The Intersection Of MSMEs And Competition Law In India - A Critical Examination
Author: LawSphereX
Category: Competition Law
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THE INTERSECTION OF MSMES AND COMPETITION
LAW IN INDIA: A CRITICAL EXAMINATION
Mahabir Singh, PhD Scholar - Law, Galgotias University, Greater Noida. Dr. Aditya Tomer, Dean, School of Law, Galgotias University, Greater Noida.
ABSTRACT
“Micro, Small, and Medium Enterprises” (MSMEs) play a crucial role in India's economy, contributing significantly to GDP, employment, and industrial growth. However, their competitive position is often challenged by larger corporations, regulatory hurdles, and limited access to finance. This paper examines MSMEs in the context of competition law, analysing whether they are victims of unfair market practices or perpetrators of anticompetitive behaviour. It explores key cases where MSMEs have suffered from predatory pricing, abuse of dominant position, and restrictive trade practices. Conversely, the study also investigates instances where MSMEs have engaged in cartelization, bid-rigging, and price-fixing. The legal framework, particularly the Competition Act, of 2002, is assessed to determine its neutrality towards business size and its effectiveness in ensuring fair competition.
Furthermore, the role of government policies in fostering SME growth while maintaining competitive market conditions is discussed. The paper concludes that while MSMEs are often vulnerable to anti-competitive practices by larger firms, they are not entirely free from engaging in such practices themselves. A balanced regulatory approach is required to protect MSMEs from exploitation while ensuring they adhere to fair market competition principles. Keywords: MSMEs, Competition Law, Anti-Competitive Practices, Cartelization, Market Regulation
INTRODUCTION
MSMEs are a significant part of the Indian economy, contributing around 35-40% of the country's GDP. 1 They play a crucial role in economic growth and development by creating job opportunities, promoting poverty alleviation, and fostering indigenous innovations. MSMEs function as incubators for entrepreneurship and facilitate the industrialization of rural and remote areas, alleviating regional imbalances and fostering a more equitable income distribution. Nevertheless, the MSME sector in India has considerable variation regarding business size, product and service variety, and technical sophistication. A considerable proportion of SMEs function within the retail trade, basic machinery, leather, and textile sectors, alongside large enterprises. This results in MSMEs being disadvantaged relative to big enterprises in procurement, manufacturing, marketing, and distribution.
2 The relationship between SMEs and large corporations may occur at both extremes of the supply chain. Small and medium-sized Enterprises (SMEs) act as suppliers to huge corporations, while they depend on these larger entities for inputs or raw materials. Small and medium-sized enterprises often assert that larger corporations take advantage of them by delaying payments for goods beyond the stipulated contract durations. As buyers of items from major enterprises, these small companies face elevated costs due to their limited negotiation leverage. 3 The MSME sector faces elevated financing costs, challenges in acquiring trained labor, and intricate regulatory frameworks. Given the significant contribution of MSMEs to the economy, it is essential to provide an equitable environment for this sector to continue and flourish.
To safeguard MSMEs' interests and ensure they are informed about legal and institutional frameworks available for their protection, it is essential to examine the validity of SMEs' claims of anti-competitive acts by major firms against them, in accordance with the Competition Act 2002. 4
1 Dagar, Mayank. "A Critical Analysis of Cartelisation of MSME Enterprises with Special Reference to
Competition Act, 2002." Issue 6 Indian JL & Legal Rsch. 4 (2022): 1. 2 Kant, Ravi, and Prachi Agarwal. "Consortium of MSME: Cartel or Not?." Competition Commission of India Journal on Competition Law and Policy (2022): 141-166. 3 Nanda, Pooja, and Vikas Kumar. "Development of MSMEs in India: challenges vs. Govt policies." International Journal of Technology, Policy and Management 23, no. 3 (2023): 245-267.
4 Vasani, Suresh, and Ahmed Mahdi Abdulkareem. "MSME market presence and competitiveness in a global
economy." Cogent Economics & Finance 12, no. 1 (2024): 2416992.
DEFINITION & STRUCTURE OF MSMES IN INDIA.
