REPORT ON

 
“Competition Policy - An Essential Requirement”

Submitted By

Mr. Mahesh Adarkar, Roll No. - 01

Ms. Deepanshi Agrohi, Roll No. – 02

Ms. Saiveena Algeti, Roll No. - 03

Mr. Pranit Auti, Roll No. - 04

Ms. Adnyesha Bari, Roll No. -05

Ms. Kashmira Bhaip, Roll No. - 06

Mr. Aniket Bhingardive, Roll No. – 07

Students of Masters of Management Studies

At

University of Mumbai's Alkesh Dinesh Mody Institute

         For Financial & Management Studies

SYMMS

Subject Name

Financial Regulations

For The Academic Year

2021-22

 
1
 CERTIFICATE OF APPROVAL

This is to certify that the project titled “Competition Policy - An Essential

Requirement” of The Subject Financial Regulations submitted by,

Mr. Mahesh Adarkar, Roll No. - 01

Ms. Deepanshi Agrohi, Roll No. – 02

Ms. Saiveena Algeti, Roll No. - 03

Mr. Pranit Auti, Roll No. - 04

Ms. Adnyesha Bari, Roll No. -05

Ms. Kashmira Bhaip, Roll No. - 06

Mr. Aniket Bhingardive, Roll No. – 07

Students of Alkesh Dinesh Mody Institute for Financial and Management Studies,
Mumbai has been approved.
 

__________________                                                        __________________

   Mr. Uday Patil Sir                                                                  Dr. Smita Shukla

                                     (I/C DIRECTOR)

   
2
 ACKNOWLEDGEMENT

It is our privilege to have accomplished this study under the guidance of Mr Uday
Patil Sir, our faculty and guide, for taking keen interest, full involvement, dynamic
motivation and valuable guidance extended to me throughout the project.

We express our gratitude towards Mr. Uday Patil Sir and our Team members for
their valuable support and cooperation while preparing this Project.

3
 Index

Sr. No Particulars Page No

1. What is competition Policy 5

2. Why was it made 12

3. Objectives and Strategies 14

4. Principles of Competition Policy 15

5. Types of anti competitive agreement  18

6. Why is it important for a country  to have a competition 20

policy

7. Government Initiatives 31

8. Bibliography 33

4
What is competition?
 

Competition refers to a situation in a market place in which firms/entities or

sellers independently strive for the patronage of buyers in order to achieve a
particular business objective, such as profits, sales, market share, etc. By
responding to demand for goods and services with lower prices and higher quality,
competing businesses are pressured to reduce costs, innovate, invest in technology
and better managerial practices and increase productivity.

This process leads to achievement of static, dynamic as also allocative efficiencies

and increased choices and lower prices for consumers.

Importantly, competition is not automatic, and requires to be promoted,

protected and nurtured through appropriate regulatory mechanisms, by minimising
market restrictions and distortions and access to related productive inputs as
markets, capital, technology, infrastructure services, human capital etc.

What are competition law and competition policy?

 

Competition Policy means a set of government measures, policies, statutes,

and regulations including a competition law, aimed at promoting competitive market
structure and behaviour of entities in an economy. Competition Law is a sub-set of
the Competition Policy. The High-Level Committee on Competition Policy and Law,
which published its report in 2000, recommending a new competition law as a
modern substitute for the old Monopolies & Restrictive Trade Practices Act, 1969
observed: “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 Trade Organisation (“WTO”) defines competition policy as: “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”, and similarly, 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

5
(b) competition law, also referred to as antitrust or antimonopoly law.”

Whereas, Competition Policy provides guidance for government entities for

use in analysing policies, laws, and regulations that affect market activity and help
achieve national strategic objectives such as attaining highest sustainable levels of
economic growth with inclusion, improving investment climate and attracting
investment, generating entrepreneurship and employment, checking inflationary
forces, promoting economic democracy, protecting economic rights of citizens for
just, equitable, inclusive and sustainable economic and social development and
supporting good governance by restricting rent seeking practices, competition law
sets forth binding prohibitions of anti-competitive conducts. 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. To strengthen the forces of competition
in the market, both competition law and competition policy are required - the two
complement each other. The competition law prohibits 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.

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. Dhanendra Kumar was the Chairman of the committee which was
entrusted the task of formulating India's National Competition Policy.

6
Objectives

The policy is aimed at ushering in a second wave of financial reforms.[4] The

salient features of the policy are stated below:

1. To guarantee consumer welfare by encouraging optimal allocation of

resources and granting economic agents appropriate incentives to
pursue productive efficiency, quality and innovation

2. To remove anti-competition outcome of existing acts, harmonize laws

and policies of Centre and State and proactively promote competition
principles
3. Strive for single national market.
4. Establish a level playing field by providing competitive neutrality'.

Competition policy can benefit consumers in the following ways

1) It ensures best possible utilisation of available resources.

