[Harsh Jain is a 3rd year B.A., LL.B. (Hons.) student at National Law Institute University, Bhopal]
The introduction of the Deal Value Threshold (DVT) through the Competition (Amendment) Act, 2023, marked a watershed moment in India’s merger control regime. Presently, section 5(d) of the Act mandates scrutiny by the Competition Commission of India (CCI) for transactions exceeding INR 2,000 crores where the target enterprise has substantial business operations in India (SBOI). This mandate was designed to address a critical enforcement gap: “killer acquisitions” in digital markets where asset-light companies with negligible turnover but substantial competitive potential escape traditional asset-turnover thresholds.
However, the Lok Sabha Standing Committee on Finance’s (Committee) August 2025 report exposed an unexpected policy dilemma. The Committee observed that the INR 2,000 crores threshold creates an “inverted pyramid effect,” enabling large corporations to acquire micro, small, and medium enterprises (MSMEs) without regulatory scrutiny. The Committee explicitly recommended that the DVT be reviewed to ensure the threshold does not inadvertently facilitate acquisition of the MSMEs by larger corporations without regulatory scrutiny. This blog critically examines the DVT’s structural design, identifies its MSME protection gap, and proposes calibrated reforms balancing enforcement efficiency with competitive safeguards for India’s 6.5 crores registered MSMEs, contributing 30.1% to the national GDP.
DVT Framework: Legislative Intent and Structural Design
The DVT emerged from concerns about nascent competitor acquisitions in digital markets. Traditional section 5 thresholds, requiring combined assets exceeding INR 2,500 crores or turnover above INR 7,500 crores in India, proved inadequate for platform economies where market power is derived from user networks, data assets, and innovation potential rather than tangible assets. For instance, Zomato’s acquisition of Uber Eats would also be notifiable under the DVT if executed today, as the CCI had previously investigated its impact on competition, noting a rise in Zomato’s market share to 55%.
Section 5(d) stipulates two cumulative conditions: (i) transaction value exceeding INR 2,000 crores, and (ii) the target enterprise having SBOI. The SBOI test differentiates between digital and non-digital sectors. As per regulation 4(2) of the CCI (Combinations) Regulations, 2024 (Combinations Regulations), in the case of digital services, a SBOI exists if 10% of global users / business users are in India, or if Indian gross merchandise value (GMV) / turnover exceeds 10% globally, and surpasses INR 500 crores. For traditional sectors, the INR 500 crores absolute threshold applies alongside the 10% proportionality test. The objective of introducing this threshold was to fill the enforcement gap regarding the ability of CCI to review transactions particularly, in digital markets, rather than traditional manufacturing MSMEs as confirmed by CCI Chairperson Ravneet Kaur.
Rethinking DVT for MSME Acquisitions
The Committee’s concerns stem from empirical realities rather than being rooted in industrial policy. Tamil Nadu’s concentration of 44% of India’s MSMEs (page 53 of the Committee report) makes it a microcosm for analysing this gap. The Committee documented instances where large corporates acquired MSMEs below the DVT without oversight by the CCI. Unlike digital platforms, MSME acquisitions often target immediate operational synergies, supplier integration, or geographical expansion, yet carry similar anticompetitive risks through foreclosure, vertical integration abuses, or elimination of niche competitors.
In most horizontal mergers, transactions below concentration thresholds rarely raise competitive concerns. However, vertical mergers exhibit different competitive dynamics. Input foreclosure effects occur independent of overall market concentration. A small supplier’s vertical integration with a buyer can foreclose competitors even in unconcentrated markets if the supplier is uniquely critical. For instance, India’s auto-component sector is globally competitive, with MSMEs, contributing approximately 2.3% to India’s GDP, and account for over 70% of manufacturers. When large Original Equipment Manufacturer’s (OEM) such as Maruti, Hyundai, or Tata Motors acquire MSME suppliers, they often gain control over critical inputs and may impose restrictive conditions, including prohibitions on supplying parts to independent repairers. Such conduct has been held to be anti-competitive, as seen in Shamsher Kataria case, where refusal to supply spare parts to independent repairers was found to contravene section 3(4)(d) of the Competition Act.
Furthermore, anti-competitive effects may also arise structurally. For instance, traditional manufacturing MSMEs, such as auto-component or garment units in Tamil Nadu, a valuation of ₹500 crore represents market leadership within a cluster, even though it falls far below the conventional INR 2,000 crore “unicorn” benchmark. Large conglomerates can therefore pursue roll-up strategies, acquiring multiple MSMEs at sub-threshold valuations (e.g., ten firms at INR 500 crore each), cumulatively achieving market dominance without triggering merger notification. This results in significant competitive harm through incremental, unregulated consolidation.
The CCI’s response to the Committee revealed institutional tensions. The Commission argued 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. The CCI further contended that reduced thresholds would enhance compliance costs for companies and make the process cumbersome for MSMEs. This paternalistic argument, however, overlooks that MSME targets rarely bear notification costs; regulation 9 of the Combinations Regulations puts the responsibility on the acquirer to notify an acquisition under the DVT. Further, the filing fees associated with Form I and Form II for notifying transactions to the CCI under the DVT are a source of revenue for the CCI and the CCI can argue for retaining a larger portion of these fees to hire specialized consultants and case officers, effectively making the expanded regime self-funding rather than a drain on the resources. Moreover, the concern about “insignificant presence” misconstrues competition analysis; even small absolute market shares can be competitively significant in regional, niche, or fragmented markets where MSMEs concentrate.
