The government under the 'Make in India' initiative has announced and implemented several steps to encourage investments and improve the environment by simplifying the multiple processes for doing business in the country. Significant relaxations were announced in the FDI policy last year. The Budget also seeks to introduce some more measures, including some welcome tax relaxations and incentives. Finance Minister Arun Jaitley has urged the states also to reform.
Presumably in line with the broader efforts of the government, the financial thresholds above which any merger or acquisition (M&A) must be reported to the Competition Commission of India (CCI) for its approval have been significantly raised. The Ministry of Corporate Affairs, through its recent notification, has raised the merger thresholds by 100 per cent for a period of five years until March 3, 2021. This makes the Indian merger thresholds among the highest in the world.
The ministry has also increased the thresholds for the small target exemptions, popularly known as the de minimis exemption. In 2011, in response to the industry's protests over the requirement to approach the CCI for even minor transactions, first the CCI itself, and then the government had exempted transactions involving small targets from seeking the commission's approval for five years, i.e. where the target enterprise had assets less than Rs 250 crore or turnover less than Rs 750 crore in India there was no need to seek CCI's permission. The government has now extended the exemption for another five years till March 3, 2021, and has simultaneously increased the thresholds: from Rs 250 crore to Rs 350 crore for assets or from Rs 750 crore to Rs 1,000 crore for turnover.
In another exercise towards liberalisation, the government has extended the notification restricting the definition of 'group' to only those group entities where shareholding is 50 per cent or more. This extension is also for a period of five years till March 2021. Thus, group entities where the shareholding is below 50 per cent would not be counted in the group's assets or turnover.
Although these changes have been welcomed, the business community had expected that the government would also remove certain anomalies present in the previous exemption notifications. For instance, the de minimis exemption applies only to acquisitions, and thus draws a perhaps unintended distinction between acquisitions on the one hand and mergers and amalgamations on the other. Moreover, due to the interpretation given to the term enterprise to mean the seller, even where only a small asset or business is being acquired from a large company, the de minimis thresholds are breached. This seems to run contrary to the spirit of the de minimis exemption, which was meant to exclude small transactions from the CCI's scrutiny. However, it appears that the current notification has not provided any relief on these aspects.
It might be too early to assess the impact of the changes in the exemption thresholds. However, it is anticipated that businesses will need to file significantly less transactions eliminating at least one regulatory approval and delay from the processes they have to follow. The CCI, too, will likely get relief from its workload and will be able to provide faster approvals thereby contributing to the 'ease of doing business'.
Presumably in line with the broader efforts of the government, the financial thresholds above which any merger or acquisition (M&A) must be reported to the Competition Commission of India (CCI) for its approval have been significantly raised. The Ministry of Corporate Affairs, through its recent notification, has raised the merger thresholds by 100 per cent for a period of five years until March 3, 2021. This makes the Indian merger thresholds among the highest in the world.
The ministry has also increased the thresholds for the small target exemptions, popularly known as the de minimis exemption. In 2011, in response to the industry's protests over the requirement to approach the CCI for even minor transactions, first the CCI itself, and then the government had exempted transactions involving small targets from seeking the commission's approval for five years, i.e. where the target enterprise had assets less than Rs 250 crore or turnover less than Rs 750 crore in India there was no need to seek CCI's permission. The government has now extended the exemption for another five years till March 3, 2021, and has simultaneously increased the thresholds: from Rs 250 crore to Rs 350 crore for assets or from Rs 750 crore to Rs 1,000 crore for turnover.
In another exercise towards liberalisation, the government has extended the notification restricting the definition of 'group' to only those group entities where shareholding is 50 per cent or more. This extension is also for a period of five years till March 2021. Thus, group entities where the shareholding is below 50 per cent would not be counted in the group's assets or turnover.
Although these changes have been welcomed, the business community had expected that the government would also remove certain anomalies present in the previous exemption notifications. For instance, the de minimis exemption applies only to acquisitions, and thus draws a perhaps unintended distinction between acquisitions on the one hand and mergers and amalgamations on the other. Moreover, due to the interpretation given to the term enterprise to mean the seller, even where only a small asset or business is being acquired from a large company, the de minimis thresholds are breached. This seems to run contrary to the spirit of the de minimis exemption, which was meant to exclude small transactions from the CCI's scrutiny. However, it appears that the current notification has not provided any relief on these aspects.
It might be too early to assess the impact of the changes in the exemption thresholds. However, it is anticipated that businesses will need to file significantly less transactions eliminating at least one regulatory approval and delay from the processes they have to follow. The CCI, too, will likely get relief from its workload and will be able to provide faster approvals thereby contributing to the 'ease of doing business'.
The author is former acting-chairman, Competition Commission of India, and now executive chairman, Vinod Dhall-TT&A