2) It ensures better quality products at lower prices to consumers; and

3) It checks hurdles to fair competition. The first two ways are attributable to the
positive instrument (Economic Policies) and the third way is attributable to the
preventive instrument (Competition Law) of competition policy.

Let us explain this point. Economic policies, such as deregulation and privatisation,
can create opportunities for new businesses and stimulate efficiency in the economy
(It is to be kept in mind that this idea may not hold good in case of public utilities
such as, infrastructure, power and railway where large number of producers may
actually lead to inefficiency). Moreover, since firms become efficient and in order to
compete in the market, they offer greater choice of products and services at lower
prices and thus consumers gain the most.

7
Competition Commission of India

The Competition Commission of India (CCI) is the chief national competition

regulator in India. It is a statutory body within the Ministry of Corporate Affairs and is
responsible for enforcing the Competition Act, 2002 in order to
promote competition and prevent activities that have an appreciable adverse effect
on competition in India. The CCI looks into cases and investigate it if the same has
negative impact on competition

CCI also approves combination under the act so that two merging entities do not
overtake the market

The commission was established on 14 October 2003. It became fully functional in

May 2009 with Dhanendra Kumar as its first Chairman.[2][3] The current Chairman
of the CCI is Ashok Kumar Gupta, who was appointed to the role in 2018.

The Competition Act, 2002

The idea of Competition Commission was conceived and introduced in the form of
the Competition Act, 2002 by the Vajpayee government. A need was felt to promote
competition and private enterprise especially in the light of 1991 Indian economic
liberalisation.

The Competition Act, 2002, as amended by the Competition (Amendment) Act,

2007, follows the philosophy of modern competition laws. The Act prohibits anti-
competitive agreements, abuse of dominant position by enterprises and regulates
combinations (acquisition, acquiring of control and Merger and acquisition), which
causes or likely to cause an appreciable adverse effect on competition within India.
[5]

The objectives of the Act are sought to be achieved through the Competition
Commission of India (CCI), which has been established by the Central Government
with effect from 14 October 2003. CCI consists of a Chairperson and 6 Members
appointed by the Central Government. It is the duty of the Commission to eliminate
practices having adverse effect on competition, promote and sustain competition,
protect the interests of consumers and ensure freedom of trade in the markets of

8
India.[5] The Commission is also required to give an opinion on competition issues
on a reference received from a statutory authority established under any law and to
undertake competition advocacy, create public awareness and impart training on
competition issues.

Objectives

Preamble to the Competition Act

An Act to provide, keeping in view of the economic development of the country, for
the establishment of a Commission to prevent practices having 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, in India, and for matters connected therewith or incidental thereto.[5]

To achieve its objectives, the Competition Commission of India endeavors to do the

following:

1. Make the markets work for the benefit and welfare of consumers.
2. Ensure fair and healthy competition in economic activities in the country for
faster and inclusive growth and development of the economy.
3. Implement competition policies with an aim to effectuate the most efficient
utilization of economic resources.
4. Develop and nurture effective relations and interactions with sectoral
regulators to ensure smooth alignment of sectoral regulatory laws in tandem
with competition law.
5. Effectively carry out competition advocacy and spread the information on
benefits of competition among all stakeholders to establish and nurture
competition culture in Indian economy.

9
National Competition Policy Constituted

Government had constituted a Committee for drafting the National Competition

Policy 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 Committee has already given its report. The
salient features of the policy proposed by the Committee are as follows: -   

(1) To aim at creation of a framework of policies and regulations that will inform other
policies to facilitate competitive outcomes in the market, with a view to promoting
efficiency in economy, protecting consumers’ interests and maximising social
welfare, help in reducing inflationary pressures, accelerate inclusive growth,
development of entrepreneurs and new employment opportunities and strengthen
infrastructure;   

(2) To review all existing and new Acts/ regulations/ policies to correct where anti-
competitive outcomes are noticed, and to proactively promote competition
principles;   

(3) To provide for Institutional separation between policy making, operations and
regulatory wings of the Government;   

(4) To provide for fair Market regulation procedures, whether by public authorities,
regulatory bodies or through self-regulatory mechanisms; 
 
(5) To provide for ‘Competitive neutrality’, in order to establish a ‘level playing field’; 
 
(6) To provide for Fair pricing and inclusionary behaviour, particularly of public
utilities;   

(7) To provide for Third party access to ‘essential facilities’, which require dominant
infrastructure and intellectual property right owners to grant access to third parties to
their essential infrastructure and platforms on agreed, reasonable and non-
discriminatory terms and conditions aligned with competition principles;   

10
(8) To provide for Public policies and programmes to work towards promotion of
competition in the market place;   

(9) To promote for National, regional and international co-operation in the field of
competition policy enforcement and advocacy;  

(10) Establishment of a National Competition Policy Council for the oversight

mechanism.   

