The large-scale entry of start-ups over the last six years is an extremely promising trend for increased vitality of markets and therefore must be encouraged in all possible ways, Competition Commission of India (CCI) Chairman Ashok Kumar Gupta said on Saturday.
Delivering IBBI’s Annual Day Lecture “Easy Exit for Well Functioning Markets: Regulatory Governance and the Road Ahead”, Gupta highlighted that entry of Startups is playing a particularly significant role in fuelling competition, bringing greater diversity and choice of offerings.
He asserted that CCI is committed to ensuring that young entrepreneurs can enter markets without having to face strategic barriers erected by incumbent large players and that the ground rules of competition are followed by all, so that these new entrants can operate on fair terms.
“Competition is not only about free entry and level playing field; it is also about freedom of exit. Threat of entry is the market’s mechanism for disciplining market power. Entry barriers, on the other hand, insulate incumbents from potential competition. When entry is known to be difficult and costly, it curbs the incentive and ability of enterprises to shift resources in response to market signals, thereby curbing the dynamism that competitive markets require”, he said.
He also said that hurdles to exit, similarly, make resources stay longer in existing firms instead of being relocated for more efficient use. Barriers to exit weaken the competitive process, which acts to relocate resources from one market or firm to another according to changing conditions, he added.
Critical role
Gupta expressed confidence that the Insolvency Bankruptcy Code (IBC) and IBBI will continue to play a critical role in giving young risk-takers the comfort of rapid, simple and seamless resolution or exit in case of honest business failures.
“By providing a credible, transparent and time-bound market mechanism for resolution of insolvency wherever possible and easy exit where required, the IBC addresses the fear of failure, which otherwise could act as an entry- deterrent and dampen risk-taking ability”, Gupta said.
He said that fast-tracked insolvency proceedings for a wider pool of start-ups are a welcome move which would contribute significantly in providing an enabling business environment for the start-up industry.
A professional and institutionalised mechanism of exit reduces the emotional cost and stigma traditionally attached to business failures and insolvency. Suiting the new economic milieu, the IBC projects exit as a resolvable fall-out of market competition and provides a rather graceful exit for entrepreneurs, Gupta added.
India registered a whopping 15,400 per cent increase in the number of start-ups, from 471 in 2016 to 72,993 as of June 30, 2022. “We currently have more than 100 unicorns, and many of them could become decacorns in the coming years”, Gupta added.
Gupta pointed out that entry and exit are interlinked. “Facilitating entry without easy exit avenues cannot meaningfully help the cause of competition”, he added.
Stating that IBC has solidified its position as a transformative legislation, Gupta said it is incumbent upon the stakeholders to avail of the tool that IBC offers in the early days of stress, before the value deteriorates significantly, and not as a last resort, after exhausting all alternative avenues.
Gupta said, “What we have witnessed in the last six years is speed, agility, nuance and constant calibrations to make this historic code meet its purpose”.