India: Competition Law And Policy- Essential Tools For Free Markets

In the wake of globalisation, India has adopted revolutionary measures of opening up of its economy, removing of controls and to resort to liberalisation. It is, therefore, imperative that in order to cope up with the reforms and to introduce the concept of "Free markets" in the Indian economy, the Indian markets should be geared up to face competition from within as well as outside.

India's economic reforms, started in 1991, have thus brought competition into the Indian markets and the benefits, both in terms of faster economic growth and consumer welfare are clearly visible. For the first time since independence, the ordinary Indian consumer has become sovereign and enterprises have to compete for his patronage, particularly in some sectors like telecommunication, aviation, consumer electronics, automobiles etc. However, the situation is not the same for all sectors like power, ports, mining, etc. and the benefits of competition are yet to reach to the consumers in these sectors. This requires the formulation of a true National Competition Policy, like those in the developed economies, which has been discussed briefly later in this article.

Competition law is essentially concerned with the study of markets. The objection of com- petition law is, inter alia, to ensure that there is competition between the suppliers in any market and that this competition benefits consumers. At the day-to-day level, applying competition law involves identifying markets and assessing whether or not competition is working well in those markets. It involves assessing how the actions of firms will affect competition and consumers. These are economic issues. The reach of competition law is now universal with over 130 countries adopting the competition law, which are based on similar economic principles.

With this background, the Competition Act, 2002 (hereinafter referred to as 'The Act') was enacted in the previous NDA regime with the objective of preventing anti-competitive practices, promoting and sustaining competition, protecting the interest of consumers and ensuring freedom of trade. Control of anti-competitive agreements and prevention of abuse of dominant positions by large enterprises, regulation of combinations and competition advocacy are the broad thrust areas under the Act.

The Competition Commission of India ("CCI") is the statutory body created to enforce the Act. Although enacted in 2002, the Act is being brought into force in a phased manner. Sections 3 and 4 of the Act (relating to anticompetitive agreements and abuse of dominance) were effectively brought into force in May 2009, along with the enforcement powers of the CCI. Sections 5 and 6, which create India's merger control regime, requiring CCI pre-clearance of mergers, acquisitions, and amalgamations meeting specified worldwide and/or Indian turnover/asset-based thresholds (referred to in the Act as "combinations") were brought into force later in June, 2011.

The Act superseded the Monopolies and Restrictive Trade Practices Act, 1969 ("MRTP Act"), which sought to regulate monopolistic, restrictive, and unfair trade practices with effect from September 1, 2009 when the MRTP Act was repealed. Later, on October 14, 2009, the Monopolies & Restrictive Trade Practices Commission ("MRTPC"), which had jurisdiction over MRTP Act cases, was dissolved, and pending MRTPC investigations and cases were transferred to the CCI and the Competition Appellate Tribunal ("COMPAT"), respectively.

What is Competition?

The term 'Competition' refers to the economic rivalry amongst the suppliers and service providers present in the relevant market who are engaged in similar trade or provision of services and the policies implemented by the Government for building up market structure, conducive to such rivalry. These measures are implemented in a systematic manner so that a level playing field is established which helps to regulate the market and ensures availability of goods and services at reasonable prices as compared to the current level of costs.

According to Prof. J.M. Clark 'Competition' is the kind of market pressure, which must be exerted to penalise the laggards and to reward the enterprising, and in this way to promote economic progress.

According to a World Bank Report (1999) ' Competition ' has been defined as ' a situation in a market in which firms or sellers independently strive for the buyers' patronage in order to achieve a particular business objective for example profit, sales or market share.

Healthy competition amongst the market players leads to maximization of consumer welfare and benefit. Cheap or low price is not the only criteria of competitiveness but simultaneously the consumer should get value for his money in the form of superior quality, utility, ample choice, prompt post sales service, and other relevant benefits depending upon the peculiar nature of the goods or service. This in turn would lead to enhance the consumer satisfaction over the product or service of the competitor supplier.

