Disguised Economic Competition: MSMEs Exposed to Scavenging & The Competition Act

The Competition Act of 2002 does not envisage any scenario where there comes a situtation when the economic wheel comes to a complete hault and how to check unhealthy competition across sectors of our economy which will in the long run prove to be detrimental to our medium, small and micro enterprises.

We often tend to visualise the economic wheel which emanates from production across sectors whereby employment generates demand and consumption cycles, even vice-versa has been the norm that too much of employment restricted to a few sectors creates a demand for variety of products and then it rotates the economic wheel. It is well and true that economy is a pure cycle of consumption and production of goods and services irrespective of the kind of activity that is being talked of.

Now any particular economic sector has a heirarchy of intermediaries or persons involved in a particular aspect of the revenue generation of that particular business. For e.g. A corporate ‘Y’ produces black pepper in Kerala and markets it in packages across India, now this pepper involves so many people at all levels from procurement to retailers including packaging and supply and there are many big and small players in all the sectors who are directly dependent on their net savings and profit margins where there is a heirarchy again. The ones with most profitable enterprises will and can manage to continue their commercial activities to the exclusion of all the small players.

This feature can be witnessed in the aftermath of this lockdown and COVID-19 scare bringing upon the economic devastation that will push the economy into a deep recession. Partly this cycle has already begun as only those corporates which can afford to keep their operations afloat in these times are still managing the supply chains, and the there are persons who are still able to find some amount of work in the supply chain ecosystem.

As part of a graded response mechanism to lift the lockdown and resume the economic lives of our population many businesses will be a prey to easy take-overs at throw away prices from the stronger and healthier peers of their respective business segments and sectors.

There is also a possibility that many covert syndicates across sectors sprout up to continue their commercial operations in sync with their goals and will render the MSME enterprises unprofitable.

The Competition Act vide its section-3 presumes that there exists rigging in the business by informal collusion between players yet, in the COVID-19 scare this syndicalism in the corporate sector will prove to be one covered by the exceptions such as

(a) accruing benefits to consumers; or

(b) improving production or distribution of goods or provision of services; or

(c) promotion of technical, scientific & economic development by means of production or distribution of goods or services,

since all such cartels, syndicates and associations of persons will act under the guise of increasing efficiencies and will even go unnoticed.

The overll freedom of trade and profession in the post-COVID scenario will take a sharp beating and we shall se more monopolies eroding our competitve economy.

It is just not the take overs from the Chinese scavenging on our too big to fail enterprises but the enterprises within the borders that will annihilate the small corporates since they will be in a dominant position.

The Competition Commission issued a circular where it seeks to suo motu address the unhealthy trade practices becoming the new normal in these desperate times, yet it is just a beginning of unhealthy trade practices.

The watch and respond approach will not be the most sound aproach to be taken. The Ministry of Corporate Affairs must give the CCI more teeth urgently and all mergers and acquisitions or amalgamations even at the lowest levels must be subjected to a careful scrutiny based on 2 parameters: (a) Whether their is any dominative element apparent in the deal due to dire financial circumstances; and (b) Whether the domating entity is in a position to regulate a cartel or a syndicate to the exclusion of all the others.

The above parameters will provide leverage to the MSMEs in particular which will find it tough to finance their operations in a world where banks will also be seen shying away from lending owing to the NPA burdens.