In fact: How India learnt to promote, and regulate, competitionhttps://indianexpress.com/article/explained/in-fact-how-india-learnt-to-promote-and-regulate-competition-2829625/

In fact: How India learnt to promote, and regulate, competition

As early as 2002, the first expert group made the point that it was important to ensure that the competition legislation does not become anti-competitive.

Soon after the National Democratic Alliance government led by Atal Bihari Vajpayee came to power in 1998, the Finance Minister, Yashwant Sinha, went on a trip to the United States to attend a meeting of the International Monetary Fund, and to meet top global investors in Boston. Prior to the meetings, Sinha had sought an appointment with a top professor at Harvard University who was known to be an expert on competition policy.

After discussions with him, and on Sinha’s return to India, a proposal to have a new law was floated. And for good reason. By then, several years had passed since India had removed almost all restrictions on industrial licensing by the famous 1991 Cabinet decision which came a little before the celebrated 1991 Budget. Yet, despite the early burst of reforms in the early 1990s and partly in the the 80s, and much talk of promoting competition and private enterprise, the age-old Monopolies and Restrictive Trade Practices Act or the MRTP Act, which had been designed for an era when the public sector occupied most core sectors, was still in force. Even countries as small as Malawi, which too had opened up in the early 1990s, had, by 1997, introduced a competition law on the lines of many other countries including the US and Canada, which had enacted such laws over a hundred years earlier.

So, in his 1999 Budget, Sinha announced the government’s intention to introduce a modern competition law for India — suitable for domestic conditions, to shift focus from curbing monopolies to promoting competition, and looking at global developments. S V S Raghavan, who headed the State Trading Corporation, was then appointed by the government to head a high-level committee to work on a competition law and policy.

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There was enough economic rationale for such a law. One, of course, was to discourage and prevent anti-competitive behaviour and practices, while protecting the interests of consumers. The Committee, which submitted its report in August 2000, while making out a case for a law, flagged a few major concerns that it said had to be kept in mind. It pointed out the prospect of quantitative restrictions or QRs being phased out by April 2001, and the danger of greater competition from abroad, given India’s low tariffs. And it wasn’t just the consumer goods industry that could be in trouble, the Committee said. There could be toymakers, plastic processors, textile firms and other manufacturers too. But more importantly, there was a clear argument for a competition law to prevent global cartels from indulging in anti-competitive practices in the country.

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Soon after the report was submitted, Prime Minister Vajpayee approved the setting up of a Group of Ministers headed by Finance Minister Sinha to work on the draft of the proposed new competition law, and also on a framework for the Competition Commission. The report of the Group of Ministers was approved by the Cabinet, and the Competition Bill was approved in 2002 — with Arun Jaitley, who then headed the Ministry of Corporate Affairs, piloting the legislation.

By January 2003, India’s Competition Act was notified, with a 10-member Competition Commission envisaged. The government had also by that time identified a civil servant, Commerce Secretary Deepak Chatterjee, to head the new regulatory body, which was supposed to have significant powers. This was supposed to be a post-retirement assignment for Chatterjee. But there was an objection in the Supreme Court to a bureaucrat heading what was perceived to be a quasi-judicial body. The Competition Commission was seen in the same way as SEBI and TRAI, regulators which had been empowered by then, and which had powers to issue orders directing firms in the sectors that they regulated. So, just before Chatterjee was to take over, this impasse prompted the government to step back.

The Commission was formed in October 2003, but without a chairman. The sole member on board was Vinod Dhall, who had worked in the Ministry of Corporate Affairs in the run-up to all this. As talks continued to sort the issue out, the government mollified Chatterjee by sending him to Brussels as India’s ambassador to the European Union. For the next several years, the Commission had a single member — or, like in the early days of SEBI, just a senior official in the form of the chairman, and a few staffers. By 2007, a formula was devised under which the Commission would have 7 members, while a 3-member Appellate Body which would hear appeals against the orders of the Commission, would be headed by a judge. This was a model based on what the NDA government had done earlier in the case of TRAI and subsequently, SEBI.

That paved the way finally for the functioning of a full fledged Competition Commission or an anti-trade abuse agency in India. Substantive provisions were introduced in 2009, and a former civil servant, Dhanendra Kumar, was appointed Chairman. His successor, former Finance Secretary Ashok Chawla, got a full five-year term.

As early as 2002, the first expert group made the point that it was important to ensure that the competition legislation does not become anti-competitive. That was the real danger, it said — making it all the more important to ensure that the law was precise, and discretion was kept to the minimum. The Commission will be tested on that.

Earlier this month, while delivering the Commission’s annual day lecture, Finance Minister Arun Jaitley had a few pertinent points to make. Russia, he said, upon opening up, had plumped for privatisation without promoting competition, leading to the creation of oligarchs. Being pro-business alone was not enough. “If you are pro-business without being pro-competition, the consequences could be very dangerous,” he warned. Indian policymakers ought to keep that in mind.

 

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