Competition and Regulation in India, 2007

252 Pages·2008·1.94 MB·English

by  Mukesh Tyagi

Reflections
“This is a very timely Report, which takes stock of the regulatory regime in
the country, in order to tell us in the government, about what we had promised
to do when we came to power, and what we have not been able to do. The
document, produced by CUTS, a premier global institution working on Trade
and Regulatory issues under the adroit leadership of Pradeep Mehta, has argued
well on the need and contours of a healthy competition structure in the
economy. It shows the way forward to the government to implement its
mandate more effectively, i.e. operationalising an effective regulatory regime,
which can help in sharing the gains from liberalisation equally among all
stakeholders in India”.
–Kamal Nath
Minister for Commerce & Industry, India
“....our economic reform is still in its infancy. The Report prepared by CUTS
International, backed by their previous work, lays out the main issues of
regulating restrictive business practices in our currently cartelised sectors
(private or public), the need for competition laws that strike a balance
between different objectives and their implementation in India, and the
administrative and political context of the substantial roadblocks on our
way. I hope this Report gets the wide attention it deserves so that we are
clear about what to do (and what prevents us from doing) in the removal
of the roadblocks so that we have a level playing field for all economic
players (including the large numbers of small enterprises)”.
–Pranab Bardhan
Professor of Economics, University of California
“....captures the flavour of competition regime extant in India and that is
desirable in futuro. The flavour is at once educative and exciting. Educative
in terms of the lessons from the past and exciting in terms of the
prognosticated hue and smell of competition for not only the consumers
but for all stakeholders and the country as a whole. This first biennial
Report is a singular achievement of CUTS, and I welcome this addition to
competition literature”.
–S Chakravarthy
Former Civil Servant and Member, MRTP Commission
“This new Report goes further to an earlier CUTS report in exploring
what has happened, what is happening and what should be done in promoting
competition in India. The Report covers the whole rubric of competition
promoted through a competition law and policy and a healthy economic
regulatory framework in India. I congratulate CUTS and Pradeep S Mehta
in bringing out this outstanding Report. I hope that the policy makers will
utilise this Report in improving the entire framework of India’s competition
policy”.
–Vijay Kelkar
Former Adviser to the Finance Minister
…. effective enforcement of a competition law designed to ensure that firms
do not individually or collectively abuse their market power is a necessary
complement to market reforms. This Report is remarkable because it provides
us with a thorough, comprehensive, and frank analysis of the Indian reality in
this area. It is required reading for all those who have the economic
development of India at heart. ….not only takes stock of the important
progresses but also of the failures of competition policy in India in recent
years, looking at the current situation from the standpoint of consumer benefits.
Market reforms and the enforcement of a competition law are most effective
for development when they are part of a comprehensive competition
policy ….”
–Frederic Jenny
Judge, French Supreme Court
“India has just enacted critical changes to its competition law and the study
reviews the key policy and operational issues regarding that law. Equally
importantly it reviews the other two major fields relevant to competition:
government restrictions on competition (which are numerous); and the
regulation of monopolies (and others). It seeks both to survey current
issues and to look forward to emerging questions”.
–Allan Fels
Dean, Australia & New Zealand School of Government, Australia
“.... a valuable status report on competition and regulation in India today. It
makes the point that competition is especially important for the poor, for
whom a gain of even a few rupees from competition adds substantially to
consumption. Barriers to entry, implicit and explicit cartelisation, regulatory
capture, public sector monopolies, high import tariff barriers, manipulation of
anti-dumping rules, and incomplete information are some of the key issues in
competition. Farmers get just one-sixth of the retail price of their produce,
because of entrenched intermediaries. Yet, there is resistance from vested
interests to organised retail chains which can eliminate intermediaries and
raise farmgate prices. As this Book shows, action is needed on multiple fronts
to increase competition and empower consumers”.
–Swaminathan Aiyar
Consulting Editor, The Economic Times, Washington DC
Competition and
Regulation in India, 2007
Competition and Regulation in India, 2007
Published by:
CUTS Institute for Regulation & Competition
D-217, Bhaskar Marg, Bani Park, Jaipur 302 016, India
Ph: 91.141.228 2821, Fax: 91.141.228 2485
Email: [email protected]
Website: www.cuts-international.org, www.circ.in
in association with:
CUTS Centre for Competition,
Investment & Economic Regulation
Edited by:
Pradeep S Mehta
Supported by:
British High Commission
New Delhi
Citation:
Mehta, Pradeep S (2007), Competition and Regulation in India, 2007,
Book, XXXII + 220, CIRC, Jaipur
Printed by:
Jaipur Printers P. Ltd.
Jaipur 302001
ISBN 978-81-8257-091-7
© CUTS, 2007
Any reproduction in full or part must indicate the title of the Report, name of the
publisher as the copyright owner, and a copy of such publication may please be sent to
the publisher.
#0715, Suggested Contribution: Rs.285/US$25
Contents
Foreword...........................................................................................................i
Preface..............................................................................................................v
Editor’s Note................................................................................................. ix
Abbreviations................................................................................................ xi
Chapter 1: Prologue – An Overview......................................................1
How will competition help us?...............................................2
How to promote competitiveness through competition?......3
How does competition policy ensure pro-poor
development?.............................................................................4
Promoting effective markets through competition...............6
The Report ................................................................................7
Postscript.................................................................................16
Chapter 2: How do People Perceive the Situation?.......................23
Introduction.............................................................................23
The survey findings ...............................................................25
Key messages..........................................................................26
Annexure.................................................................................28
Chapter 3: Policy Induced Anticompetitive Outcomes..................33
Central Government policies/practices that impede
the market process.................................................................33
Chapter 4: The ‘Nine Principles’ of Competition Policy...............43
Foster competitive neutrality between public and
private sector enterprises......................................................43
Ensure access to essential facilities....................................45
Facilitate easy movement of goods, services......................46
Separate policy making, regulation and
operation functions.................................................................46
Ensure free and fair market process...................................47
Balance competition and IPRs .............................................48
Ensure transparent, predictable and participatory
regulatory environment.........................................................49
Notify and publicly justify deviation from
competition principles............................................................50
Respect for international obligations...................................51
Chapter 5: Why Competition Policy and Law?................................53
Introduction.............................................................................53
Competition law vis-à-vis competition policy......................54
Competition policy..................................................................60
Some myths and realities .....................................................61
Other countries with competition policies ..........................65
Chapter 6: India’s Competition Law Regime: Past,
Present and Future ............................................................69
Introduction and background................................................69
Institutional issues in adoption of the new law................75
Institutional challenges ahead .............................................78
Administrative challenges.....................................................80
Is the CCI accountable?........................................................80
Interface between the CCI and sectoral regulators ..........81
Weak IPR-related provisions................................................83
The criteria for defining ‘examption’ are
totally subjective ....................................................................84
Chapter 7: Cartels: The Major Challenge.............................................87
Introduction.............................................................................87
“Our competitors are our friend, our
customers are the enemy”.....................................................88
The Indian scene....................................................................90
Cartels under the competition law in India.......................94
Dawn raid and leniency provisions......................................98
Conclusion ...............................................................................99
Chapter 8: The Contours of Abuse of Dominance in India........101
Types of abuse of dominance..............................................102
Exploitative abuse................................................................104
Exclusionary abuse ..............................................................117
Chapter 9: Competition Abuses: Local Problems
need Local Solutions........................................................121
Competition abuses at consumers’ end .............................122
Competition abuses affecting business..............................127
Why a state-level agency?...................................................131
Establishment of State Competition & Regulatory
Authority (SCoRA) ...............................................................131
Conclusion .............................................................................132
Chapter 10: Telecommunications and Electricity ...........................135
Telecommunications sector in India ..................................135
Growth of industry...............................................................137
The regulatory regime.........................................................138
The road ahead.....................................................................143
Electricity sector in India ...................................................145
Key issues in electricity......................................................148
Governance issues: dominance of retired bureaucrats....151
Regulatory independence.....................................................151
Way forward..........................................................................151
P.S. Common issue: independent infrastructure..............152
Chapter 11: Regulation in the Social Sector....................................155
Introduction...........................................................................155
Healthcare delivery system.................................................156
Present status of competition and regulation..................159
Regulating health delivery system.....................................164
The education sector............................................................168
Present status of competition and regulation..................170
Status of competition and regulation
in school education...............................................................175
Conclusion .............................................................................177
Chapter 12: Epilogue: The Way Forward ..........................................179
The future agenda................................................................180
Adopt and implement a NCP .............................................180
Implement regulatory reforms............................................181
Implement competition rules..............................................185
Address systemic issues coherently...................................191
Develop capacity building solutions...................................195
Conclusion .............................................................................201