Chapter III of the “Micro, Small, and Medium Enterprises Development (MSMED) Act” lays down the criteria for categorizing MSMEs in India, distinguishing them based on their capital investment in machinery and equipment. This classification is separately outlined for businesses involved in manufacturing and those operating in the service industry.5 For entities engaged in the manufacturing or production of goods within industries listed under the “First Schedule of the Industries (Development and Regulation) Act, 1951, the definition of an enterprise is determined according to the scale of investment made in plant and machinery.6 • A micro-enterprise, where the investment in plant and machinery does not exceed INR
25 lakh;
A small enterprise, where the investment in plant and machinery is more than INR 25 lakh but does not exceed INR five crore; or • A medium enterprise, where the investment in plant and machinery is more than INR five crore but does not exceed INR ten crore;” For the businesses mentioned above, the capital put into equipment and machinery is assessed based on its initial expenditure, with the exception of the costs associated with land, structures, and specific items outlined by the Ministry of Small-Scale Industries in its notification “No. S. O. 1722(E) dated October 5, 2006.
In the case of enterprises engaged in providing or rendering services, is defined as7 • A micro-enterprise, where the investment in equipment does not exceed INR ten lakh • A small enterprise, where the investment in equipment is more than INR 10 lakh but does not exceed INR two crore; or • A medium enterprise, where the investment in equipment is more than INR two crore 5 Micro, Small. "Medium Enterprises Development (MSMED) Act, 2006 of Government of India (GOI) available at www. dcmsme. gov. in. " MSMED2006. pdf. 6 Aryan, Anurag. "Critical Analysis of Industries (Development and Regulation) Act 1951. " Issue 2 Indian JL & Legal Rsch. 5 (2023): 1. 7 Tiwari, J. K. , and G. Swarup. "Micro, small and medium enterprises: An overview. " International journal of business and management tomorrow 3, no. 1 (2013): 97-1.
but does not exceed INR five crore rupees. 8” Table 1 summarises “the definition of MSME in the Manufacturing and Services sector based on the MSMED Act 2006. 9 Enterprise Manufacturing Enterprise Investment Service Enterprises – Description Investment in Equipment Micro Up to INR 25 lakhs Up to INR 10 lakhs Enterprise Small Enterprise Above INR 25 Lakh and up to INR 5 Above INR 10 Lakh and up to Crore INR 2 Crore Medium Above INR 5 Crore and up to INR 10 Above INR 2 Crore and up to Crore INR 5 Crore Enterprise Source: Mukhopadhyay, Mahadeb, et al (2021) The Parliamentary Standing Committee on Industry has recommended amending the definition of MSME to enhance its flexibility. The working group's study indicates that any firm in its nascent stage qualifies as an SME, including all start-ups.
Furthermore, the investment criteria in plant and equipment require self-declaration, which may need verification and result in processing expenses. 10 In February 2018, the Union Cabinet, under the leadership of the Prime Minister, approved modifying the criteria used to categorize from “Investment in plant & machinery/equipment’ to ‘annual turnover’. 11 Section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 will accordingly be amended to define units producing goods and rendering services in terms of annual turnover as follows:12
8 Micro, Small and Medium Enterprises Development Act, 2006
9 Mukhopadhyay, Mahadeb, and Nibedita Mukhopadhyay. "Effect of Competition Law on SMEs in India." Issue
4 Int'l JL Mgmt. & Human. 4 (2021): 1334.
10 Singh, Shipra. "Role of government in development of MSMEs in India." The Academic 2, no. 6 (2024). 11 Bhaisare, Garima P. "Micro, Small and Medium Enterprises Development Act, 2006: A Critical Analysis." Jus Corpus LJ 2 (2021): 411. 12 Sathish, A., and S. Rajamohan. "Micro, Small and Medium Enterprise-Before and After the MSMED Act, 2006." ZENITH International Journal of Business Economics & Management Research 8, no. 4 (2018): 155-162.
