February 10, 2014 3:30:00 am
The Competition Commission of India (CCI) last week passed an order on a seemingly trivial topic in a small Indian town. It arbitrated on a fight between a drug wholesaler and the local association of chemists in Ferozepur, Punjab.
The reason why it took the might of India’s competition regulator to bear down onto such a local case is because there is a linkage with the scare scenario being drummed up about the impact of organised retail on the hapless kirana stores. The Commission order shows why this scare is like most such scares, a piece of fiction. Retail sector is threatened not by organised retail, but by the monopolies perpetuated by their own business brethren that work through local bosses and closed networks.
In Ferozepur town, as the CCI order notes, it is not possible for a chemist to run a shop despite having the licence from the municipal authorities, a pharmacy degree and the capital.
The shop has to obtain a no-objection certificate and a letter of credit from the chemist and druggists association. The sum in both cases is not substantial, but the ability to withhold the licence is major power. As a wholesaler found out to his cost, the association can, and did forbid its retail members to deal with him when he challenged their monopoly powers. Those outlets who took their supply from him were threatened with financial penalty and censure.
The shop in question is a stockist of India’s premier drug manufacturers but that connection did not help the owner to ward off the censure, as the CCI notes. Associations like these have the ability to even block a pharma company from giving out public information about their new drugs or formulations. Trade margins and discounts to be offered by the chemists of the town were set by the bosses of the local association. No wonder each one of these practices was struck down as anti-competitive by the CCI. The Commission has obviously found that these are not isolated happenings restricted to a corner of India. It has issued a national press release, following it up with an advertisement in newspapers warning against such restrictive trade practices.
There is no doubt that the retail pharma sector has some operating restrictions that makes setting up a closed network easier. It is potentially more difficult to enforce such barriers for a kirana store by the local bosses. But the nature of the restrictions and the CCI response (http://bit.ly/1aJILLU) shows this is widespread in pharma sector. Also, try to figure if similar restrictions would have worked with the outlet of, say, an Apollo or other hospital brands.
The same CCI, for instance, has tried to investigate if there is a similar cartel for pan-national vegetables like onion and potatoes. We haven’t heard the last on the subject. Quite clearly, margins for shopkeepers do not worsen with more competition. Their trouble comes from the current set up.
Subhomoy is a Deputy Editor based in New Delhi.
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