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When economy slows, cartelisation grows

The MRTP Act, 1969 has been ineffective in dealing with cartels. A new law which prescribes severe penalties for cartelists, therefore, needs to be drafted.

Cement prices have been increased four times since January this year. Pradeep S. Mehta People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. — Adam Smith in ‘The Wealth of Nations’. The new economic theory is that when the chips are down, corporate crimes go up. These include scams, cheating and collusive business practices (cartelisation). The regulators, therefore, need to tighten their oversight rules. Businesses often collude or cartelise to fix prices, divide markets or restrict output so that they can prosper at the expense of the customer. This is true of any sector which has excess capacity and few players. They do not compete to do better, but collude to beat competition. Binding the prices The latest example is the cartelisation in the cement sector. While this is not something new for this sector, what is surprising is the timing. With construction activity going down, cement manufacturers have been able to raise their prices collectively. Whereas in steel, another important input in construction, a similar trend is not visible; some however believe that this sector too has engaged in cartelisation in the recent past. Cement prices have been increased four times since January this year. In a recent statement, quoted in a financial daily, the Builders Association of India has said that cartelisation by cement manufacturers is the root cause for the frequent price hikes. Towards end-2007, the Monopolies and Restrictive Trade Practices Commission (MRTPC) had stated that the cement industry andits associations have been colluding for over 17 years. The Tamil Nadu Government even threatened to take over the sector. But the MRTP Commission passed only cease and desist orders, which have had no penal impact. When the government allowed imports from Pakistan, the cement lobby raised the issue of Pakistani factories not having ISI licence.

it will be a great disincentive for those engaging in collusive activities. the new Competition Commission of India is empowered to levy fines up to 10 per cent of the turnover of the last three years. but has not been able to break it. the outcome could well be the exploitation of passengers through such means as route rationalisation and higher tariffs. In the air cargo business. the Ministry advised the truckers to approach the MRTP Commission with evidence to deal with the collusive behaviour. Recently. Effect of financial crisis The financial crisis provides reason enough for collusion and cartelisation. one aspect that is beginning to make its presence felt more than the others is cartelisation. One grouse of the All India Motor Transport Congress was the high prices of tyres due to cartelisation. In the ad. The Commission has dealt with the tyre cartel in the past. . Fortuitously.Another sector which the MRTP Commission has also tried to bridle is the tyre industry but with equal ineffectiveness. we are witnessing such cases. setting a common high price that would profit all the competitors at the cost of the consumer. 1969 and its implementation thus far shows it is ineffective in dealing with cartels. which were often ignored. Effective measures need to be taken against the same. potential and real. but that too would not help the truckers. show the effectiveness with which they have been squashed by competition authorities. There are less than 20 such cases in its history. This is a must to prevent this phenomenon from rearing its head. but the Competition Commission of India is yet to be notified and launched. needs to be drafted. nearly every airline in the world has been hauled up by competition agencies in recent times. Alas. all around the world. There is a new Competition Act. therefore. while pointing out the incidence of cartelisation. Also. cartelisation is considered an evil. But in these too merely ‘cease and desist’ orders were issued. If and when the CCI starts taking action. In such a situation the advice to approach MRTPC was correct. What is more revealing is its action in the case of cartels by truckers themselves who form unions at the local level. When the truckers’ strike hit the nation in late 2008. In a free-market-driven world. However. not allowing non-members to pick up freight from factories where they have delivered inputs. not a single case has been filed under the MRTP Act by any government. Though the professed reason for the alliance is to combat the havoc of soaring aviation fuel prices. Thus. Ineffective legislation The MRTP Act. The enormity of the fines would ensure against such incidents repeating themselves. the Road Transport Ministry issued halfpage advertisements telling the public as to how wrong the strike was. the European Commission imposed the highest ever total fine by any competition authority on four car-glass manufacturers. Both the Central and State governments are empowered to take complaints to the MRTP Commission. the United States Department of Justice imposed its second highest criminal fine ever on a company involved in fixing the price of liquid crystal display panels. In India. This happens when competition gets restricted because competitors begin to collude with each other. These cases. A new law which prescribes severe penalties for cartelists. the Jet-Kingfisher alliance is seen as one such. The current financial meltdown worldwide is evoking mixed reactions around the globe.