Competitive restructuring

This week saw two significant merger proposals that have implications for competition in India. Sun Pharmaceutical’s buy-out of Ranbaxy and the likely acquisition of Lafarge’s assets here by Holcim following the global merger of the two cement giants will come under the Competition Commission of India’s scrutiny. The Competition Act requires any merger or amalgamation where the combined entity has assets of over ₹1,500 crore or turnover exceeding ₹4,500 crore to seek CCI approval. The Sun-Ranbaxy and Holcim-Lafarge deals are big enough to qualify for such reference, which will determine whether the proposed combinations can “cause an appreciable adverse on competition within the relevant market in India”.

There is no apparent reason why the above deals should be blocked by the competition watchdog. The Sun-Ranbaxy combine, even after emerging as India’s largest player, will have a domestic pharma market share of only slightly over 9 per cent. As for Holcim, it has about 59 million tonnes (mt) of cement production capacity in India. If Lafarge India’s 8 mt is added, the two together will control around 18 per cent of the total domestic capacity. However, Holcim-Lafarge would still have formidable rivals not just in Aditya Birla/Ultratech (60 mt), but also in those with individual capacity ranges of 20-30 mt (Jaypee, Dalmia), 15-20 mt (Ramco, India Cements), 10-15 mt (Shree, Binani) and 5-10 mt (JK, JK Lakshmi, Prism). That makes for a sufficiently large number of players to ensure no potential abuse of dominant position now or even if the Holcim-Lafarge merger fructifies.

The only risk here is if the CCI, rather than focus on all-India share, pays greater attention to ‘relevant markets’. This could mean specific therapeutic areas (take neuropsychiatry in the case of Sun-Ranbaxy) and regional markets (eastern India for Holcim-Lafarge). Then, CCI approval could well be conditional upon the merged entities undertaking selective asset divestment. But such micro-definitions of ‘relevant market’ and a pre-emptive approach towards preventing the creation of dominant position should be adopted only in extreme cases. The general approach should be to allow mergers and acquisitions as a natural market process. Consolidation and weeding out of inefficient or struggling players are, in fact, desirable in the current economic context, with a lot of capacity across industries lying underutilised. While such process of restructuring might create dominant players, the important thing is to prevent any actual abuse that arises from a dominant position. This can be done by monitoring abnormal price increases in particular drugs or doing away with artificial non-tariff barriers on cement imports. There is no case, for instance, to have mandatory Bureau of Indian Standards certification — which is seldom given to overseas suppliers.

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