Unit –II-MBM 208 – Reference handouts

I. Political Environment:

Political Variables Political Risks Political Strategies

Sovereignty  Sanctions  Planned
domestication
Forms of Govt.  Confiscation
 Broad basing
 Parliamentarian  Expropriation
 Absolutist  Pay-offs
 Nationalization
Political Parties &  Lobbying
ideologies (SINGLE-  Domestication
DUAL-MULTIPARY)  Political bargaining
 Economic (price,
Political Stability exchange, taxes-  Insurance
control
 Local content
 Political activism

II. India - The political & Constitutional Framework:

INDIAN POLITICS ENTERED a new era at the beginning of the 1990s. The period of
political domination by the Congress (I) branch of the Indian National Congress came to an
end with the party's defeat in the 1989 general elections, and India began a period of
intense multiparty political competition. Even though the Congress (I) regained power as a
minority government in 1991, its grasp on power was precarious. The Nehruvian socialist
ideology that the party had used to fashion India's political agenda had lost much of its
popular appeal. The Congress (I) political leadership had lost the mantle of moral integrity
inherited from the Indian National Congress's role in the independence movement, and it
was widely viewed as corrupt. Support among key social bases of the Congress (I) political
coalition was seriously eroding. The main alternative to the Congress (I), the Bharatiya
Janata Party (BJP--Indian People's Party), embarked on a campaign to reorganize the
Indian electorate in an effort to create a Hindu nationalist majority coalition. Simultaneously,
such parties as the Janata Dal (People's Party), the Samajwadi Party (Socialist Party), and
the Bahujan Samaj Party (BSP--Party of Society's Majority) attempted to ascend to power
on the crest of an alliance of interests uniting Dalits , Backward Classes , Scheduled Tribes
and religious minorities.
The structure of India's federal--or union--system not only creates a strong central
government but also has facilitated the concentration of power in the central government in
general and in particular in the Office of the Prime Minister. This centralization of power has
been a source of considerable controversy and political tension. It is likely to further
exacerbate political conflict because of the increasing pluralism of the country's party
system and the growing diversity of interest-group representation.

Once viewed as a source of solutions for the country's economic and social problems, the
Indian polity is increasingly seen by political observers as the problem. When populist
political appeals stir the passions of the masses, government institutions appear less
capable than ever before of accommodating conflicts in a society mobilized along
competing ethnic and religious lines. In addition, law and order have become increasingly
tenuous because of the growing inability of the police to curb criminal activities and quell
communal disturbances. Indeed, many observers bemoan the "criminalization" of Indian
politics at a time when politicians routinely hire "muscle power" to improve their electoral
prospects, and criminals themselves successfully run for public office. These
circumstances have led some observers to conclude that India has entered into a growing
crisis of governability.

Few analysts would deny the gravity of India's problems, but some contend they have
occurred amidst the maturation of civil society and the emergence of new, more democratic
political practices. Backward Classes, the Dalits, and tribal peoples increasingly have
refused to rest content with the patronage and populism characteristic of the "Congress
system." Mobilization of these groups has provided a viable base for the political opposition
and unraveled the fabric of the Congress. Since the late 1970s, there has been a
proliferation of nongovernmental organizations. These groups made new demands on the
political system that required a substantial redistribution of political power, economic
resources, and social status.

Whether or not developments in Indian politics exacerbate the continuing problems or give
birth to greater democracy broadly hinges on efforts to resolve three key issues. How will
India's political system, now more than ever based on egalitarian democratic values,
accommodate the changes taking place in its hierarchical social system? How will the state
balance the need to recognize the interests of the country's remarkably heterogeneous
society with the imperatives of national unity? And, in the face of the declining legitimacy of
the Indian state and the continuing development of civil society, can the Indian state
regenerate its legitimacy, and if it is to do so, how should it redefine the boundaries
between state and society? India has confronted these issues throughout much of its
history. These issues, with their intrinsic tensions, will continue to serve as sources of
change in the continuing evolution of the Indian polity.

