Shock for China as Indian economy rises as Modi government pushes its competitive profile; here is why CCI matters

September 12, 2017 7:24 AM

The benefits are three-fold: It enhances firm-level productivity, fosters innovation and pushes up inclusion & consumer benefit

Indian economy, Indian economy news, Indian economy rise, Indian economy condition, modi government, narendra modi government, india china, china economyA report of the Beijing-based private think-tank suggests that the Narendra Modi government has been successful in raising the Indian economy’s competitive profile among global investors, even inducing investments from major Chinese companies like Huawei and Alibaba. (Reuters)

On the sidelines of the 2017 BRICS summit in the Chinese city of Xiamen, a Chinese think-tank, Anbound, has issued dire warnings about the Chinese economy from an increasingly competitive India. A report of the Beijing-based private think-tank suggests that the Narendra Modi government has been successful in raising the Indian economy’s competitive profile among global investors, even inducing investments from major Chinese companies like Huawei and Alibaba. Anbound’s findings are also corroborated by other global surveys—including one by Ernst and Young, which found that 60% of multinational investors found India to be a more attractive investment destination than China. India has also been able to jump 16 ranks for two times in a row in the Global Competitiveness Index prepared by the World Economic Forum. At the core of this vindication of the Modi government’s push for economic reforms is the ability to demonstrate the competitive strength of the Indian economy. The main transformative role of GST is to convert India into one large market.

Here the role of India’s sole economy-wide market regulator, the Competition Commission of India (CCI)—enacted through the Competition Act 2002 during the previous NDA regime, in 2002-03, but enforced only in 2009—assumes critical importance. CCI’s preambular mandate—to prevent harm to competition or consumers and ensure a level-playing competitive field—is paramount to ensuring economic efficiency of the Indian markets, improving consumer welfare, incentivising innovation, and facilitating foreign investment by supervising a competitively neutral Indian market. In fact, several academic studies show a robust positive correlation between a strong competition law regime and enhanced foreign investment. Further, the success of many of the prime minister’s flagship projects, from “Make in India”, “Digital India” to “Start-up India” that are very crucial for job growth and have caught the world’s imagination—and need foreign investment and technology—also require CCI to actively maintain a level-playing-field for foreign investors. Earlier in March, CCI announced that as a part of its advocacy mandate, it was assessing regulations across sectors in efforts to weed-out “obsolete regulatory restrictions” and improve the country’s ease of doing business ranking.

However, some of the recent media reports have tended to create certain doubts in public mind about the role and authority of CCI. The first emanated from the 2016 budgetary announcement of replacing the India’s Competition Appellate Tribunal—the statutory forum for hearing appeals against decisions of CCI—with the generalist company law appeals court, the National Company Law Appellate Tribunal (NCLAT). There is a concern that the move—well-intentioned as it unifies related appellate forums to avoid multiplicity—could, however, result in somewhat slowing the much-needed development of appellate competition law jurisprudence at this stage in India. Competition law is a specialised economic law, and each country’s competition agency (there are 150 of them globally) develops its finer intricacies based on its own socio-economic needs. However, the problem could still be somewhat mitigated by having an adequately-staffed, separate bench in NCLAT for quicker decisions, in-house economists and institutional memory.

The other media reports, ascribing to some proposal of reducing the current strength of CCI by half—from a chairperson and six members to a chairperson and three members and promoting a minimalist interventionist approach—has further added to the doubts. There are also several reports that more than two dozen key posts of CCI and the regulator’s investigative arm—the Director General’s Office—are awaiting appointment of personnel. Having a fully-functioning, effective and predictable competition regime facilitates the flow of foreign investment by providing a transparent regulatory environment and predictable interpretation that reduces the scope of regulatory arbitrage by incumbent firms. The experiences of several countries around the world indicate that most countries have added to the competition and antitrust regimes and there is a thriving global anti-trust community which regularly interacts and exchanges respective experiences under various fora. The next Annual International Competition Network (ICN) Conference is scheduled in India in May 2018, signalling the importance of India in the world community at present.

Further, CCI’s needs for adequate and trained personnel cannot be met by ad hoc recruitment of deputation drives. There needs to be a systematic assessment of the number and type of professionals that the agency requires, and then a streamlining of the recruitment process. CCI had commissioned a professional study through two IIMs, the ones at Bangalore and at Ahmedabad, to assess the agency’s structural needs for appropriate manpower; it is time to take this forward.

The need for an effective competition regime is three-fold. First, it enhances firm-level productivity by incentivising efficient firms and facilitating reallocation of resources. CCI’s enforcement in scores of sectors has enhanced their overall productivity, reduced costs of supply and heightened consumer choice. For example, CCI’s interventions in the Indian real estate market paved the way for the government to institute a new real estate regulator, while its efforts have resulted in dubbed films being made available to audiences in Karnataka and other Indian states, the market regulator has made significant contributions in streamlining drug distribution in India. The National Aviation Policy 2016, Public Procurement Policy 2017, Public Procurement Manual of Ministry of Finance having a chapter on Competition Law, all have followed the same philosophy pursuant to interventions by CCI. Public procurement constitutes more than 30% of the GDP in India, and perhaps more if you take into account all the PSUs and states, and interventions by CCI in possible cartels and bid-rigging can help in saving large public monies. CCI can also play an effective role in post-GST era, keeping a check on undue profits.

Second, competition law interventions can acts as tools of social inclusion, reduce the price, drive consumer benefits and enhance market access for the economically marginalised sections of the society. CCI’s investigations, including into the markets of staple products (cartelisation of supply of sugar, onion, etc) and industrial products (LPG cylinders, cement cartelisation, banking, auto parts, etc), all have been done with the aim of reducing consumer prices. With strengthened staff and capacity, CCI could take more suo motu cases to keep a watch on the market, cartels and monopolies. In global cartels, other jurisdictions routinely interact with others, and it helps in upgrading capacity. There are also provisions for CCI’s interventions in acts outside India which affect competition in India. Further, compensation is routinely admissible to victims of cartels, including those in India who might suffer from global cartels.

Third, competition law promotes innovation given competitive firms innovate more rapidly than those in monopoly markets. CCI has resisted calls from intervening in innovative markets where incumbent traditional firms have complained before CCI posing as victims of unfair competition. For example, CCI has contributed its regulatory support to the e-commerce sector in the matters brought up before it and, thereby, has facilitated Digital India.

CCI has started issuing definitive guidelines for facility of clarifications and easier compliance; it has inducted several non-governmental agencies to help develop Indian competition law practice in line with international standards, and has publicly promised to further streamline merger control process for making it quicker, time-bound and easier, and develop an online self-assessment competition law compliance portal. These developments indicate the maturing of a regulator, one that wants to work with its stakeholders in a facilitative matter without necessarily having a policing approach to antitrust enforcement.

Within a lifespan of about eight years, decisions of CCI have already made new room for re-think on industrial policy and compliance in several sectors. CCI’s recent modernisation of its leniency regime has led to a rethink among companies on need of antitrust compliance, many more voluntary cases are coming and more such path-breaking developments can be expected in the near future. A strong, vibrant and effective CCI, with clear and predictable jurisprudence, can play a crucial role in ensuring fair markets for existing and new investors, accelerated economic growth and in the pursuit of consumer happiness.

Dhanendra Kumar & Avirup Bose
Kumar is former chairman, CCI, & ED, World Bank, and Bose is assistant professor, Jindal Global Law School

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