MC EXCLUSIVE Govt, CCI mulling to review Rs 2,000 crore deal-value-threshold for small businesses

Govt mulling to review Rs 2,000 crore deal-value-threshold for small businesses

The government is mulling to conduct a "market study" and take inputs from stakeholders, in the coming months, to re-assess the deal-value-threshold (DVT) of Rs 2,000 crore – a mandatory criteria to kick-in regulatory scrutiny by the Competition Commission of India (CCI) for mergers and acquisitions, Moneycontrol has learnt.

Some sections within the government feel that the DVT can be lowered to some extent, perhaps by Rs 500-1,000 crore, but only if CCI builds additional capacity, sources told Moneycontrol. Also, the lower threshold might not be applicable for all M&As, but be limited for only micro, small, and medium enterprises (MSMEs), they say.

In 2023, the CCI introduced the DVT concept, as an additional criterion for mergers and acquisitions that require prior notification and approval. This threshold is designed to capture transactions in emerging markets, particularly in the digital sector; and allows the CCI to scrutinize potentially anti-competitive acquisitions that were previously outside its jurisdiction, thereby enhancing its preventive capabilities.

Earlier this month, the Parliament’s Standing Committee on Finance suggested the Ministry of Corporate Affairs (MCA) and CCI, in its report, to review the Rs 2,000 crore DVT, to ensure the threshold does not inadvertently facilitate the acquisition of MSMEs by larger corporations without regulatory scrutiny, thereby preventing the creation of monopolies or duopolies that harm fair competition. "A lower threshold for acquisitions involving MSMEs could be considered if market studies indicate so," the Committee said.

The Committee, on 20 January 2025, had informed CCI that the current (DVT) rule, which sets a minimum merger and acquisition value of Rs. 2,000 crore, appears "counter-intuitive". In Tamil Nadu, for example, many businesses are being acquired by larger corporations without requiring CCI approval, precisely because their acquisition value falls below this Rs. 2,000 crore cap.

"Considering that Tamil Nadu accounts for 44% of India's MSMEs, this DVT rule creates an 'inverted pyramid' effect. It enables large corporates to easily acquire MSMEs without regulatory scrutiny, potentially harming the MSME sector," the Committee had said.

The CCI, in response, had told the Committee that lowering DVT would mean reviewing cases where target entities may not have any impact on competition due to their insignificant presence in their areas of operations. "Further, it may lead to inefficient use of resources, as this involves evaluation of more transactions of little or no significance from competition perspective. This may result in regulatory overreach and may cause inefficiency in the system," it had said.

The CCI also feels a lower threshold would enhance the compliance costs for companies, and the process can be cumbersome for MSMEs, sources say.

Expert’s take

Most experts, who Moneycontrol spoke to, say the introduction of a reduced DVT for notifications pertaining to combinations involving MSMEs is neither necessary nor advisable. "The fundamental objective of merger control provisions is to safeguard competitive market dynamics rather than to shield MSMEs from acquisition or provide them with preferential regulatory treatment," noted Akshayy S Nanda, Partner, Saraf and Partners.

"We should first ascertain what we hope to achieve with the DVT. If we had hoped to target transactions in the digital sector, unsurprisingly, these still go below the radar. The consequence of the DVT has only meant that transactions in sectors like manufacturing, highways, etc. have reached the CCI for review. Surely, these were not the intended sectors," said Avaantika Kakkar, Partner, Cyril Amarchand Mangaldas.

Whereas, some say a lower DVT for MSMEs in the need of the hour, provided it is accompanied by procedural clarity and proportionality in enforcement.

"MSMEs often operate in niche markets where even sub-Rs 2,000 crore transactions can significantly reshape competitive dynamics. A revised threshold will allow CCI to scrutinize deals that might otherwise escape regulatory attention, especially in priority sectors like digital services and manufacturing," said Hardeep Sachdeva, Senior Partner, AZB & Partners.

Ultimately, experts reckon, if the DVT must be lowered, such a measure should be grounded in market studies and robust economic evidence, consistent with the Committee’s recommendations; and consider calibrated approaches, such as lowering thresholds only in high-risk sectors or where MSMEs play a strategic market role.

According to Karan Singh Chandhiok, Partner at Chandhiok & Mahajan, the CCI should consider introducing a residuary clause, which would empower it to review transactions that fall below thresholds but raise competition concerns.

"However, it would require: (a) clear internal guidelines to prioritize cases and efficiently use resources; and (b) transparency, including public disclosure of the rationale for invoking such powers, to maintain trust and predictability," he added.