11
Why was competition law made?

 MRTP Act

‘Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act)’ was enacted
from 1st June, 1970. The MRTP Act intended to protect consumers as well as to
avoid concentration of wealth and aimed to prevent-

(a) Concentration of economic power

(b) Prohibition of monopolistic, unfair or restrictive trade

From 1969 to 2003 Govt. provided the regulation to monopolistic trade for the first
time by virtue of the enactment of the Monopolies and Restrictive Trade Practices
Act (MPTP Act) which was inspired by the mandate of the Directive Principles of
State Policy in the Constitution of India. The Preamble of the MRTP Act preached a
socialistic philosophy intended to ensure that the operation of the economic system
did not lead to the concentration of economic power to the common detriment.

The Act advocated for the prohibition of Monopolistic and Restrictive Trade
Practices. However, it was not meant for all sectors of the economic system and did
not apply to the public sector, government undertakings and undertakings by state &
central Govt. Corporation, State Bank of India and insurance companies of India
which restricted the scope of the Act. Some difficulties arose while practicing and
implementing MRTP Act were as follows –

1) Lack of clarity on various definitions and interpretations – the Act neither defines
nor even mentions certain trade practices which are restrictive in character. Such as-
abuse of dominance, cartels, collusion and price fixing, bid rigging, boycotts and
refusal to deal, predatory pricing etc.

2) Discrimination between public and private sector – in spite of being a competition

law, the MRTP Act could not be effective in the absence of the element of
competition. For example, the protection and favor offered in pricing and purchase
preferences to the public sector, hampered competition where the private companies
were also operating in the market without getting any favor from the Govt. The
MRTP Act became ineffective for different reasons. For example– the frequently
changing industrial policy of the Indian Government.

12
 

Major amendments to MRTP Act was undertaken in –

1) 1984 – major addition was relating to Unfair Trade Practices

2) 1991 – deletion of chapter relating to Mergers and Acquisitions and Addition

relating to Award of Compensation

After the economic reforms in 1991, there had been a subsequent change in the
economic scenario with the effects of liberalization, privatization and globalization,
which impelled the need for a new competition law. As a result of adopting
liberalization, India accepted and agreed to two important agreements of the World
Trade Organization namely General Agreement on Tariffs and Trade (GATT) and
Trade Related Aspects of Intellectual Property Rights (TRIPS).  It led to the
capability of multinational companies to enter the Indian market which made the
MRTP Act less important and less effective and MRTP Commission under the MRTP
Act realized that a new legislation was needed.

The Govt. of India constituted a High Level Committee on Competition Policy and
Competition Law, chaired by Mr. S V S Raghavan, a retired senior Central Govt.
officer (popularly known as ‘Raghavan Committee’) in October 1999 to advise a new
and effective contemporary competition law to cope up with the international
economic developments and to recommend a suitable legislative framework, which
may imply a new law relating to competition law for necessary amendments in the
MRTP Act, 1969.

The amendments of MRTP Act would only be beneficial for curbing monopolies and
it wouldn’t be effective for fair competition in the market economy. It was perceived
by the Raghavan Committee that drafting a new and modern competition law
suitable for the Indian economy would be most beneficial for promoting competition
and suitable for dealing with issues of the competition of the new liberal business
atmosphere, which was the main focus of the Indian Govt.
This led to the enactment of the Competition Act.

13
 

Objectives of Competition Policy

The NCP aims 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 endeavor to:

i. preserves the competition process, to protect competition, and to encourage

competition in markets so as to optimize efficiency and maximize consumer welfare,

ii. 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 organizations etc.,

iii. 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,

iv. ensure competition in regulated sectors and to ensure institutional coherence for
synergized relationship between and among the sectoral regulators and/or the
competition regulators and prevent jurisdictional grid locks,

v. strives for a single national market as fragmented markets are impediments to

competition and growth, and

vi. ensure that consumers enjoy greater benefits in terms of wider choices and better
quality of goods and services at competitive prices.

Strategy for Implementation of Competition Policy

The initiatives proposed under this Policy Statement along with time lines and
milestones will be evolved, formulated and implemented by the Government and all
other stakeholders within twelve months of the adoption of the NCP.

14
These would include inter alia approval of Competition Policy, establishment of
National Competition Policy Council, constitution of in-house cells in the Ministries/
Departments of Central and State Governments, formulation of an incentive scheme,
and all steps needed to implement the Policy effectively.

