Digital firms that have “substantial business operations” in India have been mandated to get CCI clearance for M&A deals valued above INR 2,000 Cr
Enterprises that have at least 10% of their end users in India, or generate 10% of their gross merchandise value or turnover in India will be required to obtain CCI’s nod for M&As
The new ‘deal value’ threshold will likely enable the CCI to monitor M&As that previously evaded its radar due to traditional ‘asset’ or ‘turnover’ criteria
Heeding to the demands of industry bodies, the Competition Commission of India (CCI) has further tightened its grip on big tech giants operating in the country.
In back-to-back regulatory orders this week, the competition watchdog notified new rules that turn up the heat on big tech giants and bring them further under its ambit. It all started on Monday (September 9) when the union government notified the “deal value threshold” provisions under the competition law.
The rule, which came into effect on Tuesday, mandates all digital firms that have “substantial business operations” (SBO) in India to seek regulatory clearance from the CCI for deals valued above INR 2,000 Cr.
The deal value threshold aims to capture significant deals that might otherwise evade scrutiny under traditional “asset” or turnover-based thresholds.
The new rules have been envisaged specifically for sectors such as the digital and tech ecosystems, where market valuations can be very high despite lower revenues.
The new norms come more than a year after they were first hinted at in the 2023 amendments to the Competition Act, 2002. The new mandates will impact both signed (but not closed) as well as signed and partially closed deals.
Just as the digital ecosystem was deciphering these new norms, the CCI came back with another set of rules called CCI (Combinations) Regulations, 2024, which came into effect from September 10.
The new norms mandate that all digital firms, with substantial business operations in India, will mandatorily need CCI approval for M&As. Under the CCI (Combinations) Regulations, 2024, India’s antitrust watchdog has laid out specific criteria to determine whether the target firm has substantial business operations in the country.
What Constitutes ‘Substantial Business Operations’?
As per the new rules, enterprises offering digital services that have either 10% of their total user base in India, or generate one-tenth of their gross merchandise value or annual turnover from their India operations, will be deemed as having substantial business operations in the country.
These entities will be required to obtain the CCI’s consent for M&A deals exceeding INR 2,000 Cr in value. Even those transactions that have been signed but are yet to be completed will also require mandatory regulatory approval.
Additionally, non-digital companies that clocked a gross merchandise value or annual turnover of more than INR 500 Cr for the 12 months preceding the relevant date in India will also be required to get regulatory clearance.
The competition watchdog has also shortened the review period for M&A deals to 150 days from 210 days earlier.
Why Has The Govt Implemented These Rules?
The new rules are aimed at enabling the regulator to tighten oversight on M&As that might otherwise evade the radar under the traditional “turnover” criteria. Under previous regulations, if the acquisition target possesses an asset value below INR 450 Cr or turnover less than INR 1,250 Cr, then such M&As are exempt from approval by the CCI.
The CCI’s new regulations on mergers and acquisitions are essentially aimed at probing whether the deal is motivated by the desire to quash any competition in the market.
This comes at a time when US-based tech giants such as Google and Apple have faced heavy backlash from the CCI for allegedly abusing their market dominant position. In 2022, the CCI imposed a penalty of over INR 2,200 Cr on Google for abusing its dominant position in the Android devices market and with respect to its Play Store policies.
More recently, the competition watchdog reportedly, in an internal probe, found Apple guilty of abusing its dominant position in the Indian app marketplace space to the “detriment of app developers, users and other payment processors.”
Besides, Walmart-owned Flipkart and PhonePe too have faced criticism from multiple quarters owing to their stranglehold over ecommerce and digital payments markets, respectively. Time and again, trade bodies and even parliamentary panels have flagged the dominance of these players and sought measures to curb them or limit their influence.
Notwithstanding this, India’s digital economy continues to see rapid adoption on the back of growing smartphone penetration and affordable internet tariffs. This has led to a major boom in the homegrown consumer internet space, which, as per Inc42, is projected to become a whopping $1.6 Tn opportunity by 2025.
