The Sensex is at a record high, foreign funds are making a dash for India, ministers and bureaucrats, taking a cue from Indias new workaholic PM, are keeping longer working hours (six days a week), policy experts are coalescing big-ticket reform ideas and even rival political parties are lining up to pledge support for the governments efforts. Arun Jaitley, Indias new finance, corporate affairs and defence minister, aptly captured the sentiment when he recently said: The international community is once again looking at India, and it is an opportunity that we cannot miss. Delivering on this opportunity of economic rejuvenation will be Modi governments key challenge.
Tackling this challenge head on, Modi, in his trademark alliterative style, provided the nation with a performance mantra, based on three Ssscale, skill and speed. But what does this S-mantra mean beyond its verbiage; how will India Inc actuate it to revive the growth story
To deliver lasting results, there is need of a policy back-up, an institutional apparatus that integrates the essence and spirit of scale, skill and speed into our economic system, laws and policies. That can help leverage the S-mantra into its economic thought and action. The adoption of a National Competition Policy (NCP) could be one such policy measure.
NCP, which is pending final government announcement since 2012, is a set of measures and policies that would help the government to analyse, audit and align policies, rules and laws affecting market activity, to promote a competition culture across the board and help in the development of competitive markets, even within its own endeavours and policy implementation. RBI Governor Raghuram Rajan recently said: as gravity guides water through the shortest path, competition naturally guides the economy to the most productive route. It is, however, important to distinguish between NCP and Indias competition law regimethe latter is a part of the former. While Indias Competition Act, 2002, is a regulatory instrument to primarily ex-post regulate anti-competitive market behaviour, NCP is a proactive policy framework that seeks to correct anti-competitive outcomes of government policies and laws, and helps in development of competitive and efficient markets. To strengthen the competitive forces in the market, both NCP and competition law are necessarythe two complement each other. The follow-up of the S-mantra needs an implementation plan, and path, and NCP can provide it.
Indias biggest advantage is that it provides a huge, emerging market, which is only going to expand with the rapidly increasing purchasing power of its people and its youth, who will make it happen, like an economic nuclear fission. One of the first tasks for the government should be to scale-up and integrate the fragmented internal Indian market. The focus of the 1991 liberalisation reforms was to dismantle Indias external trade barriers and to open up the economy to foreign trade. Although such reforms have unleashed unprecedented growth momentum for the economy, they have failed to create a competitive unified domestic market, without restrictions on the free flow of trade within the country. Currently, several policy-induced inter-state tax and non-tax barriers to trade have fragmented the domestic market into smaller regional markets, hindering free movement of goods, besides creating economic distortions. Indias multi-layered indirect tax structure, the diverse controls imposed by state and municipal bodies, lack of uniformity of standards and procedures, multiplicity of paper-work involved in complying with local regulatory procedures, and associated corruption and malpractices have eroded possible benefits of healthy competition. Further, several factors of productionland, labour, powerare within the legislative domain of state governments, and multiplicity of such laws has enhanced compliance costs of industries, besides creating an unenabled business environment. There is a need to assess, review and rectify federal and state legislations, regulations and policies that hinder efficient inter-state trade. Such a move will enhance the competitiveness of the economy, benefit all stakeholders and accelerate economic growth. It will also help control the prices of essential goods and food items due to unhindered movements from areas of relative surpluses to shortages.
NCP can provide the institutional apparatus to assess the myriad inter-state trade barriers, initiate and coordinate pro-competitive Centre-state economic reforms with the aim of creating a unified domestic market. Modi governments efforts to reach out to the state governments provide an opportune setting for initiating such a reform agenda.
Innovation and skill development are the keys to economic growth. The Modi government, with foresight, is creating a new ministry for development of entrepreneurship and skill development. Although such measures are commendable, they will need to be augmented with innovative and concrete plan of action. Experts agree that though entrepreneurship in India is gaining momentum, innovation remains a big challenge. India ranks 66th on the Global Innovation Index (2013)a lower ranking than each of its peers in the BRICS bloc. Evidently, one will find several successful Indian entrepreneurs, but India still lacks its own Google, Facebook or Microsoft. The government has to move ahead from being mere incubator of entrepreneurial skills and address Indias innovation gap.
NCP can be a vital policy tool to inquire into the reasons for Indias weak innovation performance, the missing funding for innovation and start-ups, and the regulatory and administrative barriers holding back innovation in India, including the countrys IP laws. NCP will allow the government to develop a comprehensive and operational toolbox allowing for a better assessment of the impact of research and innovation policies in India. Streamlining such laws and policies will unleash the innovative spirits of the Indian industry, convert hindrances into facilitation, and enhance the competitive markets for better products and services.
The speed of doing business in India is shackled with regulations and India routinely ranks very low in global doing business rankings. Given the governments keenness to provide a booster shot of growth to propel the economy, it is imperative that the economy becomes more competitive. Decades of government controls, where rules of competition did not form the natural background of governments legislative and policy efforts, have hindered the growth of a competition culture. Even after 23 years of liberalisation, several legislations, policies and regulations continue to inhibit competition in markets, create entry barriers and other regulatory impediments. Such policies often favour public enterprises and such competitive distortions typically emanate from policies in the areas of trade, labour market, procurement contracts, infrastructure development, foreign investment, etc. This is not to mention the several archaic laws from the British days, as one of balloons referred to by Modi from his Gujarat experience when regular reports were to be filed about the balloons after the Second World War!
Several sectors of our economy are subject to controls, especially sectors covering natural monopolies and network industries. Even in sectors that are open for foreign investment, multiplicity of regulations, approvals and permits from regulators have manacled competition.
NCP will establish a set of principles for state and federal governments, which when adopted will allow stakeholders to undertake a Competition Impact Assessment (COMPAS) of existing and proposed government policies, statutes and regulations, with a view to remove or minimise their competition restricting effect. If legislative or regulatory impediments to competition are proposed, such laws/policies should be subject to review to ensure that the costs associated with reduced compliance are exceeded by public benefits. Further, COMPAS should also be undertaken to ensure that commercial activity of state-owned entities are subject to competitive neutrality requirements to provide a level playing field for private and state-owned enterprises.
COMPAS can also be used as a policy tool to fulfil another of Modis directive to bureaucratsreducing Indias legal clutter, especially with respect to the laws regulating the Indian economy. Modi, in his first interaction with Indias top bureaucrats, asked them to identify 10 laws per ministry that should be removed. Removal of obsolete laws and vestigial procedureswhich enhance business costs and provide opportunities for regulatory corruptionis long overdue in a nation that ranks among the most over-regulated countries. NCP can provide the government with an apparatus to weed out such regulatory clutter.
The Competition Commission of India (CCI) is undertaking advocacy initiatives to assess and advice government agencies on probable anti-competitive impact of their policies. But such efforts need to be institutionalised and done on continual basis and NCP can provide the appropriate policy platform for the government to conduct such COMPASon the lines of the US Office of Information andRegulatory Affairs or the Regulatory Reform Committee of South Korea.
NCP is an overarching policy framework that can help in gravitating the myriad forces of economy to channels of maximum efficiency, optimising the growth of our economy at this never before historic opportunity and realising the vision laid under the 3 Ss.
Dhanendra Kumar & Avirup Bose
Dhanendra Kumar is the former chairman of CCI, and Chairman of the Committee on NCP. Avirup Bose is a competition lawyer with CCI.
Views are personal