Principles of Competition Policy

Taking into account the needs of and priorities for promoting a healthy competition

culture, the principles of the National Competition Policy shall include:

i. Effective prevention of anti-competitive conduct:

The Competition Act, 2002 prohibits anti-competitive agreements and combinations

which have or are likely to have appreciable adverse effect on competition. It also
seeks to prohibit abuse of dominant position by an enterprise. There should be
effective control of anticompetitive conduct which causes or is likely to cause
appreciable adverse effect on competition in the markets within India. The Act
establishes the CCI as the sole national body to enforce the provisions of the Act.
The implementation of NCP will strengthen the competition culture in the country and
complement the endeavours of CCI.

ii. Institutional separation between policy making, operations and regulation

i.e. operations in and regulation of a sector should be independent of the

government branch which deals with policy formulation in the sector and is
accountable to the Legislature.

iii. Fair market process:

Market regulation procedures, whether by public authorities, regulatory bodies or

through self-regulatory mechanism, should be rule bound, transparent, fair and non-
discriminatory. Public interest tests are to be used to assess the desirability and
proportionality of policies and regulations, and these would be subject to regular
independent review.

iv. ‘Competitive neutrality’

‘Competitive neutrality’ Such as adoption of policies which establish a ‘level

15
playing field’ where government businesses compete with the private sector and vice
versa, etc.

v. Fair pricing and inclusionary behaviour, particularly of public utilities, which

could be imbued with monopolistic characteristics.

vi. Third party access to ‘essential facilities’, i.e. requiring dominant infrastructure
and intellectual property right owners to grant access to third parties their essential
infrastructure and platforms (e.g., electricity, communications, gas pipe lines, railway
tracks, ports, IT equipment etc) on agreed reasonable and non-discriminatory terms
and conditions aligned with competition principles.

vii. Public policies and programmes to work towards promotion of competition

in the market place; i.e. all policies and laws should use the touchstone of
competition in their formulation and implementation.

viii. National, regional and international co-operation in the field of competition

policy enforcement and advocacy.

16
Deviations from Principles of Competition Policy
 

Any deviation from the principles of competition should be only to meet desirable
social

or other national objectives, which should be clearly spelt out. The deviations should
adhere to the following rules:

i. the desirable objective be well defined,

ii. should be decided in a transparent and rule bound manner,

iii. should be non–discriminatory between public and private enterprises

iv. the mode, manner and extent of deviation should have the least anticompetitive

effect.

There should be accountability in the process so that deviations are not made
without adhering to the accepted competition principles. As a general rule, any
deviation should be an exception with pre-determined tenure. There should be an
inbuilt sun-set clause to limit its continuation until it is found necessary.

17
 Types of anti-competitive agreement (Vertical and horizontal
agreement)
 

Competition law in all over the world usually place anti-competitive agreements in
two categories namely

·       Horizontal Agreement

·       Vertical Agreement

Horizontal agreements are those between competitors, i.e., entities at the same level
of distribution. Vertical agreements are those between parties on different levels of
the chain of distribution, such as between a manufacturer and a distributor, or
between a wholesaler and a retailer. Agreements through which restraints are
imposed between competitors have traditionally been denominated as horizontal
agreements, and those imposed by agreement between firms at different levels of
distribution as vertical agreements. Horizontal agreements can prompt violations of
competition law because such agreements may include clauses which restrict
competition. It can be said that all anticompetitive effects are of necessity horizontal,
since all competition is horizontal, but that such horizontal effects can result from
either horizontal or vertical agreements.

Typology of Horizontal Agreements

There can be innumerable ways in which market players interact and conduct their
business in a market. Collusion in the form of horizontal agreements can take
various forms. It is pertinent to discuss here the major ways in which market players
indulge in horizontal anticompetitive agreements.

a. Price fixing

Agreements through which the companies mutually set the prices that they want to
charge in the market are called price fixing agreements. Imagine a market where
four firms manufacturing cement agree to sell their products at fixed prices.
Although, sometimes a slight increase in the price of each product hardly matters to
a consumer; such price fixing will ultimately generate huge profits for the colluders.
Other types of price-fixing agreements include agreements that jointly predetermine
the size of profit margins, the extent of discounts and the level of price increases.

18
b. Market Sharing

Another common horizontal agreement amongst competitors is market sharing.

These are also called market allocation and market division agreements. Under such
agreements, the competitors agree to divide amongst themselves specific territories,
customers, or products. Such market allocating actions are restrictive in nature
because they leave no room for competition in the market. For example, an
agreement amongst competitors to allot certain customers to particular sellers and to
allocate or divide sale territories would be anticompetitive.

c. Bid-rigging

Bid rigging takes place when bidders collude and keep the bid amount at a pre-
determined level. Such pre-determination is by way of intentional manipulation by the
members of the bidding group. Bidders could be actual or potential ones but they
collude and act in concert. Bid rigging is the way that conspiring competitors
effectively raise prices where purchasers-- often various departments and authorities
of the Government acquire goods or services by soliciting competing bids.

d. Output limitation

There can be a scenario where competitors agree to restrict and control the
production thereby controlling the supply in the market. Output restrictions can take
place through various forms including agreements on production volumes and
agreements on sales volumes. The objective of controlling and limiting supplies is to
create scarcity in the market and subsequently raise prices in the market. Such
output restriction agreements lead to dead weight loss in the society.

19
 

Why is it important for India to have a competition policy?

