June 1, 2011, was a red-letter day for India—merger control under the country’s Competition Act went live, giving the CCI power to review an M&A transaction’s competitive effects, where parties, whether in India or overseas, exceed certain Indian and global asset-size/turnover benchmark.
This change was a decisive step that led to India joining the big league, with the US and the EU. It was also a historic development from the earlier “command and control” regime under MRTP Act. The decade has earned CCI the respect due to a world-class, mature market regulator.
Let’s look at the Indian merger control regime. The developments have been significant and rapid, with 834 transactions notified to the CCI, with 824, or 98.8%, cleared in an average of 20 days, and none prohibited. In addition, a new facility of a “green channel” filing was introduced, where parties can undertake their own assessment and submit a filing, which will stand automatically cleared unless the CCI objects; 30 cases have been approved under this window.
What does the CCI look at while reviewing an M&A transaction? Very simply, the CCI only looks to see whether a notified transaction has an appreciable negative affect on competition in India. If a transaction is notifiable to CCI, parties must wait until the CCI determines the transaction will not likely cause an “appreciable adverse effect on competition” in Indian markets. The CCI can require parties to provide suitable modifications, which it has done on 22 occasions (in consultation with parties), or prohibit the transaction, which has never happened.
In short, the CCI has a complex task in conducting its economic analysis. It basically has to prognosticate how an M&A deal might affect competition in India. Before filing, the CCI is open to discussions under pre-filing consultation, where substantial guidance is provided; this makes the merger control process move forward more efficiently, and the CCI is open to discussions during scrutiny. Has Indian merger control been flawless in the last ten years?
Not always: there have, for example, been issues with what level of acquisition is notifiable (e.g., at one stage, a view arose that the Competition Act’s merger control provisions covered any acquisition, even as small as one share, if all other criteria were met). Also, for many years, the small target exemption, in the sole case of acquisitions, was applied to the seller of the target and not the target itself, but all those issues have been addressed. Now, even smaller investments (not for gaining ‘control’) are not notifiable.
These changes have gone a long way in enhancing India’s merger control reputation and increasing India’s overall attractiveness for FDI, evidenced by surging FDI to historical heights and skyrocketting stock markets. The government has also come out with several schemes like a hugely successful Production Linked Incentive (PLI) scheme. Investors and PEs have been bullish on India, with startups getting attractive valuations, 14 unicorns in less than five months in 2021 despite the pandemic, with 11 during 2020!
India’s ‘InvestIndia’ has been globally ranked as the world’s top investment promotion agency (IPA), facilitating proposals of over $160 billion dollars.
These changes evidence the same emphasis the government has on the “ease of doing business”. The significant changes in the Indian merger control regime reflect the same spirit which India has had on reform of its laws, regulations, practices and procedures, making the country more attractive.
There is no doubt that India, like the rest of the world, is currently undergoing unprecedented pain because of the pandemic. However, it does not change the tremendous attractiveness of India, as the world’s largest democracy, with a huge and growing market. The years to come will only strengthen it, as the government continues its business reforms and the CCI, as India’s independent market regulator, marches in step.