Is UPA committed to competition?

The Economic Times, July 28, 2009

By Pradeep S Mehta

With the budget capturing headlines everywhere, worries about a distinct reduction in commitment to the promotion of competition observed in the transition from UPA-I to UPA-II have escaped articulation. This is surprising because competition reforms are essential for inclusive growth which continues to be one of UPA’s major objectives, and probably results from a poor understanding of the positive synergies between the two.

The understanding was not always this nebulous. For instance, the President’s speech to Parliament in 2004 stated: “Competition, both domestic and external, will be deepened across industry with professionally run institutions in place to ensure that competition is free and fair”.

The budget speech for the balance half of 2004-05 took this as a peg and spoke about initiatives to promote competition and advance the reform process: establishment of a National Manufacturing Competitiveness Council to enhance competitiveness; commitment to removing infrastructural inadequacies; reform of the public distribution system through food stamps, targeted subsidies, speeding up of the VAT system, etc.

Somewhere down the line this understanding has weakened. Fast forwarding to 2009, there was no NCMP but only the Congress party manifesto. The latter did address promotion of competition in a few critical places, such as removing controls on the free movement of farm commodities and systematic elimination of all regulations that depress farm incomes.

Another resolve was to introduce an integrated GST to create a seamless national common market for farmers, artisans and entrepreneurs, thereby broadening the domain for competition and providing a boost to productivity, output and employment. It also spoke about reducing the regulatory burden on business and strengthening corporate governance.

The mantra of inclusive growth continues to be harped upon but has been decoupled from competition reforms. It is now just one out of many ingredients with its essentiality to the objective of inclusiveness forgotten. The 2009 President’s speech also waxes eloquent on inclusive growth, but the emphasis on competition reforms evident in 2004 is missing.

One can still infer commitment to competition reforms by reading between the lines — for instance, the objective of making the regulatory and legal framework for PPPs more investment friendly. A commitment to “strengthen and improve the economic regulatory framework in the country” is voiced, but the treatment is superficial and not befitting of a sequel to the 2004 speech. Strangely, no mention is made of necessary processes and institutional changes for ensuring free and fair competition, an objective espoused in 2004.

To be fair, the budget speech does make a redeeming reference to the new Competition Commission of India, recognising that it will deliver benefits to more sectors and their users and consumers. A critical section of the new Competition Act on regulating mergers and other combinations has, however, not yet been put into action and vigorous defensive lobbying by business houses, discussed by me in an earlier article on this very page, might lead to indefinite postponement. In a foreign investment-friendly environment the power to prevent anti-competitive mergers is an essential element of the Competition Commission’s arsenal and its absence has rendered the commission weak.

Are these references therefore just platitudes? Recent actions by the government seem to confirm such suspicions. For example, the clock has been turned back through the recent reversion to the anachronistic system of compulsory use of Air India by government travellers. Ostensibly this has been done to shore up the revenues of this sinking PSU.

These measures are not only anti-competitive but untimely as the whole sector is in bad shape and battling the devastating effects of the global economic downturn, fuel price hikes, etc. If at all, such assistance needs to be provided neutrally to all domestic airlines. Among other similar examples, the government’s continued partiality to oil PSUs in doling out subsidies smacks of disregard for the principle of competitive neutrality.

Such regressive measures raise concern about whether promising measures on the anvil will finally be implemented. For instance, in its policy document, ‘Inclusive Growth’ adopted by the National Development Council in December, 2008, there is a clear recommendation for the adoption of a national competition policy. Among other good competition principles, it asks the government to promote competitive neutrality actively. One hopes that this policy, yet to be debated, gets a favourable nod and moves the country forward on its quest for inclusive growth.

Contrast the present to the period between 2004 and 2009 which saw a perceptible change in the competition scenario. Progressive amendments of the Competition Act were carried out — a Competition Appellate Tribunal headed by a judge to hear complaints against the Competition Commission ushered in greater accountability, and the legislation of a selection procedure instead of the previous ad-hoc one raised hopes of greater independence in the functioning of that agency.

Such improvements were not just confined to paper. Surveys carried out by CUTS International revealed an almost universal improvement in stakeholder perception of the competition environment in 2006-2008.

It is in the light of this recent phase of pro-active implementation of competition reforms, that the absence of an active show of support for further competition reforms from UPA-II comes as a disappointment. The development potential of competition remains underexploited.

For instance, effective competition reforms still elude the power sector, the backbone of our infrastructure. Consequently, increases in generation still continue to lag increases in demand. We are about 60% behind achieving the targeted addition this year. The issue of open access remains unresolved in spite of all governmental efforts.

The government seems to have taken its foot off the accelerator just when a further push to competition reforms is necessary.

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