Fair competition vigilance

Written by Pradeep S Mehta | Updated: Nov 3 2007, 06:09am hrs
As India is now in a position to operationalise its new Competition Act, 2007, it is worthwhile revisiting some of the drivers for it. The need for a competition law becomes vital when a country adopts economic reforms aimed at converting a command economy into a market-oriented one in which the private sector plays the lead role. India adopted economic reforms in the early 1990s by shifting to market economics. We have moved in the right direction, though at a slower pace than required, which has meant that markets are still not as vigorously competitive as they ought to be.

One should not confuse a free market with a free for all. Regulation remains essential, the objective being to ensure competitive markets so that the best possible choice, quality, prices and supplies of goods and services are offered to consumers and businesses.

Accordingly, changes are being made in the economic governance system. These include changing government policies and measures, amending existing legislations or enacting new ones such as the new competition law, and establishing dedicated regulatory bodies in utility sectors such as telecom and electricity. All such measures are designed to ensure that markets function well under the new economic policy regime and yield the desired results. But new policies and laws alone are not going to help much, unless the key stakeholders (consumers and businesses) are familiar with competition and regulatory issues and the nature of prevailing market practices. The lack of understanding of the nature and extent of anti-competitive practices in prevalence poses a major challenge.

In 2006-07, we at Cuts developed an India Competition Perception Index to assess the understanding that informed stakeholders have of competition and related regulatory issues. The findings are that perceptions of competition in the country are neither too good nor too bad. If the informed score only moderately well on competition perception, you can picture the awareness of lay people who are also market participants. Even after the one and a half decades of reform, progress on competition and regulatory issues is slow, and anti-competitive practices still prevail in the market at large.

Stakeholders are more familiar with the level of competition prevailing in the market than with the nature of market practices, regulatory bindings and competition rules, effectiveness of competition and regulatory authorities, and the impact of government policies and measures on competition.

The reason for this difference may be that the level of competition is relatively tangible, while other parameters surveyed are not that easy to understand. Competition can be felt in the market in various ways that are observed to increase consumer welfare, such as greater choice and lower prices.

Yet, only 26% of respondents are aware that unfair trade practices have been omitted from the purview of the Competition Act (academia: 19%; business: 32%; CSO: 18%; government officials: 27%; media: 34%; others: 35%). Only 6% respondents are aware that mergers above a certain threshold would come within the purview of the Competition Act, and that pre-merger notification was voluntary (academia: 11%; business: 4%; CSO: 17%; government officials: 1%; media: 2%; others: 7%). This has now been made mandatory under the 2007 Act.

The reason for low awareness scores on parameters like nature of market practices (35.84) and awareness of competition and regulatory issues (39.39) may well be that since key provisions of the competition law have not yet been brought into force in India, there have been no cases taken up for public discussion. This is serious, because ignorance about the nature of prevailing anti-competitive practices may lead to the exploitation of stakeholders. Advocacy and effective regulation can play an important role to ensure that this does not happen, and there is certainly room for improvement. To take full advantage of the Act, consumers and businesses have to be familiar with various competition and regulatory issues, and this is a task for various government and non-government agencies.

The survey also indicates that, so far, competition and regulatory authorities have not been effective in controlling anti-competitive practices. In many cases, these agencies have not even been effective in enforcing their own orders at local levels. A solution is to give the agencies the requisite autonomy and qualified staff.

The task of providing a level playing field to both the public and private sectors is an important one, and here too, much needs to be done. While the need for a competition policy and law is now much better recognised, progress towards scoring real achievements has been slow and haphazard. Evidence of anti-competitive behaviour is found in virtually every sector of the Indian economy. With the adoption of the Competition Act, hopefully, awareness levels will scale a new peak, and as enforcement processes get going, consumers and businesses will, at the very least, begin to identify anti-competitive practices prevailing in the market.

The author is with Cuts International, an advocacy group. These are his personal views