India Badly needs a National Competition Policy

Prime Minister’s vision of achieving US Dollar 5 Trillion Economy by 2025 seems to be under cloud now. The recent Rupees 20 lakh crore economic package to stimulate growth during and post COVID-19 crisis may take time to bear fruits, but current macroeconomic indicators do not support the initial euphoria. Moody’s downgraded India’s ratings from ‘stable’ to ‘negative’ in November 2019 , Fitch Ratings released in May projected  a 5 percent decline in growth to  minus 4.6% and even IMF’s recent report of 24th June has projected India’s economy to contract by 4.5% in 2020-21 and IMF has slashed India’s growth rate to 1.9% in FY 21. Clearly there is urgent need for some deeper and long-term economic reforms which can, inter alia, enhance competitiveness in the economy by eliminating market distortionary practices to usher economic growth in across sectors. India has failed to introduce a culture of fair competition in our markets which is the most essential ingredient for success of free market economy structure. Why has this not happened so far? Let’ us look back for a while.

The 1991 reforms introduced the concept of “Free markets” in the Indian economy and 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. However, the situation is not the same for all sectors like power, ports, mining, electricity, railways etc. and the benefits of competition are yet to reach to the consumers in these sectors.

What is National Competition Policy? – Competition policy refers to “those Government measures that directly affect the behavior of enterprises and the structure of industry” maximizes 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 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

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* The Author heads the Competition Law & Policy practice at Vaish Associates, Advocates, a Corporate, Tax and Business advisory Law firm in India. The author has relied on a recent CUTS International study. The views expressed are personal. 

broad thrust areas under the Act. The Competition Commission of India (“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 from May 2009. Apparently, we do not seem to have utilized CCI’s full potential due to absence of a national competition policy across all sectors. In this context, there is an urgent need to adopt a National Competition Policy (NCP) which has proved as a key structural reform to boost economic growth in many developed countries.

Why we need a national competition policy? -Though the Act has now been in force for last 11 years, in the absence of NCP, the benefits of competition have yet to reach to all sectors of our economy. Whereas Sectors like coal mining are still under 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 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, FCI  etc. to CCI. This appears to be partly due to corrupt nexus between politicians, government officials and the interested 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 of State Policy. NCP will ensure that each policy regulation and even laws will be first screened from the angle of their impact, if any, on the state of competition prevailing in the relevant markets. However, this requires a strong political will at the top.

How NCP will affect economic growth? – A 2014 report of OECD, concluded  that effective competition policy can result in an extra 2 to 3 percent growth. This has been demonstrated in Australia in 2005. 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 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 by the NITI Aayog recommending comprehensive competition policy reforms.

Has a beginning been made?  Recently announced initiatives to introduce limited privatisation of Indian Railways for select routes for passenger train services indicates growing realisation of importance of introducing competition in public sector. But such ad hoc initiatives must be institutionalised and implemented after adoption of a well-considered and thoroughly debated NCP, which will be a challenge to PM Modi to bring national consensus of all political parties. 

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