National Competition Policy: An idea whose time has come?

Economic Times, August 04, 2021

By Pradeep S. Mehta,

One of the first reforms in the area of competition policy in 1991 was to throw out the provision on merger regulation in the Monopolies and Restrictive Trade Practices Act (MRTPA), 1969, to allow industries to grow through mergers and acquisitions.

One of the first reforms in the area of competition policy in 1991 was to throw out the provision on merger regulation in the Monopolies and Restrictive Trade Practices Act (MRTPA), 1969, to allow industries to grow through mergers and acquisitions. MRTPA came about as a ‘competition’ law to curb anti-competitive practices in the marketplace. But it ended up as a licensing law that curbed the output of industrial units and regulated their business practices.

Its origins are very interesting at a time when GoI followed a mixed economy approach, yet there was high concentration in the private sector. Any business group with combined assets of ₹200 million was declared a monopoly and not allowed to expand. The mindset was that big is bad and profit a dirty word.

Ambassador of Duopoly

Furthermore, we followed an unusual industrial policy counter to the competitiveness of our industry. We still suffer from its consequences today. Birlas were not allowed to produce steel, and Tatas were not allowed to produce cars. Hence, we had shoddy Ambassador cars, in which everything made a sound, except the horn. Competition to Tata Steel was also limited to State-owned Steel Authority of India Ltd (SAIL). Whether steel or automobiles, both were in short supply and, therefore, there was the black market, which also resulted in tax diversion.

The telecom sector was liberated by Atal Bihari Vajpayee in 1999 by bringing in mobile telephony, where India has the cheapest rates in the world. However, these radical reforms were preceded by steps taken by earlier governments that had democratised telecom services to be accessed by common citizens through public call offices (PCOs) once subscriber trunk-dialling was incorporated in our telecom system.

I took these two examples of goods and services to show how the 1991-plus reforms unleashed our animal spirits nurtured by both the P V Narasimha Rao and Vajpayee regimes. People born during those days, who use mobile telephones rampantly today, can never imagine we had a horrible landline system. Many a times phones did not work or connect. It was a nightmare to call a distant town because it would go through the department of telecom operators.

All that has changed drastically and anyone can now call a friend in Timbuktoo at the drop of a hat. Our business process outsourcing (BPO) services could flourish because of a good telecom system, which ended up creating software giants in Tatas, Infosys, Wipro, etc. Imagine the positive economic impact it had.

Alas, liberalisation also lead to increase in anti-competitive practices. MRTPA had no bite. It could only order cease and desist. Following rigorous evidence-based advocacy by us, Vajpayee’s finance minister, Yashwant Sinha was convinced that MRTPA had to be replaced by a modern competition law. Thus, in his 1999 budget speech, he announced the appointment of a committee to look into drafting a new competition law and abolish MRTPA.

The Competition Act was enacted in 2002 with a new angle that big is not bad, but its abuse is. However, its full implementation was stayed by the Supreme Court because the proposed Competition Commission was being headed by a bureaucrat and not a judge. The erstwhile MRTP Commission was headed by a retired high court judge. Forced to comply with the apex court order, the government amended the Competition Act to provide a Competition Appellate Tribunal (CAT) to be headed by a judge.

What the Doctrine Ordered

This body would hear appeals from the Competition Commission of India (CCI). The apex court was satisfied that the doctrine of separation of powers between the executive and judiciary was being respected. Finally, the Competition Act came into force in 2007.

Even at that time, there was strong resistance by business groups against the merger provisions in the law. But that was overcome by the assurance that there will be a two-speed approval process — that is, clearance within 30 days of filing, otherwise 120 days when a detailed investigation was required. So far, this has worked well. What has otherwise happened is that anti-competitive practices like cartelising and abuse of dominance have been hauled up. But much more has to be done.

More importantly, CCI cannot deal with policy-induced competition distortions because they are sanctioned by another policy. However, it is empowered to advocate for pro-competition policies in addition to correcting market failures. Consequently, GoI established a committee to draft a National Competition Policy (NCP) that was done in 2011 when UPA 2 was in the saddle. That was not adopted, and the ensuing NDA government also did not think it necessary to adopt it.

However, to NDA’s credit, it did carry out many competition reforms, and continues to do so. GST is one such policy, while the recent farm sector reforms is another. It is another story that both are facing headwinds. It needs to adopt the NCP as the second big wave of reforms after 1991, and send out a signal to the country that they mean business. Only then can our economy become more competitive, and create more jobs.


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