A micro enterprise will be defined as a unit where the annual turnover does not exceed INR five crore; • A small enterprise will be defined as a unit where the annual turnover is more than INR five crore but does not exceed INR 75 crore; • A medium enterprise will be defined as a unit where the annual turnover is more than INR 75 crore rupees but does not exceed INR 250 crore. ” The Central Government may, via notice, modify turnover restrictions, which must not surpass three times the limits established in Section 7 of the MSMED Act. The proposed amendment awaits ratification in the Lok Sabha. It is important to recognise that whereas MSMEs are defined by certain legislative criteria under the MSMED Act 2006, SMEs lack explicit identification criteria in the orders of the CCI. The Competition Act of 2002 is neutral regarding size.
13 SMEs are categorised not by absolute size metrics but in comparison to other companies within the relevant market for the implementation of competition legislation. This indicates that a corporation may be categorised as an SME despite the huge turnover since it operates in a market where several rivals achieve substantially greater turnovers. In an alternative market, a company with equivalent revenue may be seen as a substantial enterprise relative to its rivals in that market. Consequently, for the Competition Agency in India, the market structure is the determining element rather than the firm's size. 14 13 Koshy, Shinoj, and Purvi Khanna. "An Examination of the Inapplicability of Limitation to Claims under the Micro, Small and Medium Enterprises Development Act, 2006. " NUJS L. Rev. 13 (2020): 63. 14 Sood, Yajur. "Analysis of the Micro, Small and Medium Enterprises Act, 2006.
" Indian JL & Legal Rsch. 3 (2021): 1.
CONTRIBUTION OF MSMES TO GDP IN INDIA
Source: https://www. statista. com/statistics/912576/india-msmes-contribution-share-to-gdp/ In the financial year 2022, the Gross Value Added (GVA) of micro, small, and medium firms in India constituted approximately 29 percent of the country's Gross Domestic Product (GDP). This represented a heightened contribution relative to the prior year. Moreover, MSMEs constitute a substantial portion of the nation's exports. 15 According to the upward adjustment announced in 2020, “the definition of micromanufacturing and service units was raised to an investment of 10 million Indian rupees and a turnover of 50 million rupees; the definition of small units was elevated to an investment of 100 million rupees and a turnover of 500 million rupees. The threshold for the medium unit was raised to 500 million in investment and 2. 5 billion in sales.
This modification aimed to guarantee that MSMEs may fully use state incentives without the concern of exceeding their capacity. Critics contend that the threshold delineating medium firms is very broad and may foster inequitable competition. Microenterprises constitute the predominant portion of the MSME sector in India, with a 15 Meher, Bharat Kumar, Iqbal Thonse Hawaldar, Latasha Mohapatra, Cristi Spulbar, Ramona Birau, and Cristian Rebegea. "The impact of digital banking on the growth of Micro, Small and Medium Enterprises (MSMEs) in India: a case study. " Business: Theory and Practice 22, no. 1 (2021): 18-28.
considerable percentage of these entities operating informally.”16 The expenses associated with compliance, complex labour regulations, and insufficient information on the advantages of formalization may contribute to the persistence of unregistered micro-enterprises. The presence of informal sector enterprises, which do not contribute to the tax base and often stay tiny with restricted access to legal financing, hinders a nation's capacity to accurately assess socio-economic indices. Source:
https://www. mckinsey. com/mgi/our-research/a-microscope-on-small-businessesspotting-opportunities-to-boost-productivity Economic vitality in countries like Australia and Israel is influenced by domestic factors. Australia's robust economic momentum is driven by a flourishing resources industry, while Israel is a global leader in technical innovation due to its strong startup ecosystem, skilled labor pool, global market access, and significant financial support for MSMEs. In contrast, India has a significant gap in MSMEs, with only a small percentage of major enterprises transitioning from them in the past two decades. Structural obstacles, such as high regulatory costs and limited access to finance, have impeded MSMEs' expansion. In industrialized countries, 16 Madgavkar, A. , Piccitto, M. , White, O. , Ramírez, M. J. , Mischke, J. , & Chockalingam, K. (2024, May 2).
