Corporate Governance: Grasim Industries abused its dominant position

Aditya Birla Group firm Grasim Industries has been pulled by the Competition Commission of India for “misusing” its dominant market position in the Viscose Staple Fibre (VSF). The CCI’s action comes after the Directorate General of Trade Remedies (DGTR) has recommended the withdrawal of anti-dumping duty (ADD) on VSF imported from China and Indonesia, a move that may cut the product’s prices in India and affect the revenue of Grasim, the sole producer of VSF in India.

The commission directed the firm to cease and desist from indulging in such practices, which have been found to be in contravention of the provisions of the Competition Act, as per an order dated August 6.

The Competition Commission of India has said Grasim Industries has abused its dominant position in the supply of a certain staple fibre by charging discriminatory prices to its customers, denying market access and imposing supplementary obligations on them.

The commission directed the firm to cease and desist from indulging in such practices, which have been found to be in contravention of the provisions of the Competition Act, as per an order dated August 6.

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The CCI said the company has “abused its dominant position in the relevant market of ‘the market for the supply of VSF to spinners in India’ by charging discriminatory prices to its customers, denying market access and imposing supplementary obligations upon its customers”.

According to industry experts, prices could drop by Rs 5-6 per kg once anti-dumping duty is lifted, boosting spinners in India. VSF is the only product that invites an anti-dumping duty in the textile industry. On Friday, the competition watchdog came out with a fresh order stating that the company has ‘abused its dominant position by charging discriminatory prices, denying market access and imposing supplementary obligations upon its customers in violation of the existing provisions.’ The commission also directed Grasim to ‘cease and desist from indulging in such practices.’

In March 2020, CCI had imposed a similar order imposing a fine of Rs 302 crore on the company.

In a regulatory filing dated August 9, Grasim Industries said “while the Company is yet to receive certified copy of the said order, it believes that on merits it has sufficient grounds for an appeal”.

The regulator did not impose any monetary penalty on the firm, considering that a fine of Rs 301.61 crore has already been imposed on it through an order passed in March 2020 with respect to substantially similar conduct.

Besides, the period of contravention in the instant case (2017-18) was in continuation of the period of contravention in the previous case (2012-2017) and thus partly overlapped.

The commission noted that Grasim Industries is the sole producer of viscose staple fibre (VSF) in the country and enjoys a position of dominance in the relevant market for its supply to spinners in India.

The only other source of VSF for spinners in the country was through import, which is not an economically viable alternative.

The relevant market considered by the CCI was “the market for the supply of VSF to spinners in India”.

The fair trade regulator noted that the conduct of Grasim Industries in seeking details of VSF consumed from the domestic spinners to provide discount is nothing but an attempt by a dominant undertaking to control the entire market in its favour by putting conditions, which not only put supplementary obligations upon small players but also interfere with their freedom of trade.

“The Commission is satisfied that by requiring the spinners to submit production details, OP has asserted its market power upon the small players and has acted in an abusive manner,” it said.

In the case of one of the informants, Grasim Industries withdrew all discounts/credit notes, making the supply of VSF costly for it, resulting in the VSF yarn manufactured by it becoming uncompetitive, the regulator noted.

The order came after three informants had levelled various allegations against the firm pertaining to abuse of dominant position by the company.

The commission had directed the director-general (DG) to conduct an investigation into the matter and submit a report.

During the financial year 2020-21, the company’s revenue from viscose business came down by 25 per cent to Rs 6,965 crore, as compared to Rs 9,235 crore, mainly owing to Covid-19 pandemic. “If Grasim reduces price at par with the imports, spinners may not opt for China and Indonesia. However, we request the finance ministry to immediately come out with the notification.

The ADD was to expire in June 2021, because of the DPTR investigation, it was extended till October 31 this year,” said K Venkatachalam, advisor at the Tamil Nadu Spinning Mills Association (Tasma). China contributes to around 73 per cent of the global VSF production and hence international prices mainly revolve around that.

According to a recent industry report, the demand for VSF in India is growing at a compound annual growth rate of 11 per cent as against the global growth rate of 4 per cent. “Even if Indian domestic fibre producers divert their entire export into the domestic market, there will still be short supply in Indian market. Hence, the government should immediately come out with a notification,” said Palanisamy Selvaraj, managing director of Velatal Spinning Mills. He added that spinners expect prices in the domestic market to come down by at least Rs 5-6 per kg after lifting of the anti-dumping duty.

Another industry source said that Indian prices are competitive compared to the international prices and there will be no impact on the company revenue. “The DGTR report itself highlights that imports cannot be said to be causing any price and volume effect on the domestic industry,” the expert said. Spinners may also prefer domestic sourcing of VSF as Grasim is offering them credit through Aditya Birla Finance.

Owing to the higher prices and duty burden, the industry had to resort to import of VSF spun yarn (VSY), a value added product using VSF in recent years. Import of VSY has increased at a CAGR of 167 per cent in the last five years alone, rising from 2,026 MT in 2016-17 to around 1,04,000 MT in 2020-21, based on data available with the ministry of commerce. Anti-dumping duty on import of VSF was initially imposed in 2010 for five years and got extended for another five years in 2016. In addition to the customs duty, presently 5 per cent ad valorem, anti-dumping duties (ADD) are applicable on imports of VSF from China and Indonesia.