In today’s Finshots, we look at a draft consultation paper that could make the Competition Commission of India more potent.
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Imagine a big global tech company, a social network, is buying another tech company for a few billion dollars. The other company might be smaller in scale, but, it’s a behemoth in its niche domain — it is a messaging platform. You can use it to text friends, family, and even businesses.
Now you could argue that an acquisition could result in a dicey situation. ‘Messaging’ is a form of a personal social network. And it might seem like one entity will come to rule the roost. That entity can now control a lot of things. It can dictate pricing. It can lower product quality without any blowback. There’s not much competition or alternatives that people can use.
By now you might’ve realized we’re talking about Facebook and WhatsApp.
And there’s a reason why we brought this up — because the Competition Commission of India (CCI) wants to tweak the rules. They want such deals to come under their purview.
Wait…that deal happened in the US, so what does the CCI have to do with it, you ask?
Okay, before we get into that, a quick brief on CCI’s role.
Now the CCI has a simple goal — make sure that customers are protected at all costs. And that means it has to ensure that no company has any undue advantage when it comes to controlling the supply of goods and services. There has to be free trade and no cartelisation. Companies cannot manipulate prices or restrict the growth of other players in any way.
It doesn’t matter if you’re a giant like Google. If you control an entire mobile ecosystem and use that power to arm-twist phone manufacturers, the CCI will fine you. If you’re a dominant Online Travel Agent like MakeMyTrip and you dictate room rates to hotels, the CCI isn’t going to be happy. If you’re the Tata Group and looking to merge your airlines Air India and Vistara, the CCI might have something to say. It needs to make sure there’s no monopoly on the cards.
Anyway, let’s get back to what’s happening right now.
See, at the moment, the CCI evaluates mergers and acquisitions if it crosses a certain sales threshold. Or if the assets that the company owns are of a certain size. That meant that a deal like Facebook’s $19 billion acquisition of WhatsApp wouldn’t even have landed up as a file on CCI’s desk. WhatsApp had users in India but no tangible assets or sales to boast of.
So, the CCI wants to change that. And it has a proposal. See, the government has already tweaked the Competition Act earlier this year. It said that any deal above ₹2,000 crores will go to the CCI for evaluation. So now, the CCI is figuring out how to determine if the company in question has significant business operations (SBO) in India. And in their own words, this is what they think makes sense:
(a) the number of its users, subscribers, customers, or visitors, at any point in time during a period of twelve months preceding the relevant date is 10% or more of its total global number of users, subscribers customers or visitors, respectively; or (b) its gross merchandise value for the period of twelve months preceding the relevant date is 10% or more of its total global gross merchandise value; or its turnover during the preceding financial year, in India, is 10% or more of its total global turnover derived from all the products and services.
Now let’s just use this as a reference for Facebook’s acquisition of WhatsApp in 2014. If this rule had been in place during that time, the CCI might’ve looked at the number of users in India. And as per news reports from back then, out of the 600 million users WhatsApp had globally, 70 million active users were in India.
That means the CCI might’ve gotten involved. And maybe they would’ve objected to the deal.
But let’s go back to the first question — can India’s competition regulator really derail a global deal?
Well, look at what’s happening to the Microsoft-Activision Blizzard deal which is still in limbo. In January 2022, the software giant declared that it would pay nearly $69 billion to buy the gaming company. On paper, both of them are American companies. So you’d have expected the American antitrust folks to poke their noses into this business. But the ones who’ve stalled the deal are actually the British or the UK Competition and Markets Authority (UK CMA) to be exact. They’re the ones who felt that it was a threat to the gaming ecosystem. And Microsoft has been forced to make some tweaks just to appease them.
So yeah, competition regulators from around the world can get involved if they think it’s detrimental to business. And now, CCI is probably going to be armed with this sort of power too.
But…there’s one problem here.
People think that the government isn’t paying enough attention to the CCI.
For instance, after the previous chairperson of the CCI retired in October 2022, it took a full 6 months to hire a replacement. This basically meant one of the most important organizations in the country to protect consumer interests was left without a head for way too long.
But that’s not the worst part. Because right now, the CCI has become a single-member body after two more top people retired. It’s a far cry from the 7 member team it used to have in 2018. And the reason for this is back then, the government decided that the CCI needed just three members plus the chairman and ‘right-sized’ the organization. Now this became a problem. Because with these retirements and stuff CCI often failed to maintain quorum — basically meaning that it struggled to have enough members to make a decision valid. And without a quorum, all these decisions taken by the CCI can be challenged in the courts of law.
Not to forget that CCI hasn’t been able to fill the multiple open positions at the organization on time — 30% of positions have remained vacant in the past few years. And the end result is that the current staff is overworked.
So yeah, arming the CCI with new laws is fantastic. But the organization probably needs more resources at its disposal if it really wants to make a bigger mark.
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