India’s Competition Policy

In our economy, there are markets in which firms or sellers independently strive for the buyers’
patronage in order to achieve a particular business objective for example, sales, profits or market
shares and this situation is often referred to as competition. It is an essential or a vital hand
maiden to efficient trade. The purpose of the competition is the interest of the buyer. It is the
foundation of an efficient working market system, which has several advantages over a planned
economy and constitutes the pre-condition that prevents freedom of decision and action of self-
interested individuals or the entities from leading to chaos or anarchy but rather to economically
optimal socially fair and desirable market results. Competition leads to greater dynamic
efficiency in the economy by bringing about innovations, technological developments, lower
price and better quality and service for the consumer. It should be emphasized that competition is
not automatic and requires to be promoted, protected and nurtured through appropriate
regulatory mechanisms, by minimizing market restrictions and distortions and access to related
productive inputs such as markets, capital, technology, infrastructure services, human capital,
etc. In an economy, there are a set of government measures, policies, statutes and regulations
including a competition law which aims at promoting competitive market structure and
behaviour of entities, which are known as competitive policies. The subset of the Competition
Policy is Competition Law. Competition law must emerge out of a National Competition Policy,
which must be evolved to serve the basic goals of economic reforms by building a competitive
market economy. The World Bank defines competition policy as government measures that
directly affect the behaviour of enterprises and the structure of industry. An appropriate
competition policy includes both: (a) policies that enhance competition in local and national
markets, and (b) competition law, also referred to as antitrust or anti-monopoly law. Similarly,
competition policy according to the World Trade Organization (WTO) are the full range of
measures that may be used to promote competitive market structures and behaviour, including
but not limited to a comprehensive competition law dealing with anti-competitive practices of
enterprises. It would be seen that a competition law is a regulatory instrument to check the
prevalence of anti-competitive practices whereas a competition policy is a proactive and positive
effort to build competition culture in an economy. In order to strengthen the forces of
competition in the market, both competition law and competition policy are required and the the
two complement each other. The competition law forbids and penalises anti-competitive
practices by enterprises functioning in the market i.e. addresses market failures whereas
competition policy seeks to correct the anti-competitive outcomes of various government
policies and laws and help in development of competitive markets.

Objective of the Competition Policy-

National Competition Policy is formulated by the Government of India with a view to achieve

highest sustainable levels of economic growth, entrepreneurship, employment, higher standards
of living for citizens, protect economic rights for just, equitable, inclusive and sustainable
economic and social development, promote economic democracy and support good
governance by restricting rent-seeking practices.

The NCP will endeavour to:

a. preserve the competition process, to protect competition, and to encourage competition

in markets so as to optimise efficiency and maximise consumer welfare,
b. promote, build and sustain a strong competition culture within the country through
creating awareness, imparting training and capacity building of stakeholders including
public officials, business, trade associations, consumer associations, civil society
organisations etc.,
c. encourage adherence to competition principles in policies, laws and procedures of the
Central Government, State Government and sub-State Authorities, with focus on greater
reliance on well-functioning markets,
d. ensure competition in regulated sectors and to ensure institutional coherence for
synergised relationship between and among the sectoral regulators or the competition
regulators and prevent jurisdictional grid locks,
e. strive for a single national market as fragmented markets are impediments to competition
and growth, and
f. ensure that consumers enjoy greater benefits in terms of wider choices and better quality
of goods and services at competitive prices and establish a level playing field by
providing ‘competitive neutrality’.

