough since they largely ignore data control. Because India lacks market share and data significance metrics, CCI cannot handle anti-competitive issues sufficiently, leading to a need to rework merger control.
International Perspectives on Merger Thresholds
Different countries have different rules to check big business deals, called mergers, to make sure no company becomes too powerful. These rules help protect fair competition so that no one controls the whole market. In the European Union, a merger is checked if the companies together make more than €5 billion in sales worldwide and at least €250 million in the EU. In the United States, if a deal is worth more than $111.4 million, it must be reported to the government. These lower limits help these countries catch and stop bad mergers early. However, the limits are much higher in India. The CCI checks a deal only if the companies together have more than ₹1,000 crore in sales or ₹500 crore in total value. This means smaller deals that could still harm competition might go unnoticed. India’s thresholds are designed to avoid overburdening the CCI with small mergers.
Countries like Germany and Austria realized that these money-based limits don’t work well for small but important companies, especially in the digital world. So, they made a new rule: if a deal is worth a lot of money and the company being bought is important in the market, it must be reviewed. India is now planning to do the same through the Competition (Amendment) Act, 2023. It will allow the CCI to check deals based on how valuable they are, not just on sales numbers. This change will help keep India’s markets fair, even when small companies are being bought for big money.
The Way Forward: Reforming India’s Merger Control Regime
The Competition (Amendment) Act, 2023 sets up a new criterion for merger control, focusing on important but asset-light transactions in the digital sector starting in September 2024. A method based on assets, turnover, deal value, mixed with measuring market share, data control, and how much the merger affects innovation, would do a better job of identifying anti-competitive mergers on platforms.
The CCI underlines that specialized methods are needed to assess non-price aspects in the telecom and digital market report published in 2021. Using post-merger review coupled with CCI’s market studies, officials can oversee the impact of mergers lasting over time based on practices elsewhere. Letting the CCI investigate sub-threshold cases would complete the enforcement framework, which would benefit from the Journal proposal. Such reforms, comparing rules ahead of implementation and afterwards, will lead India’s regulations to be on par with the rest of the world, helping both competition and invention.
Conclusion
As India’s economy changes through digital growth and diversification, rules and tools for encouraging fair competition should be updated in response. Though thick merger thresholds were useful at one time, they could now prevent India’s merger control system from working well. Since asset-light, data-driven firms are becoming more common, a more thoughtful strategy is necessary.
This proposed introduction, with the addition of deal-value thresholds, is a significant reform, but it needs to be joined by further strategies to improve merger review, notably in up-and-coming areas. Establishing a flexible and open framework will allow the CCI to help Indian markets evolve and resist upcoming changes.
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This article is written by Aman Raj (3rd Year, B.A., LL.B. Hons., Chanakya National Law University, Patna) and Neha Tiwari (3rd Year, B.A., LL.B. Hons. in Adjudication and Justicing, Maharashtra National Law University, Nagpur).
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