Comparative Insights: Germany and Austria’s Experience
Germany’s section 35(1a) of the German Act against Restraints of Competition (GWB) introduced a EUR 400 million transaction value threshold in 2017, closely followed by Austria’s EUR 200 million threshold under section 9(4) of the Cartel and Competition Law Amendment Act (KartG), both specifically targeting nascent competitor acquisitions in innovation-intensive sectors. These thresholds operate as complements to traditional turnover-based tests, requiring both elevated transaction values and substantial domestic operations to trigger mandatory notification. Importantly, jurisdictions experienced modest notification increases validating the thresholds’ targeted purpose rather than triggering enforcement overload confirming that these tools address specific gaps without creating undue regulatory burden. Through their updated guidance issued in January 2022, both the German and Austrian competition authorities refined the interpretation of “substantial domestic operations.” Under the revised framework, a transaction will generally not be deemed to involve significant domestic activity if the target’s turnover remains below EUR 1 million in Austria (previously EUR 500,000) or below EUR 17.5 million in Germany (previously EUR 5 million), provided that such turnover accurately reflects the target’s market position and competitive potential.
In the Facebook/Giphy decision, the Austrian Cartel Court emphasised that the value of digital enterprises is primarily derived from data assets and user engagement. Consequently, the significance of domestic operations in the digital context may be assessed using recognised industry indicators such as monthly active users or unique website visits. The German-Austrian experience validates two propositions relevant to India: first, transaction value thresholds can be designed with local nexus requirements preventing extraterritorial overreach; second, refined SBOI criteria distinguishing sectors can maintain targeted enforcement without excessive notifications.
The Way Ahead: Calibrated Reforms for Dual Objectives
India’s DVT must simultaneously serve its original purpose, curbing killer acquisitions in digital markets, while addressing the MSME protection gap. This requires moving beyond uniform thresholds toward differentiated frameworks. The CCI could adopt dual DVTs: retaining INR 2,000 crores for digital services, platforms, and innovation-intensive sectors where nascent competition justifies higher thresholds, while introducing INR 750-1,000 crores threshold for traditional manufacturing, distribution, and services where MSME acquisitions predominate. This differentiation mirrors the existing SBOI bifurcation between digital and non-digital sectors. The CCI’s resource constraints are real but surmountable through procedural innovations. For instance, the Green Channel is the primary procedural innovation, allowing for automatic approval of certain mergers and acquisitions where there are no horizontal or vertical overlaps between the parties’ business activities. This has effectively created a fast-track system for non-contentious combinations, freeing up CCI resources for complex cases.
Regulation 9 of the Combinations Regulations could be amended to presume SBOI where the target is registered as MSME under the Udyam portal, operates primarily in India, and the acquirer’s group turnover exceeds INR 10,000 crores. Presuming SBOI in these specific cases, the CCI is empowered to examine the transaction’s substance to determine if the large acquirer is engaging in practices that risk vertical foreclosure or eliminating a competitor, even if the target’s value is below the general de minimis exemption. To make this condition objective, specific quantitative criteria could be established within the regulation. For instance, the percentage of revenue generated within India (e.g., >75% of total turnover from India), or the percentage of physical assets located in India. This provides clarity and reduces discretion during assessment. Moreover, the CCI could conduct sectoral studies in MSME-intensive industries to identify acquisition patterns, market concentration trends, and regional dynamics. Data-driven threshold setting would replace speculation with evidence, addressing the Commission’s “regulatory overreach” concerns.
To further reduce the compliance burden, the CCI could introduce a specific, simplified “Form MSME”, similar to Form I. This form would replace the need for MSMEs to provide detailed market share data. Instead, it would use a narrative-based approach and simple checklists to quickly identify any potential horizontal or vertical overlaps. This specialized form, potentially integrated with the Udyam portal registration, would streamline the Green Channel route, allowing for faster, deemed approvals of non-problematic transactions, ensuring the process is accessible, efficient, and encourages legitimate investment in the MSME sector. The way forward requires not choosing between innovation policy and MSME protection, but recognising both as essential pillars of competitive, inclusive markets.
Conclusion
The DVT represents sophisticated regulatory evolution, but its current architecture reveals the perils of designing competition policy through a single-sector lens. Digital markets’ competitive dynamics, network effects, data accumulation, innovation races differ fundamentally from traditional MSME sectors, where competition centers on pricing, quality, and regional presence. The Parliamentary Committee’s intervention provides political impetus for recalibration. MSME acquisitions below INR 2,000 crores exhibit anticompetitive effects through vertical foreclosure and as India’s manufacturing economy expands and MSME sectors grow increasingly concentrated at buyer levels, competition law must evolve beyond uniform thresholds toward sophisticated sectoral analysis identifying where anticompetitive effects concentrate. Narrow sectoral thresholds targeting MSME vertical acquisitions coupled with refined SBOI criteria, would address this competitive harm while remaining institutionally feasible, subject to evidence-based sectoral analysis with careful implementation design. This conclusion respects institutional reality acknowledging resource constraints and legal uncertainty concerns while protecting competitive processes from conduct harming market competition. The DVT provided a valuable first step. Sectoral refinement based on empirical evidence represents the necessary second step, not policy overreach, but evidence-driven evolution toward more effective competition protection.
– Harsh Jain
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