The Constitutional Framework

The constitution of India draws extensively from Western legal traditions in its outline of the
principles of liberal democracy. It is distinguished from many Western constitutions,
however, in its elaboration of principles reflecting the aspirations to end the inequities of
traditional social relations and enhance the social welfare of the population. According to
constitutional scholar Granville Austin, probably no other nation's constitution "has provided
so much impetus toward changing and rebuilding society for the common good." Since its
enactment, the constitution has fostered a steady concentration of power in the central
government--especially the Office of the Prime Minister. This centralization has occurred in
the face of the increasing assertiveness of an array of ethnic and caste groups across
Indian society. Increasingly, the government has responded to the resulting tensions by
resorting to the formidable array of authoritarian powers provided by the constitution.
Together with the public's perception of pervasive corruption among India's politicians, the
state's centralization of authority and increasing resort to coercive power have eroded its
legitimacy. However, a new assertiveness shown by the Supreme Court and the Election
Commission suggests that the remaining checks and balances among the country's
political institutions continue to support the resilience of Indian democracy.

Adopted after some two and one-half years of deliberation by the Constituent Assembly
that also acted as India's first legislature, the constitution was put into effect on January 26,
1950. Bhimrao Ramji (B.R.) Ambedkar, a Dalit who earned a law degree from Columbia
University, chaired the drafting committee of the constitution and shepherded it through
Constituent Assembly debates. Supporters of independent India's founding father,
Mohandas Karamchand (Mahatma) Gandhi, backed measures that would form a
decentralized polity with strong local administration--known as panchayat--in a system
known as panchayati raj , that is rule by panchayats . However, the support of more
modernist leaders, such as Jawaharlal Nehru, ultimately led to a parliamentary government
and a federal system with a strong central government. Following a British parliamentary
pattern, the constitution embodies the Fundamental Rights, which are similar to the United
States Bill of Rights, and a Supreme Court similar to that of the United States. It creates a
"sovereign democratic republic" called India, or Bharat (after the legendary king of the
Mahabharata ), which "shall be a Union of States." India is a federal system in which
residual powers of legislation remain with the central government, similar to that in
Canada. The constitution provides detailed lists dividing up powers between central and
state governments as in Australia, and it elaborates a set of Directive Principles of State
Policy as does the Irish constitution.

The 395 articles and ten appendixes, known as schedules, in the constitution make it one
of the longest and most detailed in the world. Schedules can be added to the constitution
by amendment. The ten schedules in force cover the designations of the states and union
territories; the emoluments for high-level officials; forms of oaths; allocation of the number
of seats in the Rajya Sabha (Council of States--the upper house of Parliament) per state or
territory; provisions for the administration and control of Scheduled Areas and Scheduled
Tribes provisions for the administration of tribal areas in Assam; the union (meaning central
government), state, and concurrent (dual) lists of responsibilities; the official languages;
land and tenure reforms; and the association of Sikkim with India.

The Indian constitution is also one of the most frequently amended constitutions in the
world. The first amendment came only a year after the adoption of the constitution and
instituted numerous minor changes. Many more amendments followed, and through June
1995 the constitution had been amended seventy-seven times, a rate of almost two

amendments per year since 1950. Most of the constitution can be amended after a quorum
of more than half of the members of each house in Parliament passes an amendment with
a two-thirds majority vote. Articles pertaining to the distribution of legislative authority
between the central and state governments must also be approved by 50 percent of the
state legislatures.

THE CONSTITUTION OF INDIA

Preamble

WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a
SOVEREIGN, SOCIALIST, SECULAR, DEMOCRATIC, REPUBLIC and to secure to all
its citizens:

JUSTICE, social, economic and political;

LIBERTY of thought, expression, belief, faith and worship;

EQUALITY of status and of opportunity;

And to promote among them all

FRATERNITY assuring the dignity of the individual and the unity and integrity of the
Nation

IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November 1949, do

HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION.

