How free will the competition commission be?

Pradeep S Mehta & Ujjwal Kumar

In late 1998, when firms of Pakistan increased the price of cement bags by about 75 per cent overnight, the Monopoly Control Authority (MCA) of Pakistan investigated and discovered a cartel. After long negotiations, the MCA decided to levy fines on the major offenders, who were market leaders, and ordered a reduction in price. Instead of implementing the orders, the industry reacted by accusing the government of market interference. The government intervened and despite the MCA’s theoretical independence, persuaded it to close the case. The lesson learnt is that not only theoretical independence matters but also that independence in practice is crucial.

A cement cartel clearly exists in India, and the Monopolies and Restrictive Trade Practices Commission (MRTPC) has investigated the matter several times, albeit unsuccessfully. Though it was due to lack of requisite teeth and not any apparent political interference, both lead to the same inference: ineffectiveness.

Viewing the importance of ‘independence,’ the Raghavan Committee on Competition Policy and Law, in its report, has suggested that: “The Competition Law Authority should be independent and insulated from political and budgetary controls of the Government.”

Unfortunately, the government has ignored this advice. The Competition Bill 2001, which has been referred by the Lok Sabha to the Parliamentary Standing Committee on Home Affairs, provides for neither politically nor financially independent competition authority. To enable the proposed Competition Commission of India (CCI) to be free from the clutches of government, the Raghavan Committee recommended that its expenses should be charged upon the Consolidated Fund of India. But, according to the Competition Bill, the CCI has to depend upon central grants to pay salaries and meet other expenses to implement the law: “Do as we say, else we’ll hold your payments”.

Second, and most important, according to Clause 53 of the Bill, which was never publicly debated, CCI is bound to follow any policy directions coming from the Centre. Even the extant regime under the MRTP Act does not contain any such provision. Thus, even in theory, CCI does not have requisite political freedom, which is a serious issue.

Third, keeping the door open for the appointment of retired bureaucrats and judges, the Bill leaves huge scope for invisible political influence. This will not only irrigate the ever-growing unholy bureaucrat-politician nexus, but will also influence whatever independence and discretion the CCI would have in theory.

In contrast, any retired civil servant, serving as the chairperson of CCI, also has the potential to become a super cop due to an inflated ego and over-zealousness to use the wide discretionary powers provided under the proposed Act. In fact, it is because of this, and learning from the fiasco at Telecom Regulatory Authority of India (TRAI), that the central government might have thought of incorporating the oversight clause.

However, this fear of the government does not hold much water as the competition principles laid down in the competition law and policy could serve as the necessary check. The CCI’s action can always be reviewed on the touchstone of these principles. Furthermore, there are other routes, such as publishing guidelines to implement various provisions of the law. For instance, the Australian Competition Consumer Commission came out with merger guidelines, which not only provide the necessary check but also the much-needed certainty and transparency.

Moreso, it is very likely that Clause 53, if passed as it is, could be challenged successfully in courts. In Govindraja Mudaliar vs. State of Tamil Nadu, the Supreme Court held that no quasi-judicial body is under any obligation to endorse a government policy. And according to the Bill, the CCI has certainly been proposed as a quasi-judicial body, which the TRAI was not.

‘Independence’ of competition authority has emerged as one of the major issues for discussion in each of the seven countries, where a project on a comparative study of competition regimes of India, Pakistan, Sri Lanka, Kenya, South Africa, Tanzania and Zambia is being implemented by CUTS. During the first phase of the project, which focuses on the institutional and domestic aspects of competition law and policy, lack of independence was found to be one of the main causes for the regimes’ ineffectiveness.

Some insight could also be gathered from the findings of this project. The competition authorities of Sri Lanka, Kenya and Tanzania function under government ministries. While the Tanzanian authority is almost defunct, according to the Kenyan law, the authority is required to present his report and recommendation after investigation and hearings to the finance minister, who is empowered to give effect to such recommendations. Luckily in practice, the minister generally, does not tamper with the authority’s recommendations.

In Sri Lanka, political influence on its competition authority, namely, Fair Trading Commission (FTC) is much more pervasive. The minister has the power to remove the chairperson and any member of the FTC by just publishing the order in the official gazette, without even assigning any reason. Importantly, this decision of the minister is not even justiciable in a court of law. The result is that the FTC is completely ineffective in delivering the goods and a new regime is on the cards, for which a Bill has already been introduced in Parliament. It is being hoped that at least the new body would be autonomous.

The South African Competition Commission, on the other hand, is most independent which contributes significantly in being the most efficient and effective of all the authorities under study. The Zambian Competition Commission (ZCC) is also quite independent and despite resource constraints it is working wonderfully in all aspects. Though the minister of trade and industry can over-rule ZCC’s decisions in the public interest, they have not done it even once since 1997 (when the ZCC came into being), as the minister is answerable to Parliament in this regard. The ZCC, however, has the advantage of having a good leader in its executive director who takes initiatives and thinks globally.

The Pakistan authority, though autonomous in theory, is not insulated from political influence in practice. It may be because the Federal government appoints the members and there is no provision with respect to their qualification. Like India, they are generally picked from existing or retired civil servants. Till recently, one engineer from Pakistan Engineering Service was heading the MCA.

Independence of the authority has been proved theoretically and empirically as the key to effectiveness. This is the reason that most of the developed countries attach much importance to their competition authorities. The United Kingdom, the United States, Canada, Australia all have very independent and efficient authorities. In Korea, the competition authority enjoys the status of a cabinet minister.

One trusts, the Indian Parliament will take note of this issue and would not let this important body end up as a puppet in the hands of the bureaucracy. Otherwise, if the Bill were passed with this provision, then no prizes for guessing how independent the CCI would be?

(The writers work with the Jaipur-based CUTS Centre for International Trade, Economics & Environment)