A national competition policy for India?

The Asian Age, August 11, 2015

By Pradeep S Mehta

The power sector continues to remain in the news every other day because of the shortage that affects our economy hugely. Recently, business chambers, along with private sector power equipment companies, were howling that the government utilities are patronising BHEL for power plant orders without inviting tenders.

A similar complaint has been made for transmission projects being awarded to the government-owned Power Grid Corporation. BHEL’s argument is that the private sector power plants are also ordering equipment on a negotiation basis without inviting tenders, hence what is wrong. That argument does not fly because if the government has to procure equipment it must do so through competitive bidding. In competition jargon, this is defined as lack of competitive neutrality.

In order to address this and other market distortions, the ministry of corporate affairs had drafted a National Competition Policy (NCP) in 2011, but it has not been implemented as yet. Drafted after extensive consultations with stakeholders, Central ministries and state governments, it could not go to the Cabinet as elections were called in 2013. The present government is yet to adopt it, in spite of calls to do so by respectable politicians such as Yashwant Sinha (BJP), Veerappa Moily (Congress) and K.C. Tyagi (Janata Dal United).

In response to Mr Tyagi’s recent letters, the finance and corporate affairs minister, Arun Jaitley has assured that he will look into it.
Investment and competition are the two sides of a coin. The BJP government is promoting investment seriously and removing various bottlenecks, most of which are entry barriers. Looking at our dismal economic scenario, one of the contemporary and important policy prescriptions by the government is to adopt competition reforms through an NCP. When implemented, the NCP will usher in the second big wave of economic reforms after 1991.

In this exercise, India, among other countries, has been inspired by Australia that adopted a national competition policy in 1995, a good 14 years after it has been operating a competition law. It did so, because many of the competition distortions, like the BHEL case referred above, that showed up due to policy impediments could not be challenged under their competition law. When it launched competition impact assessments of policies, it found no less than 1,800 impediments. These existed both at the federal and provincial levels. Federal government roped in all its ministries and provincial governments, and launched an all-out war against competition distortions.

Consequently, in the short term, Australia’s economy grew by 5.5 per cent and consumers benefited annually by A$9 billion. Inflation came under control and markets functioned well. The Australian approach towards competition policy can be useful in the Indian context. There too, the competition policy followed the competition law. But, the competition policy was preceded by an extensive review of all federal and provincial laws from the competition perspective, and all laws and measures that had provisions violating the spirit of competition were repealed or amended. The envisaged NCP approach would ensure equitable application of competition principles to all economic agents in the economy. It works on the principle that social welfare is best served by promoting competition.

The NCP is distinct from the Competition Act, 2002, and yet there is considerable confusion over its scope. Competition law, well acknowledged and used as an instrument for boosting competition, is designed to punish and prevent anti-competitive practices — acts of collusion among similar players or players linked to each other vertically in the supply chain, which aim to curb competition and its price-reducing and quality enhancing impacts. However, competition law is not the only instrument for boosting competition.

Given that industrial, trade, labour, fiscal and other government policies too might have competition reducing or enhancing impacts, a systematic appraisal of all such important government polices is in order.

Competition policy allows the government to weigh the competition distorting or enhancing effects of every important government policy against positive/negative impacts in regard to other issues that are in the public interest: employment, poverty alleviation and equality in income distribution, promotion of infant industry etc. The NCP attempts to ensure congruity between all or most national and state laws with the principles of competition. That helps further the objectives of a competition law — to foster competition in all sectors of the economy and thereby induce efficiency, innovation and growth.

For a successful NCP, extensive advocacy and consultation are needed. This requires the cooperation and coordination of institutions such as the Competition Commission, civil society organisations, sector regulators and the government. The primary motivating factor behind the NCP is political will and priority accorded to growth as a political objective.

Ensuring competitive neutrality is another crucial aspect of the NCP — government businesses should not enjoy any undue advantage over private businesses. For instance, the requirement that people travelling on government business fly only Air India, even when it can be more expensive than private airline, goes against this principle.

Competitive neutrality is necessary to ensure competition within and across public and private enterprises. Given the vastness, diversity and complexity of the Indian economy and the varied policy interventions being undertaken by the government to promote development, a NCP that undertakes distinct appraisals of different policies is imperative and would help maximise the overall welfare impact of government policy.

Don’t we need to promote a healthy competition culture in India and move on a sustainable growth trajectory? Implementation of the NCP is the key, which can bring in a second wave of economic reforms in the country and we hope that the government will put its foot on the accelerator to push for competition reforms in the country.

The writer is the secretary general of CUTS International. With inputs from Udau S. Mehta (Director).

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