Advantages of the Competition Policy-

Competition is regarded is very to a liberalized economy. It is a powerful instrument to help in
achieving the macroeconomic policy goals of the country. It is identified as key to “economic”
efficiency. The term “economic” efficiency includes “allocative”, “productive” and “dynamic”
efficiencies, which in the Government context are important for maximising the overall welfare
of society. The Competition Policy seeks to integrate the principles of competition in various
economic policies of the Government and reap the benefits of competition therein. The basic
premise of competition policy is that Government should not restrict market activity any more
than is necessary to achieve its social and other goals. It has been observed that certain policies
and laws at the state level sometimes tend to artificially segment the markets in India. The
evolution of a single national market in the country, with minimum barriers, will be in the
interest of competition. There may be several barriers relating to physical movement of goods
and services, inter-state trade, huge variations in taxes and duties, etc. The benefits emanating
from economies of scale and size may get eroded on account of these policy-induced barriers.
This may be even more significant in the cases of those sectors which could be crucial for
inclusive growth such as agriculture, power etc. It has been suggested that there is a positive
association between GDP growth and degree of competition. Many empirical studies of select industries
in OECD countries suggest that competition enhances productivity at industry level and lowers
consumer prices. Enhancement of productivity is caused by the pressure generated by competition on
firms to innovate or enhance efficiency of operations both of which are associated with lower costs.
Higher productivity is also associated with enhanced output and therefore increased employment.
National Competition Policy would also help to promote good governance through bringing in
greater transparency and accountability on account of available competing responses and in the
avoidance of any rent seeking practices. It would also have a positive correlation with various
other strategic national objectives. NCP fully respects the sovereign functions of the State like
defence, internal security, currency, various other non-economic state activities of sovereign
nature and would seek to encourage competition related measures only in matters having
economic impact on the market. Use of ICT, with transparency and interoperability, can hugely
enhance competition in markets, informed and expeditious decision making by public and the
ability of Governments to efficiently and cost effectively deliver welfare services such as health
care, education, public distribution etc. A substantial part of Government expenditure, both at
Centre and States, involves procurement of goods and services. Adoption of competition policy
principles will help in more cost efficient utilisation of these resources and checking any rent
seeking practices. In addition, these would also help in development of markets and promote
good governance. The NCP is intended to be flexible and accommodate appropriate sensitivities
in matters requiring special policies for weaker section of society or regions or needs of
environmental preservation and other strategic issues of public policy; the only thing is that a
conscious view will have to be taken by the concerned authorities in balancing the competing
considerations. It does not intend to seek laissez faire markets, blanket deregulation,
disinvestment, welfare cutbacks, and reduced social services. It also does not seek to prevent
government from increasing expenditure on welfare or levels of government-funded or
subsidized social services, or maintaining government ownership of businesses. It explicitly
recognises the need of government intervention in markets through optimal regulation, where it
is justified. It seeks to strike a balance, between competition policy objectives on the one hand,
and other policy considerations such as prudential supervision, service quality, social service
commitments, safety etc. on the other, and only expects a considered and conscious view to be
taken by the concerned authorities. India’s traditional marketing system has witnessed significant
changes since 2000. These included emergence of private markets, improved commodity supply
chains and supermarkets and futures trading. Both the central and state governments are in the
process of liberalising regulatory regime to promote healthy competition in agricultural markets.
So, there should be an effective policy to regulate the functioning of agricultural markets. The
Government of India intervenes in the agricultural markets to achieve certain developmental
objectives. The overarching reasons for effective government interventions are stated to be food
security and price stability. The government intervenes in domestic market in various forms such
as food grain procurement and distribution, price support, input subsidies and marketing
legislations. The objectives and forms of intervention have undergone substantial changes over
time. The interventions attempted to bring in regulation of various agricultural activities to
protect the interests of producers and consumers. Poor people interact with the economy in a
number of ways. Governments must take responsibility for helping markets to function
effectively for the poor, so that they enable choice, encourage innovation and provide goods and
services to consumers at the lowest possible prices. Many of the poor are small entrepreneurs,
including farmers. They will benefit if entry and exit barriers are low, if they can purchase inputs
at fair prices, and if they are able to sell their output on fair terms. They need a level playing
field. Many of the poor are also recipients of government-funded services. Bid-rigging, which is
an illegal practice, for government provided infrastructure and services appears to be common,
and diminishes what governments are able to provide for their people from any given budget
allocation. An appropriate competition policy will include measures to address all of these
concerns.

Disadvantages of Competition Policy-

Competition decreases the market share and shrinks its customer base, especially if demand
for the products or services is limited from the start. A competitive market can also force
lowering of prices to stay competitive, decreasing the return on each item which you produce
and sell. When too many businesses produce the same products, the market becomes flooded.
As goods are overproduced, inventory or the finished goods piles up. When inventory reaches
unsustainable levels, the company could have too much capital tied up in items that are just
sitting on the shelf and not enough cash on hand for urgent expenses such as rent, payroll,
expenses for maintenance, etc. Competition also affects the consumers. For example, if your
favorite restaurant goes out of business because of too much competition, you’ll no longer be
able to eat there. Free market competition can also lead to monopolies, with the biggest players
dominating the market and ultimately leading to fewer, lower quality choices. Economic
competition is a fact of life for any business, but it's clearly not all good or bad for anyone.
While competition can spur innovation and give consumers more choice, too much competition
can be a disadvantage to smaller businesses, ultimately shrinking the options consumers have
when they're only left with the biggest places to shop. Domestic agricultural markets have
increasingly been opened for private sector participation. However, the central and state
government agencies have flexibility to impose restrictions on certain aspects of agricultural
marketing. Competition issues become significantly important as these will not only affect
diverse farm producers and also consumers in getting a fair deal. Competition is required in
many areas in the agriculture policy activities. Enforcement of competition should not create
tension with sectoral policy, which aims at protecting income of select rural groups through
transfer of income from other agents in the economy or through regulations. The potential clash
between competition policy and sectoral policy may negatively affect the competition in
agricultural sector. This is also likely to affect the delivery of outcome through sectoral policy.
There is need for having watchful competition and regulation system to oversee agricultural
markets. This thus brings us to having appropriate law in place since inadequate and
inappropriate legal framework can distort and reduce the efficiency of agricultural markets,
increase the cost to the participants and severely stunt the development of healthy private
markets. There needs to be appropriate law to accomplish economic regulatory functions, which
seek to promote, guide and discipline the establishment and operation of markets. These
functions may be performed by a wide range of laws dealing with competition.