In absence of strict regulatory measures, the suppliers will try to dominate market and exploit the consumers. The dominance can be either singly i.e. by achieving monopoly or in consortium i.e. by entering into collusive agreements. Thus prevailing of healthy competition in the market is of utmost importance.

What is Competition Policy?

Competition policy has been defined as "those Government measures that directly affect the behaviour of enterprises and the structure of industry" (Khemani R.S. and Mark A. Dutz, 1996). Proper implementation of competition policy leads to promotion of efficiency, which in turn maximizes welfare. The term welfare implies the sum total of consumer's surplus and producer's surplus, as well as taxes collected by the Government.

There is distinction between the competition policy and competition law. Competition policy refers to all those measures, executive policies, guidelines and approach by the Government to the competition issues in the relevant market. On the other hand competition law is the legal enactment, which can be enforced in the court of law. Thus, competition policy is the main frame of which competition law is the ancillary support. Competition Policy is pronounced in the trade policies in terms of which trade is regulated and does not require legislative sanction before enforcing the same. However such policies should have the cover of the law, because in absence of such a cover there is likelihood that the polices may become discriminatory

Thus, in short, competition policy is the main structure of which competition law is one of the component, which can legally enforce the issues arising out of the competition policy.

Do we need a national competition policy?

The debate whether a policy should be made after the law has been enforced or vice versa has been settled at least, partly, in the case of competition law and policy.

As stated in the beginning, the benefits of competition, though in force for the last 4 years through the institution of the CCI, have yet to reach to all sectors of our economy. Whereas Sectors like coal mining are still under the monopoly control of the State through Public Sector Undertakings, like the Coal India, other ostensibly "open" sectors such as power and Road infrastructure have not been able to reap the benefits of competition due to strong governmental interference. Particularly, in the Power sector although the Electricity Act, 2003, enacted simultaneously with the Act by the Parliament introduced bold legislative reforms, such as mandating competitive- bidding, open access etc. but these measures have remained in the statute book, largely, due to absence of financial autonomy to the now 'unbundled" State Electricity Boards and also due to political interference by the State governments in their day to day functions.

Similarly, the public procurement of goods and services by the governments continue to be infested with the menace of cartelization in the bidding process for which no serious attempt has been made except for occasional references of corruption related cases to the Central Vigilance Commission. Only recently have some references been made by large public procurement organizations such as DG S&D, Railways etc. to CCI. This appears to be not only due to the corrupt nexus between government officials and the interested bidders' i.e. vested interests but also due to a general lack of awareness of the reach of competition law or about the Act. This apathy and ignorance can be best cured if India adopts a National Competition Policy as a part of its Directive Principles of State policy under which each and every policy , regulations and even laws will be first required to be screened from the angle of their impact ,if any, on the state of competition prevailing in the relevant markets. The present government has already taken a bold step in this direction and it is hoped that the new government that assumes power at the Centre after the 2014 General Elections will finally adopt and implement the Policy.

The successful implementation of such a National Competition Policy has been demonstrated particularly in Australia where the Council of Australian Governments (CoAG) in 1995 adopted a National Competition Policy. The Council comprised of both the Federal and Provincial governments.

Apart from Australia, competition policy has also been adopted and implemented by UK, Denmark, Italy, Turkey, Mexico, Hong-Kong, Malawi and Botswana.


BY M M SHARMA, Head-Competition Law and Policy, Vaish Associates Advocates

The Author, a former Additional Registrar in the Competition Commission of India (CCI), and an alumnus of Kings College, London, is a leading competition lawyer. He heads the competition /antitrust practice in Vaish Associates, Advocates, a Full service Corporate, Tax and Business Advisory Law Firm with offices in New Delhi, Gurgaon, Mumbai and Bangalore. The views expressed are personal. The author can be reached at mmsharma@vaishlaw.com

Copyright © India, 2014, Vaish Associates Advocates

Specific Questions relating to this article should be addressed directly to the author.

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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