The Prime minister’s vision of achieving a $5-trillion economy by 2025 seems to be

under a cloud. The Rs 20-lakh-crore economic package to stimulate growth during
and post Covid-19 crisis may take time to bear fruits. However, current
macroeconomic indicators do not support the initial euphoria. Moody’s downgraded
India’s ratings-outlook from ‘stable’ to ‘negative’ in November 2019, Fitch Ratings
released in May projected a 5% decline in growth; even IMF’s recent report on June
24 has projected India’s economy to contract by 4.5% in FY21. IMF has also slashed
India’s growth rate to 1.9% in FY21. There is an urgent need for deeper and long-
term economic reforms which can, inter alia, enhance competitiveness by eliminating
distortionary market practices to usher economic growth across sectors. India has
failed to introduce a culture of fair competition in our markets, an essential ingredient
for the success of a free-market economy. Why has this not happened so far? Let’
us look back for a while.

The 1991 reforms introduced the concept of “free markets” to India. They were
aimed to gear up the economy to face competition from within as well as outside.
This 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 now compete for his patronage, particularly in some sectors like
telecommunication, aviation, consumer electronics, automobiles, etc. In sectors like
power, ports, mining, electricity, railways, etc, the benefits of competition are yet to
reach to the consumers.

It is time for India to have a National National Competition Policy (NCP). Competition
policy refers to “those government measures that directly affect the behaviour of
enterprises and the structure of industry” to maximise total welfare, i.e., the total of
consumer’s surplus and producer’s surplus, as well as taxes collected by the
government. However, to be effective in a democracy, such policies should have the

20
cover of the law. The Competition Act, 2002 (Act) which replaced the archaic MRTP
Act, 1969 already exists to provide the statutory cover for the NCP. Control of anti-
competitive agreements and prevention of abuse of dominant positions by large
enterprises, regulation of combinations and competition advocacy are broad thrust
areas under the Act. CCI is the statutory body created to enforce the Act, with a
mandate to preserve, protect and promote competition in Indian markets. Although
enacted in 2002, the Act was brought into force in a phased manner since May 2009.
But we have not utilised CCI’s full potential due to the absence of a national
competition policy. National competition policies proved a key structural reform to
boost economic growth in many developed countries.

In the absence of NCP, the benefits of competition are yet to reach all the sectors.
Sectors like coal mining have been under monopoly control of the state via PSUs like
the Coal India. Other ostensibly “open” sectors have not been able to reap the
benefits of competition due to strong governmental interference, particularly the
power sector. Although the Electricity Act, 2003, enacted simultaneously with the
Competition Act, introduced bold legislative reforms, such as mandating competitive-
bidding, open access etc., 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, public procurement, which constitutes
approximately 20-30% of our GDP, continues to be infested with cartelisation. No
serious attempt has been made except for occasional references made by some
large public procurement organisations such as DG S&D, Railways, FCI, etc., to
CCI. This appears to be partly due to corrupt nexus between politicians, government
officials & bidders and partly due to a general ignorance towards benefits of
competition. This apathy and ignorance can be best cured if India adopts NCP as a
part of its Directive Principles. NCP will ensure each policy regulation and law is
screened based on impact, if any, on the state of competition. However, this requires
a strong political will.

A 2014 report of OECD, concluded that effective competition policy could result in an
extra 2-3% growth. Australia demonstrated this in 2005. Apart from Australia,
competition policy has also been adopted and implemented by the UK, Denmark,

21
Italy, Turkey, Mexico, Hong-Kong, Malawi and Botswana. Recently, the Philippines
adopted NCP. In India, however, a draft NCP, formulated in November 2011, is
gathering dust in the files of the ministry of corporate affairs, despite the three-year
agenda of the NITI Aayog recommending comprehensive competition policy reforms.

Recently announced initiatives to introduce limited privatisation of Indian Railways 

for select routes for passenger train services indicates growing realisation of the
importance of introducing competition in the public sector. But such ad hoc initiatives
must be institutionalised and implemented after the adoption of a well-considered
and thoroughly debated NCP, which will be a challenge since PM Modi will have to
build a national consensus.

As stated, the benefits of competition law, though in force for the last 10 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, which constitutes approximately 20-30% of our
GDP , 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 made
by some 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 NCP as a part of its Directive
Principles of State Policy under the Constitution of India which each and every policy
, regulations and even laws will be first required to be screened from the angle of