Implementation of the Policy and the Present Scenario-

India had a competition law: The Monopolies & Restrictive Trade Practices (MRTP) Act since
1969. The Act was enacted to prevent concentration of economic power, control monopolies, and
prohibit monopolistic and restrictive trade practices. However, the MRTP Act did not deliver as
expected. This was partly because the Act was created at a time when all the process attributes of
competition such as entry, price, scale, location, etc were regulated. The MRTPC had no
influence over these attributes of competition, as these were part of a separate set of policies.
Another reason for its inadequacy in dealing with anti-competitive practices was the absence of
proper definitions in the Act. A key reason for the ineffectiveness of the MRTPC was that it was
poorly resourced. Major amendments were made to the MRTP Act in 1991 but even these were
considered inadequate to deal with the emerging economic order. An expert group was set up in
1997 to study issues relating to the interaction between trade and competition policy in the
country. This led to the setting up of the ‘Raghavan Committee’ in 1999 to recommend a suitable
legislative framework relating to competition. The Committee stressed on the need for
harmonisation between competition policy on the one hand and others like trade policy,
industrial policy, privatisation policy, consumer policy and environment policy etc, on the other.
The Committee observed that the Monopolies & Restrictive Trade Practices Act (MRTPA) was
no longer capable of handling the multifaceted issues of competition and recommended the
enactment of a new and modern competition law. As a result of the recommendations made
Competition Act, 2002 was enacted. The Raghavan Committee had recommended that a
Competition Policy needs to be formulated by the Government to supplement the Competition
Act. There seems to be a consensus emerging that the competition regime of India ought to be
two-pronged: comprising of a well-structured competition policy and a modern competition law.
Though the country possesses a law flowing from the Competition Act 2002, there is still need
for a competition policy to iron out various ambiguities and discrepancies, and promote
competition. Effective implementation of competition policy and competition law has a critical
role in protecting and nurturing competitive markets by checking anti-competitive practices and
the abuse of a dominant position in markets as well as taking up competition assessment of
public policies. Both the Central and state governments are in the process of liberalising
regulatory regime to promote healthy competition in agricultural markets. There are legislative
measures undertaken to regulate the functioning of agricultural markets. Several of these acts
have been repealed, lifted or consolidated. A particular policy may be necessary if such
regulation is required to deliver efficient outcomes, when there is market failure. However, a
comprehensive review of agricultural market regulations needs to be undertaken to assess
whether it has achieved its intended objectives. Agricultural markets are typically characterised
by lack of competition. Indian agricultural markets have performed inefficiently due to state
intervention in prices, lack of entry of private business firms, particularly at the level of
purchasing farm produce, Agricultural Produce Market Committee (APMR) Act, movement
restrictions, etc. It is important to liberalise all the various factors that affect the entire chain of
agricultural marketing. Focus should be given to the first stage in which farmers sell their
produce to the buyers. Reforms in Indian agricultural markets need to be introduced with
caution. A proper regulation and competition regimen needs to be put in place before liberalising
agricultural markets in favour of major privatisation. In the opinion of the government of India
“the agriculture sector is vital for the food and nutritional security of the Nation. The sector
remains the principal source of livelihood for more than 58 percent of the population. Together,
the competition policy and competition law can form the backbone of the government’s
commitment for ensuring maximisation of economic efficiency and protection of consumer
interest. This is required for the protection of consumer’s interest and society’s welfare and
improving competitiveness of domestic industry. Government departments and sector regulators
also need to be equipped with adequate capacity to prevent introduction of competition
distortionary policies in the future. Government of India needs to signal that it is ready to unleash
a new wave of competition reforms by adopting the National Competition Policy, languishing on
ministry of corporate affairs website since 2011.

Conclusion-