III. The MRTP Act, 1969

MONOPOLIES AND RESTRICTIVE TRADE PRACTICE COMMISSION

Director General (Investigation & Registration)

MRTPC
Bikaner House Baracks
Shahjahan Road
New Delhi 110011

Tel. No.: 011-23385961 / 23385970

Fax. No.: 011-23384965

The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted
1. To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few,
2. To provide for the control of monopolies, and
3. To prohibit monopolistic and restrictive trade practices.
Monopolistic Trade Practices

Monopolistic trade practice is one, which has or is likely to have the effect of:

1. Maintaining the prices of goods or charges for the services at an

unreasonable level by limiting, reducing or otherwise controlling the
production, supply or distribution of goods or services;
2. Unreasonably preventing or lessening competition in the production,
supply or distribution of any goods or services whether or not by adopting
unfair method or fair or deceptive practices;
3. Limiting technical development or capital investment to the common
detriment;

Restrictive Trade Practices

A restrictive trade practice is a trade practice, which

1. Prevents, distorts or restricts competition in any manner; or

2. Obstructs the flow of capital or resources into the stream of production; or
3. Which tends to bring about manipulation of prices or conditions of delivery
or effected the flow of supplies in the market of any goods or services,
imposing on the consumers unjustified cost or restrictions.

REGISTRABLE AGREEMENTS RELATING TO RESTRICTIVE TRADE

PRACTICES :

(a) any agreement which restricts, or is likely to restrict, by any method the
persons or classes of persons to whom goods are sold or from whom goods are
bought;

(b) any agreement requiring a purchaser of goods, as a condition of such

purchase, to purchaser some other goods;

(c) any agreement restricting in any manner the purchaser in the course of his
trade from acquiring or otherwise dealing in any goods other than those of the
seller or any other person;

(d) any agreement to purchase or sell goods or to tender for the sale or purchase
of goods only at prices or on terms or conditions agreed upon between the
sellers or purchasers;

(e) any agreement to grant or allow concessions or benefits, including

allowances, discounts, rebates or credit in connection with, or by reason of,
dealings;
(f) any agreement to sell goods on condition that the prices to be charged on re-
sale by the purchaser shall be the prices stipulated by the seller unless it is
clearly stated that prices lower than those prices may be charged;

(g) any agreement to limit, restrict or withhold the output or supply of any goods
or allocate any area or market for the disposal of the goods;

(h) any agreement not to employ or restrict the employment of any method,
machinery or process in the manufacture of goods;

(i) any agreement for the exclusion from any trade association of any person
carrying on or intending to carry on, in good faith the trade in relation to which the
trade association is formed;

(j) any agreement to sell goods at such prices as would have the effect of
eliminating competition or a competitor;

UTP categorised as under-

False Representation

The practice of making any oral or written statement or representation which:

1. Falsely suggests that the goods are of a particular standard quality,

quantity, grade, composition, style or model;
2. Falsely suggests that the services are of a particular standard, quantity or
grade;
3. Falsely suggests any re-built, second-hand renovated, reconditioned or
old goods as new goods;
4. Makes a false or misleading representation concerning the need for, or the
usefulness of, any goods or services;
5. Gives any warranty or guarantee of the performance, efficacy or length of
life of the goods, that is not based on an adequate or proper test;
6. Materially misleads about the prices at which such goods or services are
available in the market; or
7. Gives false or misleading facts disparaging the goods, services or trade of
another person.

Free Gifts Offer And Prize Scheme

The unfair trade practices under this category are:
1. Offering any gifts, prizes or other items along with the goods when the real
intention is different, or
2. Creating impression that something is being offered free alongwith the
goods, when in fact the price is wholly or partly covered by the price of the
article sold, or
 3. Offering some prizes to the buyers by the conduct of any contest, lottery
or game of chance or skill, with real intention to promote sales or
business.