“A microscope on small businesses: Spotting opportunities to boost productivity. ” McKinsey & Company. https://www. mckinsey. com/mgi/our-research/a-microscope-on-small-businesses-spotting-opportunities-toboost-productivity
rapidly growing enterprises are often younger and reliant on intangible assets. Firms that focus on reinvesting profits rather than external debt are more likely to achieve scalability. In the ICT and mining sectors, around one-third of contemporary major firms have evolved from MSMEs in the last two decades due to rapid technical progress, innovation, and substantial investment.17
COMPETITION ACT 2002
Competition Act 2002 lists down four overarching objectives it strives to achieve which are "to prevent practices having an adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets"18. Chapter II of the Act delineates “the restrictions established to fulfill the aforementioned purposes. ” Chapter II, section 3 addresses “the prohibition of anti-competitive agreements”, section 4 pertains to “the prohibition of abuse of dominant position”, and sections 5 and 6 relate to the “regulation of combinations”. 19 Section 3 of the Act prohibits all anti-competitive agreements, both horizontal and vertical.
Section 3(1) states “No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. ” Section 3(3) deals specifically with horizontal agreements.
20 It states: “any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods of provision of services, which – (a) directly or indirectly determines the purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment, or
17 ibid
18 Competition Act 2002, page 1.
19 Sharma, Shraddha. "An Exploratory Study on the Nexus between Competition Law and E-Commerce in
India." Indian J. Integrated Rsch. L. 3 (2023): 1. 20 Sethi, Rajat, and Simran Dhir. "Anti-Competitive Agreements Under the Competition Act, 2002." Nat'l L. Sch. India Rev. 24 (2012): 32.
provision of services; (c) shares the market or source of production or provision of services by way of allocation of the geographical area of the market, or type of goods or services, or number of customers in the market, or any other similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition. ”21 Once established, any agreement under Section 3(3) is presumed to significantly adversely affect competition, placing the onus of proof on the alleged violators to show that the agreement did not result in any significant adverse effect on competition.
Section 2(c) of the Act defines "cartel' as a consortium of producers, sellers, distributors, dealers, or service providers who, via mutual agreement, restrict, regulate, or endeavor to regulate the production, distribution, sale, pricing of commodities, or the supply of services. Section 19(1) delineates the several sources of information that may initiate an inquiry: suo motu, by information from an informant, or via a referral from the Government or a statutory entity. Section 19(3) enumerates the considerations that the CCI must evaluate during an investigation into purported anti-competitive arrangements, including cartels. Section 26 delineates the protocol for conducting such an investigation. 22 Trade groups, often formed by firms in the same trade or industry, offer a reliable platform for enforcing cartel regulations.
However, these groups are vulnerable to anticompetitive conduct, as they are treated similarly to corporations under the Competition Act, of 2002. Associations with members from the same market tier are more likely to engage in antitrust violations. Informal discussions about business conditions and pricing can lead to price-setting and supply restrictions. Occasionally, organizations may coerce their members into participating in cartels. The CCI opposes trade associations in various sectors, relying on direct and circumstantial evidence. In some cases, charter provisions of these trade groups perpetuated anti-competitive activities, while in others, circumstantial evidence indicated market restriction and boycott
21 Singh, Madhuri, and Sanjoosh Singh Bhadauriya. "An Overview of Competition Act 2002: Indian
Legislation." Issue 3 Int'l JL Mgmt. & Human. 4 (2021): 4131. 22 Hiwarale, Mangala Gajanan, Madhuri Irene, Dhairya Jaiswal, and Aarati Tyagi. "" Competition Comission Of India: Safeguarding Fair Play In Mergers And Acqusitions In India"." Library of Progress-Library Science, Information Technology & Computer 44, no. 3 (2024).
activities. Despite these challenges, the standard of evidence in CCI practices has remained mostly stable over the years. Section 4 of the Act forbids the misuse of a dominating market position while possessing a dominant position itself is not illegal. Abuse of power manifests in several ways, including price discrimination, margin squeezing, and predatory pricing. Before demonstrating abuse, it is essential to establish power. Enterprises engaging in the aforementioned practices, although without a dominating market position, are not subject to competitive examination. Instances of SMEs becoming dominant players in the relevant market are very uncommon, making it improbable for SMEs to be found culpable of misusing their dominating position. Nonetheless, some SMEs may potentially collaborate to establish a collective dominance and thereafter exploit their dominating position.
