Effective enforcement of competition law

The Financial Express, June 29, 2011

By Udai S Mehta

Through an interim order, the Delhi High Court has stopped the Competition Commission of India (CCI) from investigating alleged anti-competitive practices in aviation fuel supply at the behest of state-owned oil marketing companies, stating that the case falls under the remit of the Petroleum and Natural Gas Regulatory Board (PNGRB).

This is very odd, because the PNGRB Act has been interpreted incorrectly by the court. It is a fact that all sector regulators are required to promote competition, inasmuch as all government policies are designed to do, but to interpret that as meaning that they will check anti-competitive practices also is far-fetched. That is the job of the CCI. Similar such concerns have also arisen because of the steady rise in the inter-regulatory disputes.

Many other such cases reflect that regulatory law reforms in India lack a consistent, coherent approach. There is no uniformity across regulatory commissions that oversee different infrastructure sectors. A common approach to framing regulatory laws and to fundamental considerations like independence, selection mechanism and overlap issues are largely absent.

Given this, the Planning Commission has taken an important step to introduce a Regulatory Reform Bill, with the aim of evolving a uniform approach to the regulatory architecture across sectors of the economy. This was done more than two years ago and has been going around in circles because of political opposition by branches of the government whose powers to regulate the regulators under their ministries will be curbed.

A fair and transparent process for selection of regulators needs to be reinforced to ensure that the regulatory system is insulated from interference. There are several common factors such as independence, accountability and predictability that need to be universal. However, the Bill has its share of glitches; for example, extensive powers have been granted to the government, starting from constituting the regulatory commission, providing directions to the regulatory commission without consulting them, etc.

Further, a uniform process of the selection of chairmen and members of the regulatory agency and their tenure, age limit, etc, has been prescribed, as currently it varies from sector to sector. Not only has each ministry evolved its own approach to designing and manning the regulator, it is often inconsistent with sound management science. The requirement that the selection committee for a regulatory body/appellate tribunal shall consist basically of serving and retired bureaucrats makes no sense. Currently, all regulators are retired bureaucrats and one can hardly find good, credible talented persons who can enhance the capacity and quality of these institutions. The selection committee should include non-government representatives, academia, civil society representatives and professional bodies. This would enable selection of experts from a wider field.

Another important portion of the draft Bill that needs to be revisited is part VIII, which gives the regulatory commission overriding powers to deal with the anti-competitive practices that should be the CCI’s domain. The issue of jurisdictional overlaps between the sector regulators and/or competition authority has not been addressed adequately in this part. As the realities of the market also suggest, there cannot be a perfect separation of functions among regulators.

Thus, it is suggested that it is best to leave behavioural issues to the CCI and structural issues to sector regulators. Further, to avoid a possible conflict between sectoral regulators and the CCI, mandatory consultations should be held between them in cases that lie in the intersection of jurisdictions. If the sector regulators and/or the CCI fail to resolve the issues amicably, the same could be resolved by a committee comprising of the chairpersons of the existing appellate tribunals, who are all retired judges.

In order to ensure independence, regulatory bodies could be made responsible to a parliamentary/legislative committee on regulatory institutions rather than to the line ministry. The committee can deal with the matters relating to regulatory institutions in addition to the subject matter governing the overall performance and functioning of such agencies. Autonomy should be also provided to regulatory commissions to manage their own budgets independently, and relevant budget approvals should be channelled through the said committee and not the line ministry.

It can be said that the current regulatory reform initiative is reflective of the mounting pressure to streamline regulatory processes and promote regulatory competence. Also, in the current economic and political climate, there is an imperative for a cost-effective yet highly productive regulatory system. But there is a lot of scepticism among relevant stakeholders on the Bill. The need for such a Bill assumes urgency as the increasing infrastructure deficit is sought to be remedied by attracting private investment and for which having a sound, reliable and predictable regulatory environment is an important requirement. Hence, it is important for the Planning Commission to take bold and visionary steps and move the draft Bill before the Cabinet. Sensitising stakeholders about the intricacies of the Bill and building a regulatory culture in the country is the need of the hour.

Udai S Mehta is Assistant director, CUTS International

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