List of Boxes
Box 1.1: Finding the Going Tough..........................................................12
Box 1.2: Regulatory Malfunction.............................................................17
Box 3.1: Inverted Duty Structures..........................................................34
Box 3.2: Distortions Prevalent in the Market.......................................36
Box 3.3: Lack of Transparency in Pricing of Petroleum Products .....37
Box 3.4: Inspector Raj for Small Scale Industry (SSI)........................38
Box 3.5: Deregulation of Anticompetitive Practices..............................38
Box 3.6: ‘Need not Meddle with Market Forces’...................................39
Box 3.7: Grant of Mining Rights Distorts Competition in Steel ........40
Box 3.8: Barbed-wire Association in Rajasthan....................................40
Box 3.9: ‘Crack Down on Pools’...............................................................41
Box 4.1: Competitive Neutrality: Is it Fostered?..................................44
Box 4.2: Is Access to Essential Facilities Ensured?.............................45
Box 4.3: Policy vs Regulation: Ambiguity and Turf War.....................46
Box 4.4: End of Cotton Monopoly Procurement – End of
Distress for Farmers .................................................................47
Box 4.5: Enjoying Monopoly Position through IPR ..............................48
Box 4.6: Regulating the Regulators........................................................49
Box 4.7: Free Power to Framers: Is It Desirable?................................51
Box 5.1: The Difference between Competition Policy,
Competition Law and Competitiveness!..................................54
Box 5.2: Distortions arise from Government Policies/Practices..........59
Box 7.1: Price Parallelism in Brazil.......................................................91
Box 7.2: Bulk Vitamins Cartel and the Lackadaisical
Indian Approach.........................................................................92
Box 7.3: Builders’ Boycott to Break the Cartel ....................................95
Box 8.1: The Case of Bata.....................................................................104
Box 8.2: Tie-up Sales of Gas Stoves with Supply
of Gas Connection....................................................................107
Box 8.3: ‘Price Discrimination Recognised by Law’............................113
Box 8.4: Cement Dealers in a Bind......................................................118