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Business and Finance
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Business and Finance
Source : (remove) : moneycontrol.com
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Reassess Rs 2,000 crore merger review limit to protect MSMEs from buyouts: Parliamentary panel

Parliamentary Panel Urges Reassessment of Rs 2,000-Crore Merger Threshold to Safeguard MSMEs from Predatory Buyouts

In a significant push to bolster protections for India's Micro, Small, and Medium Enterprises (MSMEs), a parliamentary panel has recommended a thorough reassessment of the current Rs 2,000-crore threshold for merger reviews. This move aims to prevent large corporations from acquiring smaller entities without adequate regulatory oversight, potentially stifling competition and innovation in the market. The suggestion comes amid growing concerns over "killer acquisitions," where dominant players buy out emerging competitors to consolidate their market power, often at the expense of smaller businesses that form the backbone of India's economy.

The recommendation was detailed in a report by the Parliamentary Standing Committee on Finance, which scrutinized the functioning of the Competition Commission of India (CCI) and broader antitrust frameworks. According to the panel, the existing de minimis exemption—introduced to streamline minor deals by exempting mergers where the target company's assets or turnover in India are below Rs 450 crore and Rs 1,250 crore respectively, or a combined global threshold—may inadvertently allow predatory practices. However, the specific Rs 2,000-crore limit refers to a recent amendment under the Competition (Amendment) Act, 2023, which raised the bar for CCI scrutiny on deals involving digital markets and other sectors. The panel argues that this threshold, while intended to reduce regulatory burdens on insignificant transactions, could be exploited by big firms to snap up MSMEs, particularly in high-growth areas like technology, e-commerce, and manufacturing.

MSMEs are vital to India's economic fabric, contributing around 30% to the GDP, employing over 110 million people, and accounting for nearly half of the country's exports. Yet, they often lack the resources to compete against giants, making them vulnerable to buyouts that could lead to job losses, reduced innovation, and market monopolization. The panel highlighted instances where global tech behemoths have acquired Indian startups without CCI approval, effectively eliminating potential rivals before they scale up. For example, in the digital economy, where asset values might not reflect true market potential due to intangible assets like data and user bases, the current limits may fail to capture deals that have substantial anti-competitive effects.

The report emphasizes the need for a dynamic review mechanism, suggesting that the threshold be periodically adjusted based on economic indicators such as inflation, sector-specific growth rates, and emerging threats from foreign acquisitions. It proposes incorporating qualitative factors into the assessment, such as the strategic importance of the target MSME, its innovation potential, and the buyer's market dominance. This could involve lowering the threshold for certain sensitive sectors or introducing mandatory notifications for deals involving MSMEs, even if they fall below the financial cutoffs. The panel also called for enhanced collaboration between the CCI and other bodies like the Ministry of Micro, Small and Medium Enterprises to monitor and intervene in such transactions.

Experts and industry stakeholders have largely welcomed the panel's stance, viewing it as a step toward creating a more level playing field. "MSMEs are the engines of entrepreneurship in India, but without safeguards, they risk being swallowed by conglomerates," noted a competition law analyst. Critics of the current regime point out that the Rs 2,000-crore limit, while aligned with international practices in places like the EU and US, doesn't fully account for India's unique economic structure, where many MSMEs operate in informal sectors with undervalued assets. In contrast, proponents of the higher threshold argue it prevents unnecessary bureaucratic hurdles that could deter investments and mergers beneficial for growth.

The parliamentary committee's report delves into broader antitrust reforms, urging the CCI to adopt a more proactive stance against anti-competitive practices. It recommends strengthening the commission's investigative powers, including better data analytics to detect subtle market manipulations. Furthermore, the panel stressed the importance of protecting MSMEs in the context of global trade dynamics, where foreign direct investment (FDI) inflows—while boosting the economy—can sometimes lead to undue control by multinational corporations over local supply chains.

In response, government officials have indicated a willingness to consider these recommendations, aligning with Prime Minister Narendra Modi's vision of Atmanirbhar Bharat (self-reliant India), which prioritizes MSME empowerment. The Ministry of Corporate Affairs, which oversees the CCI, is expected to review the suggestions in upcoming policy discussions. If implemented, this reassessment could mark a pivotal shift in India's competition policy, ensuring that mergers and acquisitions foster rather than hinder fair competition.

The panel's concerns extend beyond immediate buyouts to long-term economic implications. For instance, unchecked acquisitions could concentrate market power in fewer hands, leading to higher prices for consumers, reduced product diversity, and barriers to entry for new entrepreneurs. In sectors like retail and agriculture, where MSMEs dominate, such trends could exacerbate inequalities between urban and rural economies. The report cites global examples, such as the scrutiny faced by tech giants in the US for acquiring startups like Instagram and WhatsApp, which were initially below regulatory radars but grew to dominate markets.

To address these issues holistically, the committee advocates for capacity-building initiatives, including training MSME owners on antitrust laws and providing legal aid for challenging unfair deals. It also suggests integrating merger reviews with environmental and social governance (ESG) criteria, ensuring that buyouts do not undermine sustainable development goals.

Overall, the parliamentary panel's call for reassessing the Rs 2,000-crore threshold underscores a broader commitment to nurturing a competitive ecosystem that protects vulnerable players while encouraging responsible growth. As India positions itself as a global economic powerhouse, balancing regulatory oversight with business efficiency will be key to sustaining the vibrancy of its MSME sector. This development could influence future legislation, potentially inspiring similar protections in other emerging markets facing comparable challenges from corporate consolidations. (Word count: 852)

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