22
their impact ,if any, on the state of competition prevailing in the relevant markets. -An
effective NCP can bring in that much needed extra boost to the economy. The
successful implementation of such a National Competition Policy leading to higher
growth has been demonstrated particularly in Australia in 2005, where after the
Council of Australian Governments (CoAG) adopted a National Competition Policy in
1995, found that productivity and price changes in infrastructure sectors , where
competition reforms were implemented boosted Austria’s GDP by 2.5
percent .Similarly , South Africa saw positive effects on total productivity factor
because of implementation of competition policy. From a 2014 report of OECD, there
appears to be a consensus that effective competition policy can result in an extra 2-3
percent growth. The absence of effective competition policy has been identified as
one of the causes of economic problems faced by nations. Apart from Australia,
competition policy has also been adopted and implemented by UK, Denmark, Italy,
Turkey, Mexico, Hong-Kong, Malawi and Botswana. Recently, The Philippines has
adopted a NCP. In India, however, a draft NCP, formulated in November 2011, is
gathering dust in the corridors of the Ministry of Corporate Affairs, despite the Three-
year agenda by the NITI Aayog recommending comprehensive competition policy
reforms. India’s NCP should focus on promoting free and fair competition by focusing
on competitive neutrality i.e. creating level playing field between all private and public
sectors and gradual opening of sectors such as mining, ports, railways, and
electricity towards true competition. A recent study1 by CUTS - CIRC has also
showed that an early adoption of NCP is essential for utilizing the full potential of
digital economy in the wake of contemplated major disruptive trends like Internet Of
Things, Machine to Machine learning, 5G etc. The recent government initiatives to
introduce limited privatisation of Indian Railways by introducing 109 pairs of routes
for private train operations for passenger train servicesindicate PM Modi’s growing
realisation of importance of introducing competition in public sector. However, such
ad hoc initiatives may not give the desired results, unless institutionalised and
implemented after adoption of a wellconsidered and thoroughly debated NCP, which
will be a challenge to PM Modi to bring national consensus of all political parties.

23
Why is it important for all the countries to have a competition
policy?

Competition fosters economic welfare and makes markets work for development.
The World Bank Group supports clients in promoting and implementing pro-
competition rules in key sectors, deterring anticompetitive business practices, and
minimizing distortive government interventions in markets. Many markets in
developing countries do not yet benefit fully from healthy and effective competition,
and government interventions often fail to provide firms with the right incentives to
compete. At the regional, national, and subnational levels, sector-specific rules and
regulations frequently limit market entry or reinforce the dominance of a few firms.
Although more than 100 countries have enacted competition laws, anticompetitive
practices continue, especially in developing countries. Regulatory frameworks often
fail to ensure that more efficient market players can compete on a level playing field.
State-owned enterprises (SoEs) tend to be more significant market participants in
developing countries and to benefit from undue competitive advantages. Restrictions
are more prevalent in non-tradable services with significant spillover effects.

Anticompetitive business practices have been detected in various markets that are
important for a country’s overall competitiveness and poverty alleviation. Cartels,
which increase prices in affected goods and services by at least 20 percent, have
been found in markets such as fertilizer, cement, and transportation services. Staple
consumer products such as bread and sugar, and critical financial services ranging
from electronic payment systems to insurance, cost consumers more due to cartels
and abuse of dominance. Bid rigging in public procurement is prevalent in
construction, transportation, and health sectors.

The Markets and Competition Policy cluster of the World Bank Group works in more
than 60 countries across regions, at the national, subnational and regional level, to
offer implementation support, technical advice and capacity building on:

Designing pro-competition market regulation.  Opening specific markets to

competition, reducing government interventions that may shelter less efficient firms,
protect incumbents or facilitate collusion, including sector-specific regulatory design.

24
Embedding competition principles in broader public policies. Implementing effective
competition advocacy strategies, national competition policies, state aid, and infusing
competition principles in regulatory reforms.

Reforming the competition framework and its implementation. Design of anticartel

programs (including leniency), merger control, market and competition analysis
techniques, institutional effectiveness of competition authorities, and advocacy
strategies across government agencies.

Fostering competitive neutrality in markets with direct state participation. Designing

mechanisms that minimize the distortive effects of incentives and state aid support
and promote competitive neutrality among market players.

Market and competition reforms foster efficient regulatory frameworks in key sectors,
deter anticompetitive business practices, and minimize distortive government
interventions in markets. Such reforms improve market contestability, lead to entry of
new firms, expansion of efficiently operating firms, and changes in the behavior of
firms with market power. The resulting improvements in markup benefit both firms
and households and lead to potential increases in sector productivity (dynamic
efficiency within firms and allocative efficiency between firms), exports, investment,
and consumption. These changes subsequently translate into increases in aggregate
output, employment, and consumer welfare.

In Kenya, the World Bank Group is advising the government on competition

regulations that will break up cartels in key economic sectors. With the enactment of
these regulations, anticompetitive agreements will be prohibited and removed,
generating private savings for firms and households. Estimates indicate savings of
about $18 million annually in insurance markets alone. In addition, sector-specific
work in agribusiness has helped unlock key markets that were closed to private
investment because of statutory state monopolies. We are helping stakeholders draft
bylaws that will allow private participation in previously monopolized markets.

In the Philippines, the World Bank Group has helped implement reforms that
dramatically cut the time needed to register new vessels. One result is that
incumbent operators are no longer able to prevent new companies from serving

25
certain routes. This translates into a potential 5 percent savings in transport logistics
costs.

By promoting equal treatment for firms seeking to register for agriculture inputs, the
World Bank Group helped Honduras more than triple the amount of products
registered per year and decreased the prices of some pesticides by as much as 9
percent.

