True to type, India is last in the line of major economic jurisdictions implementing an effective law to ensure fair competition in its markets. And when it finally did implement the Competition Act, 2002 in May last year, it did so, to paraphrase the immortal words of Nehru, neither wholly nor in full measure. The implementation for merger regulation was held in abeyance, and so it remains.
So what has been achieved on this front one year on from the competition commission going live on the other provisions of the Act? The new commission members, most of whom were only appointed last year, were faced with an impossible situation: major new regulatory duties with virtually no proper staffing. The commission may justifiably point to its hectic efforts to staff itself to handle the expected flood of merger control notifications by companies as an achievement in itself. All the work done by the tiny staff that operated the commission before 2009 had been lost by attrition or the usual transfers to unrelated departments of the civil service. So the institutional memory that the government had developed at the taxpayer's cost was casually thrown away. The new commission was left to start from square one again.
On the ground, the government has instilled even less confidence. The justifiable howls of protest that ensued from companies and practitioners globally when the first draft merger control regulations were issued were addressed. The draft was withdrawn — many months ago. The commission then worked quickly to take on board valid suggestions made by various stakeholders and delivered revised regulations to the government — again, many months ago.
While the silence on concrete progress is deafening, there is no shortage of soundbites from government officials. The corporate affairs minister has been particularly active. A year ago we were informed merger control would be made effective within 100 days, something that was communicated by practitioners to their colleagues all over the world. Nothing happened.
Then we were informed the government was considering sectoral and individual exemptions.
Soon after, the first of the expected turf wars between regulators erupted. The RBI stepped in to protect what it considers to be its exclusive domain, the regulation banking sector, on the basis that mergers and acquisitions are a part of such regulation and are within its exclusive remit.
Caught in the crossfire, the government is increasingly looking like a deer caught in the headlights. It appears to have first attempted to broker peace. Recent reports suggest it may be dicing with the thin end of the wedge and considering exempting the banking sector from the law. Waiting in the wings are a slew of other regulators such as the Trai and the electricity regulatory commissions.
The answer is simple. As the minister has rightly pointed out, exemptions may be necessary from time to time to promote the objects of the Competition Act. The granting of exemptions can't be a comprehensive one-off event to be enshrined in regulations written in stone. These exemptions can be granted and moulded from time to time. Surely this can't be a reason to hold up the approval of the basic merger control regulations?
Quite recently, another phantom hurdle has surfaced. The minister appears to have gone on record that the current thresholds will be enhanced, so that the filing before the competition commission is only required for "really big" mergers and acquisitions. This is bound to provoke resistance in several quarters, and perhaps with good reason. What exactly is "really big"? The current Indian thresholds are higher than in European countries and are similar to those for the EU. The mandate of the competition commission is to prevent or detect unfairness and distortion in markets, and the administrative convenience of private industry is unfortunately only subsidiary. If market effect is paramount, there is a reverse case for actually lowering the thresholds in view of the relatively small size of Indian markets. Either way, this can be addressed later after practical data is available. But will it? Or will it become one more unwarranted obstacle, measurable in months of delay and embarrassment?
As practitioners we have fielded the same question from around the world over the last year: "The merger control provisions — when?" We have valiantly attempted to provide reasonable answers: " A hundred days, we believe" ... "by September"... "probably by January"... "perhaps by March". The current favourite is a sheepish grin and a look to the heavens. Perhaps it is time for government to erase this global embarrassment.
