M&As by Business Groups and Market Competition: A Study of Tata Steel

• Published date: 01 June 2021
• Author: Beena Saraswathy
• Date: 01 June 2021
• DOI: 10.1177/0003603X21997027

Article

M&As by Business Groups

and Market Competition:

A Study of Tata Steel

Beena Saraswathy*

Abstract

This article examines the involvement of business groups in consolidation activity. An important

component of the Monopolies and Restrictive Trade Practices Act was “the concentration of

economic power in the hands of a few” which has been de-emphasized as per the amendment made in

1991. The new Competition Act mainly deals with the case-by-case analysis of market competition

rather than ownership concentration. The competition regulation in its current form is mainly focusing

on the concept of “economic efficiency” and not addressing the “social fairness” concept. The

involvement of business groups in consolidation activities results in multiplier effects as they are

already part of a diversified and well-structured umbrella of business with horizontal and vertical

linkages. This article observes the active involvement of big business groups in mergers and acquisitions

(M&As) activity across various product lines. Further, many such M&As are leading to capacity

expansion not only in various overlapping products (i.e., horizontal linkages) but also in the vertical line

of business, in which the affiliate firms of the group are engaged. This may be beneficial to the group as a

whole since the cost of intermediary inputs supplied to various affiliate firms can be reduced. The study

points to consider the “ownership and group effect” and the resulting synergy creation more carefully

while assessing competition.

Keywords

market structure and monopolization strategies, antitrust issues, mergers and acquisitions

I. The Context

One of the major goals of the Monopolies and Restrictive Trade Practices (MRTP) Act was to limit the

“concentration of economic power in the hands of a few” which has been de-emphasized as per the

Amendment of the MRTP Act made in 1991. That indirectly shows, the concentration of economic

power and the monopolies are considered less problematic from the point of the changed economic

scenario. In other words, dominance is considered essential to compete internationally to a certain

extent. Dominance has been supported on account of deriving economies of scale. It has been pointed

* Institute for Studies in Industrial Development, New Delhi, India

Corresponding Author:

Beena Saraswathy, Institute for Studies in Industrial Development, Institutional Area II, Vasant Kunj, New Delhi 110 070, India.

Emails: vsbeena@gmail.com; sbeena@isid.edu.in

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2021, Vol. 66(2) 236–251

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DOI: 10.1177/0003603X21997027

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out that the size of Indian firms is far less compared to that of foreign firms, which act as a barrier when

competing with foreign firms. Later, a new competition regime was enforced in India (i.e., the

Competition Act, 2002), which has replaced the three-decade-old MRTP Act, 1969. Under the new

Act, competition assessment is made at the narrow level product markets. In this regard, the point made

by Chaudhuri

1

regarding localized or product-wise concentration becomes important. He has men-

tioned, though product-wise concentration is important and reveals glimpses of the nature and extent of

the concentration of economic power, it is inadequate for a full understanding of the problem. As the

economy grows, the product-wise concentration may show a declining trend. And most importantly,

the economic power exercised by the top business groups is not only on a particular product or group of

products but over a large number of economic activities simultaneously. Under the new competition

regulation, there is a clear deviation of regulatory focus from “economic concentration” or “controlling

monopolies” to “promoting competition.” The current regulation follows the rule of reason approach,

that is, the pros and cons of every mergers and acquisitions (M&As) are assessed in terms of the

trade-off between efficiency generation vis-`a-vis monopoly creation, to find out the likely impact on

competition in the “relevant product market”

2

and “relevant geographic market.”

3

The evaluation of

the effect of a particular M&A on “relevant product market,” without taking into account the

“ownership” of the firms involved, may lead to the concentration of economic assets in the hands

of big business groups due to the diversified nature of groups and a large number of affiliated firms.

This in turn may impact future product competition. Although the Competition Commission of India

(CCI) is engaged in discharging the role of competition regulator of India, the concentration of assets

in few hands has not been within its purview. This is because the competition regulation in its current

form is mainly concentrated on the concept of “economic efficiency” and not addressing the “social

fairness” concept comprehensively.

4

Recent studies on M&As have noticed that the big business

groups in India are actively involved in consolidation activities across various sectors.

5

This could

be an indication of the big business groups taking advantage of the current regulations to expand their

already established large domain.

6

The Monopoly Inquiry Commission (MIC) Report (1965)

7

clearly stated that concentration of

economic power is a central problem, and the monopolistic and restrictive practices can be considered

as the two major “functions” of such concentration of economic power. An appropriate definition of

“concentration of economic power” is not an easy task. Hence, the concentration of economic power is

defined in terms of country-wise concentration and product-wise concentration for the report, which

are the key factors of this phenomenon. Two important kinds of concentration of economic power exist

1. A. CHAUDHURI,PRIVATE ECONOMI C POWER IN INDIA:ASTUDY IN GENESIS AND CONCENTRATION (1975). Chaudhuri has also

mentioned about the issues regarding data collection.

2. The relevant product market is defined in terms of the substitutability of products. It is the smallest set of goods and services

which are substitutable among themselves, given the small but significant nontransitory increase in prices (Government of

India, 2002).

3. Relevant Geographical Market is defined as the “area in which the conditions of competition for supply of goods or provision

of services or demand of goods or services are di stinctly homogeneous and can be distingui shed from the conditions

prevailing in the neighboring areas” (Government of India, 2002).

4. For a detailed discussion, see Ioannis Lianos, Competition Law as a Form of Social Regulation,65T

HE ANTITRUST BULLETIN

3–86 (2020).

5. B. SARASWATHY,THE GLOBALISATION OF INDIAN BUSINESS:CROSS BORDER MERGERS AND ACQUISITIONS IN INDIAN MANUFACTURING

(2019); R. Kar & S. Amit, Mergers and Acquisitions in India: A Strategic Impact Analysis for the Corporate Enterprises in

the Post Liberalisation Period. IGIDR Working Paper 2008-31 (2008), http://www.igidr.ac.in/conf/money1/

MERGERSANDACQUISITIONSININDIA.pdf (last visited Dec. 12, 2020).

6. B. SARASWATHY,Consolidation Activities of Big Business Groups in India,in ADVANCES IN MANAGEMENT AND TECHNOLOGY 154

(SINHA and MAHAPATRA ed., 2019).

7. Government of India, Report of the Monopoly Inquiry Commission Report (1965), http://reports.mca.gov.in/Reports/44-

Report%20of%20the%20monopolies%20inquiry%20commission%201965,%20Vo1.-I-II.pdf (last visited Dec. 12, 2020).

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