I set the rules, therefore I play

Ten days ago, the European Court of Justice handed down an outlandish ruling outlawing trade in cut-price goods. This has been rightly de...

Ten days ago, the European Court of Justice handed down an outlandish ruling outlawing trade in cut-price goods. This has been rightly decried by consumers and some EU governments as judicial support for price-fixing.

The Court was interpreting a 1988 European directive to mean that a trademark owner could prevent products bearing its label from being brought into European Union countries without its approval. Its ruling means that many EU consumers can no longer buy fancy brands of perfume, clothes, jeans and sportswear in their country at sharply discounted prices. A British retailer, rejected by upmarket firms as an 8220;official8221; retailer of their brands, could hitherto buy these goods at lower prices abroad and sell them cheaper than the official retailers through its discount stores. No longer.

It isn8217;t in India alone that consumers get taken for a ride in the interests of companies8217; profits and governments8217; unbridled power. But even so there are few to beat the Indian government for taking consumersto be prize suckers. One refers to the recent triumph of the Department of Telecommunications DoT over the Telecom Regulatory Authority of India TRAI in a court battle about whether or not the DoT had the authority to issue licences for cellphone operators.

The story, simply put, is that the DoT wishes to license MTNL to start cellphone services. The TRAI, the regulatory body for telecoms, said this could not be done until it recommended the quot;need and timingquot; for another competitor to safeguard competition. Private cellphone operators worry about MTNL advantages such as cross-subsidisation and no interconnect charges, and fear that its cheaper services would make them uncompetitive.

On the face of it, no one can quarrel with an operator providing cheap services. That is consumer welfare. It may also be hard to disagree with the court ruling on technical grounds: the TRAI Act clearly says that the government and not the TRAI will be the purveyor of licences. But wait. While the Act makes DoT thepurveyor of licences, it also says the TRAI will decide the time and need for fresh licences so the TRAI is not without a say in the matter after all. So much for interpreting the law.

The court was way out of line in portraying the DoT8217;s licensing power as a 8220;welfare8221; issue. Private companies, because of their own wrong assessment, bid high. Well, if the aim is to have a free market, let them pay for their follies, right? Caveat. The MTNL, being public sector, will pay no licence fee. For this and other reasons outlined above it can offer the services very much cheaper than its private-sector rivals. A level playing field?The private operators bid on a market assessment that did not could not take cheaper MTNL services into account. If the law had specified that the private operators would have the market to themselves for, say, five years, after which MTNL could enter the market, matters would be different. They would have something to go by. But no, that would tilt the field against the governmentcompany. So let MTNL, in the name of welfare and on the basis of arbitrariness and discrimination, force these companies out of the game and revert to the days of the monopoly operator.

No matter, enthusiastic consumers might say. With TRAI setting tariffs, they need have no fear of over-pricing. They would be kidding themselves. Haven8217;t they had sufficient experience of welfare in a situation of government monopoly all these years? Monopolies get fat from lack of competition. Government monopolies get to set their own labour policies even less than private ones. When push came to shove, would the TRAI allow high enough tariffs to the only surviving operator to keep it afloat or force it to offer cheap services? No doubt it would then be time for a fresh round of private bids.

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India is just beginning its experiment with regulatory authorities to oversee the operation of the market in various sectors. Let everybody note that the TRAI Act was wrong to leave licensing in the DoT8217;s hands. Even when it partswith power, it is in the nature of government to try and keep back as much as it can, for as long as it can. What is the point of a market regulator when the government gets to regulate competition while itself being a market player? Anyone hear of such a thing as conflict of interest?