23 A significant aspect of India's competition law is its neutrality regarding size and type since it
lacks clear safeguards to protect firms based on their size or business type. All firms are treated equally under the law, in contrast to many countries where SMEs or certain company types enjoy explicit, but not total, protection under applicable competition rules. Consequently, in the following part, we examine recent instances and directives from the CCI to ascertain whether SMEs are victims or culprits within the framework of competition policy. "24 SMALL AND MEDIUM ENTERPRISES (SMEs) AS VICTIMS MSMEs are seen as crucial in promoting more equal economic growth and national development (OECD, 2004). In a competitive market, smaller entities contend with a diverse array of competitors, ranging from larger corporations to similarly sized participants. MSMEs encounter formidable competition from larger entities, resulting in a little margin for error in their commercial operations.
The survival of MSMEs is crucial when larger entities begin to exploit their dominant position. 25 In the Auto Parts case,26 the CCI held “car companies liable for abusing their dominant position in the relevant market of supply of spare parts and imposed a hefty amount of penalty 23 Hiwarale, Mangala Gajanan, Madhuri Irene, Dhairya Jaiswal, and Aarati Tyagi. "" Competition Comission Of India: Safeguarding Fair Play In Mergers And Acqusitions In India". " Library of Progress-Library Science, Information Technology & Computer 44, no. 3 (2024). 24 Makam, Ganesh. "An Overview of Competition Law in India: A Comprehensive Analysis. " Available at SSRN
4488634 (2023).
25 Özbuğday, Fatih Cemil. "SMEs as victims of competition violations in the EU: an empirical
investigation." Journal of Business Economics and Management 25, no. 6 (2024): 1161-1183.
26 Case No. 03/2011 Competition Commission of India
amounting to INR 2544. 65 Crores. ” Businesses were found to be engaging in restrictive trade practices when they failed to provide important information about repair tools and technology and withheld their original spare parts from the public market. Because of this, independent repairers were unable to purchase parts and services from the market. In “Faridabad Industries Association (FIA) v. M/s Adani Gas Limited”27, Ninety members of the organization were using natural gas provided by Adani Gas Limited. As a result of government-imposed regulations, Adani Gas Limited obtained exclusive authority over the distribution of natural gas in the designated geographic region. A contractual agreement was formed between the "Faridabad Industries Association and Adani Gas Limited" for the provision of natural gas.
Adani Gas Limited, as the only supplier in that area, coerced purchasers into accepting unilateral contractual conditions. The "Competition Commission of India" (CCI) decided that certain terms in the agreement, including fines, interest rates, payment delays, and repercussions for non-performance, were unilaterally established and disproportionately advantageous to Adani Gas Limited. The corporation was deemed responsible for exploiting its strong market position. A powerful actor in the upstream market may force downstream market participants to adhere
to their suggested resale prices and, to secure compliance from smaller players, may implement punitive measures. Wuliangye, a Chinese spirits manufacturer, has entered into agreements with over 3,200 independent distributors to impose a minimum resale price on their products. Wuliangye used many punitive actions against individuals who failed to apply the minimal pricing, including restricting their operations, diminishing supplies, seizing deposit funds, and levying penalties. Wuliangye ceased supplies to a grocery chain to compel compliance with the RPM agreement. The agreements were deemed anti-competitive, resulting in a penalty of RMB 202 million (about USD 32. 6 million) levied on Liquor Company. 28 The case of “FIA v.