26
 

International dimensions of competition policy

As trade and investment regimes are liberalized in most developing countries, the
inflow of foreign products and companies creates new challenges for competition
policy. While Governments regulate domestic markets through various measures,
including a competition regime, there is little regulation of international markets.
Added to this complexity, very few people in developed and developing countries
appreciate the international dimension of competition policy and its integral
relationship with trade and consumer welfare, and national economic development.
In order to face these challenges, countries require, in the first place, a national
competition regime, backed by adequate resources. This would allow them to
investigate and prosecute anti-competitive behaviour by transnational corporations
operating in the domestic economy and to regulate them as appropriate. However,
developing country competition authorities, in general, do not have the resources or
the experience to tackle international competition challenges. Cartel cases are
notoriously difficult to prove, even for the American and European authorities dealing
with companies based in their territories. It will therefore be almost impossible for a
developing country to carry out the tedious casework involved and conduct the
necessary investigations leading to prosecution. One way is to have cooperation
agreements with developed countries. This can best be done in a multilateral
framework, rather than on a bilateral basis, because of the sheer number of bilateral
agreements that would be needed. Proposals for a multilateral framework, where
cooperation is a major issue, are currently under discussion at UNCTAD and WTO.
Several other initiatives are also being pursued in various forums, to build capacity in
developing countries and enable discussions among lawyers dealing with
competition issues in various countries.3 High-level policy dialogue to develop
mutual understanding, identification of “best practices” and provision of informal
advice and feedback on the entire range of competition policy issues are other aims.
Various regional initiatives are also in place. In the Asian and Pacific region, a
working group on competition policy and deregulation was set up under Asia-Pacific
Economic Cooperation (APEC) to discuss competition policy and issues of
deregulation. APEC’s most important and substantive output in the competition

27
policy field has been the APEC Principles to Enhance Competition and Regulatory
Reform, adopted at a ministerial meeting in 1999.

There is a growing consensus that there is a case for a multilateral competition

framework, but there is by no means any agreement on what its scope and contours
should be and on where the body to enforce it should be situated. UNCTAD has a
long history of working on competition policy and could be a non-controversial forum
for anchoring a multilateral competition agreement. However, it has very little
background in negotiating international issues, except for commodity agreements,
and it has no enforcement mechanism. The issues pertaining to competition were
included in the Uruguay Round negotiations, although no separate agreement on
trade and competition policy was negotiated. Three WTO Agreements contain
provisions related to competition policy, namely Trade-Related Investment Measures
(TRIMs), the General Agreement on Trade in Services (GATS) and Traderelated
Aspects of Intellectual Property Rights (TRIPs). The Ministerial Declaration signed at
Doha refers to further work to be undertaken by the Working Group on the
Interaction between Trade and Competition Policy related to core principles on
transparency, non-discrimination, procedural fairness and recognition of the ills of
hard-core cartels. It also includes the development of flexible cooperation modalities
and technical cooperation. Five years after its introduction in the WTO arena through
the Singapore Ministerial Declaration in 1996, members have finally recognized the
case for addressing these competition policy issues and there are possibilities that
negotiations may be launched after the Fifth Ministerial Meeting, to be held in
November 2003. Creating a competition culture Competition law is subject to
appropriate adaptation depending on local needs, aspirations and socio-economic,
cultural and legal conditions. Traditionally, competition law and the competition
authorities deal with issues that fall under three broad headings: • Control of
monopoly or abuse of dominance; • Restrictive trade practices and other anti-
competitive agreements; • Regulation of combinations such as mergers, acquisitions
and takeovers. It can be argued that competition advocacy should be given equal
weight with any of the three traditional functions. A healthy competition culture is the
hallmark of a good competition regime and competition advocacy is a basic
prerequisite for this. The lacklustre performance of competition policy and law in
many countries in the Asian and Pacific region is primarily due to the failure to

