CCI will remove policy hurdles that distort markets and hurt economic growth

Economic Times, September 20, 2012

By Pradeep S Mehta

Every new policy proposal is greeted by apprehension coupled with ignorance and turf issues. The proposed National Competition Policy (NCP) formulated by the ministry of corporate affairs too may become a victim of this phenomenon. The department of industrial policy and promotion (Dipp) has reportedly picked holes in the draft policy when it should, in fact, be the strongest supporter.

India has slipped by three notches on the World Economic Forum’s Global Competitiveness Index, 2012, while its partners in Brics – Brazil and South Africa – have improved considerably, though they were behind India earlier. If India has to become competitive, its firms need to face healthy competition at home. Both Brazil and South Africa have effective competition regimes that ensure well-functioning markets.

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. The ministry of corporate affairs has scripted such a policy after a long-drawn consultative process with policymakers, state governments, experts and business. The NCP, when implemented, will usher in the second big wave of economic reforms after 1991. In the medium term, it will also curb inflation that is currently a big issue in India.

The NCP is distinct from the Competition Act, 2002, and yet there is considerable confusion over its scope. While the law empowers Competition Commission of India (CCI) to check anti-competitive practices, the proposed NCP seeks to clean up impediments in policies and practices of the government that distort market processes, and promote competition.

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 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% and consumers benefited annually by A$9 billion. Inflation came under control and markets functioned well.

To implement the competition policy, the Australian government established an independent National Competition Council – distinct from the competition authority – to carry out assessments and recommend reforms. Many reforms were carried out. States were incentivised to do so through budgetary support wherever there was a case, somewhat like our VAT system. A similar proposal has been made in the case of the Indian NCP. Many states have welcomed it, rather than showing a lukewarm response. Other apprehensions were also voiced by the Dipp and CCI in a rather sweeping way.

No consensus among central ministries and the lack of capacity to carry out assessments: The draft policy was circulated to all ministries, before the Cabinet note was prepared, and other than some queries, there was an all-round support. In fact, the civil aviation ministry, when consulted along with a basic study of distortions in the sector, decided to go deeper and is on the way to address them.

Frequent reviews may add to the regulatory burden: There is no proposal for any frequent reviewing and it will be done on a voluntary basis, where gains would be highest, and through specialised agencies. On the contrary, such competition impact assessment will reduce the regulatory burden.

In some situations, government monopolies are desirable: There is no quarrel against deviations in the NCP, including on public interest, social and environment grounds. Indeed, such exceptions, on a non-discriminatory basis, will need to be defended rather claimed as a legacy and cloaked in opacity.

Broad and all-encompassing: A macro policy, the NCP, like trade policy, is always broad and across-the-board. This is because competition touches all areas of economic governance. Cabinet Committee on Competition: The argument questions the need for a special committee on competition since there is already a Cabinet Committee on Economic Affairs. The proposal is meant to raise the ante and provide focus on competition reforms.

Furthermore, an advisory council, headed by the corporate affairs minister, will do most of the groundwork. An official of CCI has raised fears of dilution of power that it may suffer. Even in Australia, the competition council and competition authority have co-existed happily because their goals and functions are different from each other. Together, they have been carrying out their distinct mandates, thus ushering in a healthy competition culture, aiding growth and creating jobs.

Don’t we need to promote a healthy competition culture in India and move on a sustainable growth trajectory?

The author is secretary general of CUTS International

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