M/s Adani Gas Limited” 29 indicates that tiny enterprises are sometimes presented with unconscionable conditions, and their circumstances necessitate the acceptance of unfavorable offers due to the lack of alternatives to engage with the dominating entity. Furthermore, in instances of non-performance, MSMEs often face numerous unjust penalty provisions, although such stringent penalties do not apply to the dominating player. In vertical
27 Case No. 71 of 2012. Competition Commission of India
28 Competition law: Regulation and SME in Asia Pacific by Michael T. Schaper and Cassey Lee
29 Case No. 71 of 2012. Competition Commission of India
agreements, a dominating entity in the upstream market often coerces participants in the downstream market to accept onerous contractual conditions, as shown by the previously mentioned Auto Parts case. Due to insufficient negotiating strength, MSMEs in the downstream market have little choice but to accept unilateral contract conditions, such as excessively high pricing, tie-in arrangements, bundling, and the enforcement of minimum retail prices. SMALL AND MEDIUM ENTERPRISES (SMEs) AS PERPETRATORS MSMEs may be unable to misuse their position owing to their modest size. However, there have been situations when a significant number of MSMEs worked together to gain a dominating position and then abused their clients. The quality, type, and degree of market cooperation determine its anticompetitive impact.
It is impossible to say whether or not an SME cooperation agreement enhanced or diminished competitiveness. An early appraisal may be based on the parties' combined market share. We review selected Indian instances under Section 3(3) of the Act and evaluate the influence of SMEs' trade organisations on the market. In the legal proceeding entitled "M/s Shivam Enterprises v. Kiratpur Sahib Truck Operators, Co-operative Transport Society Limited and Members of Kiratpur Sahib Truck Operators, Cooperative Transport Society Limited" observed that "the opposite party gained the position of dominance and did not allow any except its members to provide goods transport services within the region. " Furthermore, the charges set were rigid and non-negotiable.
Its members have also violently obstructed other truck operators in the market from carrying out their contracts, resulting in market disruption. This meant that the CCI found "the opposite party in violation of anti-competitive practices and abuse of dominant power (sections 3 and 4) and imposed a penalty on the parties based on the average income of the last three financial years"30. Under Indian competition law, SMEs are generally perceived as vulnerable entities that require protection from the anti-competitive practices of large corporations. However, there have been instances where SMEs themselves have acted as perpetrators of anti-competitive conduct, necessitating regulatory intervention. The Competition Act, of 2002, does not exempt SMEs
30 CCI order in Case no. 43 of 2013.
from its purview, and they can be held accountable for engaging in anti-competitive agreements, abuse of dominance, and cartelization. One of the primary ways in which SMEs violate competition law is through cartelization, where they engage in price-fixing, bid-rigging, or market allocation. Since SMEs often operate in highly competitive markets with narrow profit margins, there is a tendency to collude to stabilize prices and reduce uncertainty. The CCI has taken action against various SMEs involved in bid-rigging, particularly in government procurement contracts. In multiple cases, the CCI has imposed penalties on small enterprises that manipulated tenders by forming cartels to limit competition and inflate prices artificially. Such practices not only distort market dynamics but also harm consumers and government agencies relying on fair competition.
31 Moreover, SMEs may also engage in resale price maintenance or vertical agreements that restrict competition. While these agreements are not always illegal per se, they can be deemed anti-competitive if they cause an “appreciable adverse effect on competition” (AAEC). 32 For instance, SMEs in the manufacturing sector might impose restrictions on downstream retailers regarding pricing, leading to reduced consumer choice and price manipulation. Additionally, some SMEs that hold a dominant position in niche markets have been found abusing their dominance by imposing unfair terms on suppliers or restricting market access for new entrants. The regulatory stance on SMEs as perpetrators under Indian competition law is significant because it underscores that competition law applies uniformly, irrespective of the size of the entity.
While the law does recognize the need to support SME growth, it does not permit them to engage in practices that harm market competition. The CCI adopts a case-by-case approach, ensuring that SMEs do not misuse their position to the detriment of free and fair competition in the marketplace.