Remedies Under The MRTP Act The remedies available under this act are -

1.Temporary Injunction

Where, during any inquiry, the commission is satisfied that any undertaking or
any person is carrying on, or is about to carry on, any monopolistic, restrictive or
unfair trade practice, which is a pre-judicial to the public interest or the interest of
any trader or class of traders generally, or of any consumer or class of
consumers, or consumers generally, the commission may grant a temporary
injunction restraining such undertaking or person form carrying on such practice
until the conclusion of inquiry or until further orders.

2.Compensation

Where any monopolistic, restrictive or unfair trade practice has caused damage
to any Government, or trader or consumer, an application may be made to the
Commission asking for compensation, and the Commission may award
appropriate compensation.

Where any such loss or damage is caused to a number of persons having the
same interest, compensation can be claimed with the permission of the
commission, by any of them on behalf of all of them.

Powers Of The Commission

The MRTP Commission has the following powers:

1. Power of Civil Court under the Code of Civil Procedure, with respect to:
o Summoning and enforcing the attendance of any witness and
examining him on oath;
o Discovery and production of any document or other material object
producible as evidence;
o Reception of evidence on affidavits;
o Requisition of any public record from any court or office.
o Issuing any commission for examination of witness; and
o Appearance of parties and consequence of non-appearance.
2. Proceedings before the commission are deemed as judicial proceedings
with in the meaning of sections 193 and 228 of the Indian Penal Code.
3. To require any person to produce before it and to examine and keep any
books of accounts or other documents relating to the trade practice, in its
custody.
 4. To require any person to furnish such information as respects the trade
practice as may be required or such other information as may be in his
possession in relation to the trade carried on by any other person.
5. To authorise any of its officers to enter and search any undertaking or
seize any books or papers, relating to an undertaking, in relation to which
the inquiry is being made, if the commission suspects tat such books or
papers are being or may be destroyed, mutilated, altered, falsified or
secreted.

Introduction To Competition Act, 2002

Since attaining Independence in 1947,India, for the better part of half a century thereafter,
adopted and followed policies comprising what are known as Command-and-Control
laws, rules, regulations and executive orders. The competition law of India, namely, the
Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one
such. It was in 1991 that widespread economic reforms were undertaken and
consequently the march from Command-and-Control economy to an economy based
more on free market principles commenced its stride. As is true of many countries,
economic liberalisation has taken root in India and the need for an effective competition
regime has also been recognised.

In the context of the new economic policy paradigm, India has chosen to enact a new
competition law called the Competition Act, 2002. The MRTP Act has metamorphosed
into the new law, Competition Act, 2002. The new law is designed to repeal the extant
MRTP Act. As of now, only a few provisions of the new law have been brought into
force and the process of constituting the regulatory authority, namely, the Competition
Commission of India under the new Act, is on. The remaining provisions of the new law
will be brought into force in a phased manner. For the present, the outgoing law, MRTP
Act, 1969 and the new law, Competition Act, 2002 are concurrently in force, though as
mentioned above, only some provisions of the new law have been brought into force.

Objectives -

(i) To prevent practices having adverse effect on competition;

(ii) To promote and sustain competition in markets;

(iii) To protect the interests of consumers; and

(iv) To ensure freedom of trade carried on by other participants in markets.

Priority is accorded to maintain and encourage competition in order to foster

consumer welfare. The TRCCI would deal with agreements that cause or are
likely to cause an appreciable adverse effect on competition within India.

The TRCCI is empowered to:

  Award compensation to affected parties,
 Direct enterprises to discontinue any practice or agreement, (cease &
desist)
 Divest acquired assets; and
 Impose fines

Components Of Competition Act:

# Abuse of Dominance
# Combinations Regulation (Mergers. Takeovers, acquisitions etc.)
# Anti - Competition Agreements/ Restraints