28
recognize the importance of competition advocacy. A properly designed advocacy
programme plays an important role in discouraging and sometimes eliminating anti-
competitive practices. As prevention is always better than cure, advocacy not only
reduces the incidence of anti-competitive practices but also substantially reduces the
need for enforcement action, thus saving costs on both counts. In this regard it is
extremely important that civil society, WTO seems to be the most active forum
tackling international competition policy issues Competition advocacy has not
received as much attention as it warrants 85 especially consumer organizations, be
closely involved in the advocacy efforts of the competition authorities. This will give
not only better outreach but also acceptability as there is a danger otherwise that the
efforts of the competition authorities may be taken as a mere publicity drive. An
active consumer movement makes a significant difference to the effectiveness of
competition law in other ways also. Empowered consumers and representative
organizations will bring anti-competitive practices, including abuse of dominance and
collusion, to the attention of the competition authority. They will also act as a
countervailing power to businesses to ensure successful implementation of
competition law. Thus, competition law should also include the right of consumer
organizations to bring complaints to the competition authority. This would also help
to deal with resource problems, where the competition authority’s budget limits
investigative capacity. Consumers also need to be included in the consultative
process for policy questions. Putting the consumer at the heart of the legislation
makes it more likely that the benefits of competition policy and law will be shared
widely (CUTS 2002). Many consumers are not aware of the relevance of competition
policy, and consumer organizations have an important role in demonstrating the
importance of competition policy by linking it to everyday experiences with which
people are familiar. However, the consumer movement is not yet well developed in
many countries of the region. That is a concomitant task for building a healthy
competition culture. One important spin-off of developing a consumer movement is
its impact on the whole economic agenda of the country: consumers generally
support reforms so as to get better goods and services at lower prices and good
governance to ensure that the systems work effectively. Unfortunately, firms are
better organized and financed, and often act as a powerful constituency against
competition policies and laws, which directly affect their interests. In fact in many
countries of the region, such as Thailand or Indonesia, enforcement of a competition
29
law would meet with strong pressure from the business lobby. In India the business
lobby has worked hard against the enactment of a new, modern competition law.
Thus, a strong and vibrant consumer movement is an important factor in the success
of legislation on competition. It can also check undue interference on the part of the
Government in the affairs of competition and regulatory authorities, which otherwise
is so prevalent in the region.

30
 Main areas covered by Competition Policy
 

·   Restrictive practices for instance, collusion by competitor firms to fix prices

are generally prohibited under competition policy, though this is not the case
with all collaboration. It is increasingly common for even the largest
multinational firms to collaborate with competitors in areas such as research
and development.

·   With monopolies, it is the abuse of a monopoly position, rather than its

existence per se, that is addressed through policy. The regulation of privatized
utilities illustrates this point clearly. The transfer of large numbers of state-
owned utilities into the private sector necessitated regulatory strategies to
maintain the benefits of economies of scale associated with a monopoly
network provider, while combining this with the introduction of competition
where possible. 

·   Mergers have traditionally been the most controversial, and consequently, the
most politicized, of the areas of competition policy, not least because the
judgment required as to whether a particular merger will result in a damaging
reduction in competition that outweighs any potential benefits is, frequently,
debatable.

Government Initiatives

·   Central Government Initiatives

1.  Establishment of National Competition Policy Council (NCPC) for

overseeing and coordinating the implementation of this Policy.

2.  Review of such existing policies, statutes and regulations, which may
restrict or undermine competition, shall be undertaken with a view to
removing or minimising their competition restricting effect.

3.  Undertake Competition Impact Assessment, as outlined in subsequent

paragraphs, of proposed policies, statutes or regulations that affect
competition.

4.  Integrate principles of competition in all regulatory regimes , and

ensure gradual dilution of the regime in a progressive manner as
competition becomes effective in the regulated sector.

31
 5.  Ensure functional and financial autonomy of competition and regulatory
authorities to enable them to perform effectively.

6.  To ensure third party access in the interest of effective competition, to

essential facilities in the infrastructure sector owned by a dominant
enterprise on reasonable and fair agreed terms.

7.  Incorporate provisions related to competition policy in multilateral,

bilateral and regional trade agreements, which will help in preventing
anti-competitive behaviour and potential anti-competitive cross-border
conduct.

8.  Encourage all Departments/Ministries to set up in-house cells to

undertake Competition Impact Assessment of various policies,
statutes, regulations/rules enforced by them. The in-house cell in a
Department/Ministry will be headed by a senior officer, not below the
rank of Joint Secretary of the Ministry/ Department concerned.

9.  Encourage State governments to undertake pro- competition reforms

keeping in mind the principles of NCP and provide a suitable
incentivising mechanism for undertaking such reforms.

·   State Government Initiatives

1.  The State Governments may undertake a review of their existing and proposed
policies, laws or regulations from the competition perspective and also undertake
Competition Impact Assessment of proposed policy, law and regulations.

2.  The State Government may ask all their Departments/Ministries to set up similar in-
house cells to undertake Competition Impact Assessment of various policies,
statutes, regulations/rules enforced by them.

·   Sub-State Authority Initiatives

1.  The laws, regulations and policies which govern the sub-State authorities may be
reviewed so as to align them with the principles of the Competition Policy.

2.  Future, laws, regulations and policies may be subjected to a Competition Impact
Assessment.

3.  State Government may encourage sub-State Governments to set up similar in-house
cells to undertake Competition Impact Assessment of various laws, regulations and
policies enforced by them.

32
 Bibliography

1. https://docs.google.com/document/d/
1AxxxJo0lJ3XIi0kZdPT5tTWalZfAY3uuBTZG57EIONQ/edit?usp=sharing

2. https://www.caclubindia.com/news/national-competition-policy-constituted-
10877.asp#.UBlxTaOMJCw

3. https://en.wikipedia.org/wiki/Competition_Commission_of_India

4. https://en.wikipedia.org/wiki/National_Competition_Policy_(India)

33