GOVERNMENT'S
ROLE
IN
FACILITATING
SME
PARTICIPATION
IN
COMPETITIVE MARKETS
Since India’s independence, the government has consistently worked toward fostering selfemployment and entrepreneurship at the grassroots level. By offering financial support and 31 Church, Jacqueline. "Aspects of the interface between the promotion of small and medium enterprises (SMEs) and statutory competition law." THRHR 81 (2018): 194. 32 Gupta, Karn. "Appreciable Adverse Effect on Competition: Determining the Contours Specifically in an Indian Context." IUP Law Review 11, no. 2 (2021).
social incentives, authorities have encouraged small-scale business initiatives. Legal frameworks such as the Companies Act and taxation laws have been structured to promote fair competition and enable SMEs to thrive in the market. The administration that took charge in 2014, led by Prime Minister Narendra Modi, introduced multiple initiatives aimed at bolstering the SME sector. Among these, the Make in India program has been particularly instrumental in strengthening small businesses. The surge in SME-led startups has played a crucial role in addressing the country’s unemployment challenges, creating self-employment opportunities while also generating jobs for the youth. Between 2015 and 2019, the central government implemented several key policies to support SMEs, including the “Public Procurement Policy, Pradhan Mantri Mudra Yojana, Make in India, Start-up India, and Skill India”.
Additionally, the introduction of the Goods and Services Tax (GST) streamlined taxation processes, facilitating smoother business operations for SMEs. The Digital India initiative further empowered small enterprises by enhancing their access to technology and digital platforms, making it easier for them to compete in the market. At the state level, governments have undertaken measures tailored to local industries, fostering small-scale production in sectors such as handloom, dairy, and poultry farming. State authorities are actively working to secure Geographical Indications (GIs) and intellectual property protections to benefit SMEs. Some well-known regional initiatives include the recognition of “Pochampally Ikat, Bengal’s Rasgulla, Odisha’s Rasagola, Shaktigarh’s Langcha, and Dhaniakhali’s Tant”, all aimed at preserving traditional crafts and supporting small producers.
Non-governmental organizations and self-help groups also contribute significantly to the growth of SMEs by providing financial and operational assistance. One such example is the Biswa Khudra Bazar project in West Bengal, developed as an integrated production and marketing hub for SMEs. Other noteworthy state initiatives include the West Bengal Incentive Scheme to promote SME establishment in underdeveloped regions, Silpa Disha, an online grievance redressal system for SMEs, Silpa Sathi, a single-window business facilitation portal, and policies such as Made in Odisha to encourage regional branding. 33 To ensure quality standards while minimizing environmental impact, the government introduced the “Zero Defect, Zero Effect” (ZED) certification program. This initiative classifies 33 Appiah, Kenneth, Collins Osei, Habte Selassie, and Ellis Osabutey.
"The role of government and the international competitiveness of SMEs: Evidence from Ghanaian non-traditional exports. " Critical perspectives on international business 15, no. 4 (2019): 296-322.
SMEs into bronze, silver, gold, diamond, and platinum categories based on their performance and creditworthiness. The objective is to guide SMEs toward better production processes, product quality, and large-scale efficiency.34 Several government schemes further reinforce SME development:
1. Credit Guarantee Fund Scheme: This program provides collateral-free loans to both
new and existing small enterprises. Through designated trusts in collaboration with the “Small Industries Development Bank of India” (SIDBI), SMEs can access working capital up to ₹1 crore.
2. “Credit Linked Capital Subsidy Scheme for Technology Upgradation” (CLCSS):
Introduced by the Ministry of Small-Scale Industries, this scheme offers a capital subsidy of up to 15% (or a maximum of ₹15 lakh) to SMEs investing in modernizing their equipment and production facilities.
3. Financial Assistance for International Participation: SMEs are encouraged to
expand globally under this scheme, which funds participation in international trade fairs, exhibitions, and market research initiatives conducted by industry associations.
4. Technology & Quality Upgradation Support: This program promotes the adoption
of energy-efficient technologies and sustainable manufacturing practices. The government sometimes covers up to 75% of the cost for SMEs adopting such innovations.