1. Abuse Of Dominance

No enterprise shall abuse its dominant position. Dominant position is the

position of strength enjoyed by an enterprise in the relevant market which
enables it to operate independently of competitive forces prevailing in the
market or affects its competitors or consumers or the relevant market in its
favour. Dominant position is abused when an enterprise imposes unfair or
discriminatory conditions in purchase or sale of goods or services or in the
price in purchase or sale of goods or services. Again, the philosophy of the
Competition Act is reflected in this provision, where it is clarified that a
situation of monopoly per se is not against public policy but, rather, the use of
the monopoly status such that it operates to the detriment of potential and
actual competitors. At this point it is worth mentioning that the Act does not
prohibit or restrict enterprises from coming into dominance. There is no
control whatsoever to prevent enterprises from coming into or acquiring
position of dominance. All that the Act prohibits is the abuse of that dominant
position. The Act therefore targets the abuse of dominance and not dominance
per se. This is indeed a welcome step, a step towards a truly global and liberal
economy.

Some practices to check-

 PREDATORY PRICING
 MISUSE OF DOMINANCE
 TECHNOLOGICAL OR PRODUCTION RESTRICTIONS

2. The Act on Combinations Regulation

The Competition Act also is designed to regulate the operation and activities of
combinations, a term, which contemplates acquisitions, mergers or amalgamations. Thus,
the operation of the Competition Act is not confined to transactions strictly within the
boundaries of India but also such transactions involving entities existing and/or
established overseas.
Herein again lies the key to understanding the Competition Act. The intent of the
legislation is not to prevent the existence of a monopoly across the board. There is a
realisation in policy-making circles that in certain industries, the nature of their
operations and economies of scale indeed dictate the creation of a monopoly in order to
be able to operate and remain viable and profitable. This is in significant contrast to the
philosophy, which propelled the operation and application of the MRTP Act

Combination-Any merger or amalgamation in which—

(i) The enterprise remaining after merger or the enterprise created as a result of
the amalgamation, as the case may be, have,—
(A) Either in India, the assets of the value of more than rupees one thousand
crores or turnover more than rupees, three thousand crores; or
(B) In India or outside India, in aggregate, the assets of the value of more than
five hundred million US dollars or turnover more than fifteen hundred million US
dollars;
or
(ii) the group, to which the enterprise remaining after the merger or the enterprise
created as a result of the amalgamation, would belong after the merger or the
amalgamation, as the case may be, have or would have,—
(A) either in India, the assets of the value of more than rupees four-thousand
crores or turnover more than rupees twelve thousand crores; or

(B) in India or outside India, the assets of the value of more than two billion US
dollars or turnover more than six billion US dollars.

Rule of Reason:

Of determining whether a combination would have the effect of or is likely to have

an appreciable adverse effect on competition in the relevant market, the
Commission shall have due regard to all or any of the following factors, namely:
—

(a) Actual and potential level of competition through imports in the market;
(b) Extent of barriers to entry into the market;
(c) Level of combination in the market;
(d) Degree of countervailing power in the market;
(e) Likelihood that the combination would result in the parties to the combination
being able to significantly and sustainably increase prices or profit margins;
(f) Extent of effective competition likely to sustain in a market;
(g) Extent to which substitutes are available or are likely to be available in the
market;
(h) Market share, in the relevant market, of the persons or enterprise in a
combination, individually and as a combination;
(i) Likelihood that the combination would result in the removal of a vigorous
and effective competitor or competitors in the market;
(j) Nature and extent of vertical integration in the market;
(k) Possibility of a failing business;
(/) nature and extent of innovation;
(m) Relative advantage, by way of the contribution to the economic evelopment,
by any combination having or likely to have appreciable adverse effect on
competition;
(n) Whether the benefits of the combination outweigh the adverse impact of
the combination, if any.

3. Anti Competition Agreements

Firms enter into agreements, which may have the potential of restricting competition. A
scan of the competition laws in the world will show that they make a distinction between
horizontal and vertical agreements between firms. The former, namely the horizontal
agreements are those among competitors and the latter, namely the vertical agreements
are those relating to an actual or potential relationship of purchasing or selling to each
other. A particularly pernicious type of horizontal agreements is the cartel. Vertical
agreements are pernicious, if they are between firms in a position of dominance. Most
competition laws view vertical agreements generally more leniently than horizontal
agreements, as, prima facie, horizontal agreements are more likely to reduce competition
than agreements between firms in a purchaser - seller relationship.

