Addressing Mr Sudarshan8217;s fears

Lafarge of France picks up Tisco's two million tonne cement plant for Rs 550 crore last November. Lafarge bids for Grasim's 1.8 million to...

Lafarge of France picks up Tisco8217;s two million tonne cement plant for Rs 550 crore last November. Lafarge bids for Grasim8217;s 1.8 million tonne unit in Madhya Pradesh, a few days ago. If this goes through, within the space of just four months, Lafarge8217;s capacity will touch close to half that of market leader Gujarat Ambuja, capacity which it took Ambuja over a decade to set up, and buy over. Is that frightening and a sign of the times to come, or is it desirable and good for consumers?

Clearly a matter of debate, the issue is bound to hot up dramatically, with a new, pro-active and pro-swadeshi RSS chief just taking over, and President Clinton8217;s visit focussing attention to the havoc that is seen to being wrought upon Indian industry. The distinct possibility of having to allow imports of second-hand cars, for instance, is projected by many as yet another instance of how Indian industry is poised to be wiped out.

At one level, that at which most of us in the English-language media react, it8217;s not even an issue. Consumers will benefit, is our standard though not-wholly-incorrect response, from the inevitable lowering of prices, just as they have from the car wars, the refrigerator wars, the television wars, and so on. You name the sector, and increased competition and foreign presence has lead to a sharp increase in the number of products available, reduction in prices and/or more product features, certainly more value for money. In the cement industry, for instance, Lafarge8217;s entry they actually began directing affairs at Tisco8217;s plant close to a year before the formal acquisition resulted in a sharp cut in prices. In Calcutta, prices of cement fell from Rs 150 a bag in April last year to as low as 112 by December, from Rs 175 to 126 in Siliguri, Rs 136 to 116 in Patna, and so on.

Put the same question to the beleagured cement majors 8212; the Neotias of Ambuja, the Singhanias of Raymond, the Birlas of Grasim 8212; and you8217;ll get a totally different answer. They8217;ll tell you that Lafarge is adopting predatory pricing, to make the industry go sick, so that it can buy them all up 8212; the fact that Grasim8217;s unit is now up for sale is reportedly an example of how this predatory pricing works. And in case you think that8217;s just paranoid utterings of losers, take a look at what the ultra right-wing Atilde;sup2;f40Atilde;sup3;Economist magazine had to say of a similar trend in south-east Asia last June.

Six multinational giants, the Atilde;sup2;f40Atilde;sup3;Economist says, 8220;are jockeying to divide up the world8217;s markets. Whenever an otherwise fast-growing market has a 8230; downturn, these multinationals go on a buying spree 8230; to extend their reach.8221; From North America, to Eastern Europe, to Mexico and Latin America, and now Asia, these six 8212; Switzerland8217;s Holderbank, France8217;s Lafarge, Britain8217;s Blue Circle, Mexico8217;s Cemex, Germany8217;s Heidelberger Zement, France8217;s Ciments Francaise and Italy8217;s Italcementi 8212; are jockeying to carve up the world8217;s markets. In Asia, when the Atilde;sup2;f40Atilde;sup3;Economist reported the event, they controlled 60 percent of capacity, up from less than 20 percent two years ago.

Multiply examples like this across a variety of industries, and you begin to understand some of the fears being raised by domestic industry, and organisations such as the Swadeshi Jagran Manch. But even so, the feeling persists: consumers do benefit from competition. And every new entrant Indian or foreign does reduce prices as an entry strategy 8212; Toyota8217;s Qualis does look under-priced for its features, but the firm very clearly says its an entry-strategy. And, when swamped by vastly superior cars from the Koreans last year, Maruti Udyog did resort to huge price cuts which helped keep the competition at bay partially and hit its bottomline seriously. So, where do you draw the line between predatory pricing and healthy competition? How do you figure out if Lafarge is just indulging in good competition, or if it is taking advantage of its deep pockets and incurring huge losses to drive the others out of business?

The only way to resolve the issue is for the government to set up its Competition Commission as early as possible, and staff it along the lines of similar Fair Practice Commissions in countries like the US and the UK. A Commission which is staffed by top-notch economists, accountants, lawyers, and what have you. A Commission to which a Gujarat Ambuja can legitimately take a complaint of predatory pricing by Lafarge to, and one which has the ability to actually study the matter in its entirety. It was this kind of a body to regulate all aspects of competition in the US, for instance, that resulted in the Justice Department taking on Microsoft, and successfully charging it of indulging in anti-competitive practices.

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With foreign competition really hotting up, clearly such a body is urgently required to do justice to what promise to be a series of polemical debates, as and when local companies get bought over. There8217;s an added political benefit: the RSS8217; new chief, K.S. Sudarshan, will feel that his fears are being addressed by the government.