5. Mini Tools Room & Training Centre Scheme: Designed to enhance skill
development, this initiative provides financial support for setting up tool rooms and training facilities. Grants of up to ₹9 lakh are available for new setups, while up to 75% of the cost is covered for upgrading existing facilities. By implementing these measures, both central and state governments have significantly eased the process of establishing and operating small businesses in India. Such initiatives not only foster economic growth but also play a vital role in tackling unemployment. With SMEs 34 Suhas, S. D., and Sharanabasappa C. Sajjan. "Total Quality Management (TQM)–Zero Effect Zero Defect (ZED)." Recent Trends in Automation and Automobile Engineering 2, no. 3 (2020): 1-10.
creating job opportunities at the local level—particularly for those who may not find employment in large corporations—they contribute to poverty reduction and economic stability. As Nobel Laureate Dr. Amartya Sen emphasized, sustainable economic progress requires addressing poverty, inequality, and unemployment. SMEs serve as a critical driver in achieving these goals by ensuring inclusive growth, fostering innovation, and enhancing local economies. Their expansion ultimately strengthens India’s overall economic framework, balancing industrial development with equitable opportunities for all.35
CONCLUSION
The study on MSMEs and competition law in India reveals a complex dynamic where MSMEs function both as victims and perpetrators within the competitive landscape. Each segment of the paper contributes to a nuanced understanding of this relationship, highlighting key areas of concern and intervention. MSMEs as Victims of Anti-Competitive Practices A significant portion of the MSME sector struggles with unfair competition from larger
enterprises. Cases such as the Auto Parts Case and Faridabad Industries Association v. Adani Gas Ltd. illustrate how dominant firms engage in restrictive trade practices, impose unfair contract terms, and leverage their market power to the disadvantage of smaller enterprises. MSMEs, often lacking bargaining power and legal awareness, find themselves subjected to predatory pricing, delayed payments, and exclusionary business strategies. The Competition Act, of 2002, plays a vital role in addressing these challenges, but enforcement mechanisms must be strengthened to ensure timely relief for affected MSMEs. MSMEs as Perpetrators of Anti-Competitive Practices Despite being perceived as vulnerable, MSMEs are not entirely innocent of market distortions. The paper discusses cases where MSMEs have engaged in cartelization, bid-rigging, and pricefixing. The Shivam Enterprises v.
Kiratpur Sahib Truck Operators Case exemplifies how MSME associations can manipulate market conditions by restricting competition and enforcing monopolistic control. These actions violate Section 3 of the Competition Act and demonstrate
35 Pressman, Steven, and Gale Summerfield. "The economic contributions of Amartya Sen." In Leading
Contemporary Economists, pp. 84-116. Routledge, 2008.
that MSMEs when acting collectively, can exercise significant anti-competitive influence. The legal framework ensures that no enterprise, irrespective of size, is exempt from scrutiny under competition law. Regulatory and Policy Interventions The Indian government has implemented several policies to support MSMEs while promoting a competitive business environment. Programs such as Make in India, Startup India, and Digital India have empowered MSMEs by providing financial aid, skill development, and market access. Additionally, legal reforms, including amendments to the MSMED Act, have aimed to improve MSMEs' ability to compete fairly. However, the lack of a dedicated competition policy framework for MSMEs means that they still face structural disadvantages in legal disputes with larger corporations.
Strengthening institutions like the Competition Commission of India (CCI) to expedite cases involving MSMEs could enhance their market participation. Balancing Protection and Compliance The study concludes that a dual approach is necessary—one that protects MSMEs from exploitation while ensuring they adhere to fair competition principles. Regulators must distinguish between genuine market disadvantages faced by MSMEs and deliberate anticompetitive behaviour. Policies should not only address external threats but also encourage compliance within the MSME sector itself. By fostering transparency, improving access to legal resources, and enforcing strict penalties on violators, India can create a more balanced and competitive market environment for all enterprises. In essence, MSMEs are both challengers and rule-breakers in India’s economic framework.
While they require protection from predatory practices, they must also be held accountable when they engage in anticompetitive conduct. A well-structured legal and policy ecosystem will be key to ensuring their sustainable growth while maintaining market integrity.
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