In nut shell, any agreement amongst enterprises or persons at different stages or

levels of the production chain in different markets, in respect of production,
supply, distribution, storage, sale or price of, or trade in goods or provision of
services, including—

HORIZONTAL:
(a) Tie-in arrangement/ Product bundling
(b) Exclusive dealing
(c) Reciprocal exclusivity
(d) Refusal to deal;
(e) Resale price maintenance,
(f) Territorial restrictions

VERTICAL:
(a) Bid rigging
(b) Exclusionary practices
(c) Transfer pricing
(d) Price fixation
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IV. Foreign Trade snapshot of India:

External
 Exports $125 billion (Financial Year 2006-2007)

Textile goods, gems and jewelry, engineering goods, chemicals,

Export goods
leather manufactures, services

Main export US 18%, the People's Republic of China 8.9%, UAE 8.4%, UK
partners 4.7%, Hong Kong 4.2% (2005)

Imports $187.9 billion f.o.b. (2006 est.)

Import goods Crude oil, machinery, gems, fertilizer, chemicals

The People's Republic of China 7.2%, US 6.4%, Belgium 5.1%,

Main import
Singapore 4.7%, Australia 4.2%, Germany 4.2%, UK 4.1%
partners
(2005)

Trade –trend:

( US $ millions ) 1984 1994 2003 2004

Total Exports (fob) 10,061 26,855 62,952 76,345

Total imports (cif) 15,715 35,904 79,658 99,836

India’s Foreign Trade policy:

The Govt. of India, Ministry of Commerce and Industry announce Export Import
Policy every five years. The current policy covers the period 2007-2012. The
Export Import Policy (Foreign Trade Policy) is updated every year on the 31st of
March and the modifications, improvements and new schemes are effective
w.e.f. 1st April of every year.

Context of new Foreign Trade Policy -

Trade is not an end in itself, but a means to economic growth and national
development. The primary purpose is not the mere earning of foreign exchange,
but the stimulation of greater economic activity.
For India to become a major player in world trade, an all encompassing,
comprehensive view needs to be taken for the overall development of the
country's foreign trade. While increase in exports is of vital importance, we have
also to facilitate those imports which are required to stimulate our economy.
Coherence and consistency among trade and other economic policies is
important for maximizing the contribution of such policies to development. Thus,
while incorporating the existing practice of enunciating an annual Foreign Trade
Policy, it is necessary to go much beyond and take an integrated approach to the
developmental requirements of India's foreign trade.

The Foreign Trade Policy is built around two major objectives. These are:
 To double our percentage share of global merchandise trade within the
next five years; and
 To act as an effective instrument of economic growth by giving a thrust to
employment generation.

STRATEGY-For achieving these objectives, the following strategies need to be

adopted:
 Unshackling of controls and creating an atmosphere of trust and
transparency to unleash the innate entrepreneurship of our businessmen,
industrialists and traders.
 Simplifying procedures and bringing down transaction costs.
 Neutralizing incidence of all levies and duties on inputs used in export
products, based on the fundamental principle that duties and levies should
not be exported.
 Facilitating development of India as a global hub for manufacturing, trading
and services.
 Identifying and nurturing special focus areas which would generate
additional employment opportunities, particularly in semi-urban and rural
areas, and developing a series of 'Initiatives' for each of these.
 Facilitating technological and infrastructure up gradation of all the sectors of
the Indian economy, especially through import of capital goods and
equipment, thereby increasing value addition and productivity, while
attaining internationally accepted standards of quality.
 Activating our Embassies as key players in our export strategy and linking
our Commercial Wings abroad through an electronic platform for real time
trade intelligence and enquiry dissemination.

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