On supplier cartels and input import

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: Steel companies have formed a cartel in India and keep their prices higher than the international level. Their quality is poor as well. In Punjab, we have tried to import steel, but there are several problems in doing so. I would be grateful if you could tell us if their cartel could be broken. How should we cope?

—Wonder Handtools, Jalandhar

The question you have raised is very important, but does not have a straight answer. The future competitive challenge for SMEs would be greatly defined by their ability to fight and correct market distortions. This needs to be seen by industry as well as policy makers in the larger dimension of the new world trading environment. Earlier, in the closed economic environment, imports were restricted thanks to QRs. Small firms competed with small (no entry barriers, but there was reservation) and large ones were kept out (entry barriers with strict licensing).

Today, small companies have to compete with large enterprises, not only Indian, but also foreign. Being small has some advantages— flexibility, ability to customise and quick response time—that help them cope with competition. But if factor markets do not function efficiently, the advantages of large size far outweigh any advantages inherent in a firm’s small size.

Under such conditions, small companies incur a much higher cost for finance, energy and inputs, besides the cost of compliance with the regulatory environment. Policymakers are somewhat sensitive to the issues of finance and energy, but have not been able to appreciate the impact of cost and availability of raw materials.

The primary producers of raw material in this case, steel, are large capital-intensive global enterprises. There have been numerous instances when these producers formed cartels and influenced global prices. Therefore, most developed countries have established strict anti-trust laws or competition policies to reign in cartels and anti-competitive behaviour.

However, national laws have increasingly proved ineffective against international cartels. That is why a multilateral competition policy in WTO was considered.