India to review its 2011 draft competition policy. EU, Australia and Japan are ahead

In a brass smelting and casting unit in Moradabad district, Uttar Pradesh | Photo: Manisha Mondial / ThePrint

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TIndia’s experience in regulating competition has been truly unique. While competition law in India has been in force for over 50 years with the introduction of the Monopolies and Restrictive Business Practices Act (MRTP) in 1969, efforts to introduce competition policy have failed have not borne fruit. Competition policy has a broader set of objectives to achieve competitiveness in the economy through the instrumentalization of laws, policies and programs in all areas of economic activity.

Competition law is a subset of competition policy. Mature antitrust jurisdictions like the European Union, Australia and Japan have consistently refined their competition policies to keep pace with the growth and rapid changes in the economy. The Indian Ministry of Commercial Affairs has launched a Disorganized National competition policy in 2011; it still has not seen the light of day. The Competition Law Review Committee Report of 2019, which revised the 2002 competition law, also recognized the importance of such a policy but did not formulate a roadmap for its implementation.

In tune with this year’s World Competition Day theme From “Competition Policy for an Inclusive and Resilient Economy”, we must strive to actualize a holistic National Competition Policy (NCP) for India. This is all the more important for India’s post-Covid recovery, especially with a focus on micro, small and medium enterprises (MSMEs). NCP has the potential to assist other government efforts in this direction by removing barriers to entry restricting MSME participation. This, in turn, would help counter the rising unemployment rate in India.

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Need a PCN

Competition policy is a comprehensive framework for improving competitiveness in all sectors of the market. The application of competition law by eliminating cartels, penalizing monopolies and controlling mergers is done a posteriori. Competition policy can also promote ex ante market competition. Often, sectoral regulations inadvertently cause distortions, creating barriers to entry for new and small entrants. Since sector policies and laws are not framed through the prism of competition, they can have latent adverse effects on competition in a market sector. For example, the Nestlé “Cerelac” brand, which produces instant cereals and infant formula, has an undisputed monopoly in the Indian market with over 90 percent market share. This market concentration could be the direct result of a ban on all forms of advertising for infant foods or milk substitutes imposed by the Infant Milk Substitutes and Foods of 1992. Act. Although this ban was put in place to prevent consumers from perceiving it as a breastfeeding substitute, the unintended consequence has been market concentration.

Establishing a product without any advertising is a high barrier to entry for small players and as a result an established business with established goodwill is sweeping the market. As the product already has a disclaimer stating that it is not a substitute for breastfeeding, increased consumer awareness efforts instead of an advertising ban might have achieved the entire goal. keeping the market competitive. This demonstrates that sectoral laws can unintentionally reduce market access and raise prices. Competition law contains a provision for carrying out an assessment of the competition of laws in order to identify regulatory barriers to entry and to propose changes to the sector; however, in the absence of an NCP, such an assessment is not regular and targeted, nor carried out for new legislation at the time of its formulation.

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Revival of the economy

The implementation of a comprehensive competition policy is even more important today for the recovery of the economy reeling from the recession induced by the pandemic. The government focuses on MSMEs as a major contributor to India’s GDP (its share of gross value added to GDP in 2018-2019 was around 30 percent). This too accounts for 40 percent of exports.

The Covid lockdown has wreaked havoc on India’s MSME landscape for a multitude of reasons. An average decrease of 46% in 2020 and 11% in 2021 was observed in the business volume of MSMEs. Directory report of the MSME Ministry also recognized limited access to market, technology, finance and talent as major obstacles to the growth of an MSME. While central and state governments have launched several programs to recharge the sector, competition policy is needed to support their efforts. When barriers to entry were lowered, MSMEs would be able to easily enter concentrated markets and innovate, thus strengthening competitive rivalry.

Less concentrated markets also ensure inclusive growth. Job creation is currently the top priority of the government, as the unemployment rate fell from 9.1% to 9.4% between January-March 2020 and 2021. MSMEs are the second largest employer in India and therefore has the potential to absorb the unemployed population. Supreme Court in the case Indian Competition Commission (ICC) v. Bharti Airtel Ltd. and Ors. (2018) also underline that an NCP can have a positive impact on employment policies as it provides a gateway for the entry of new effective competitors. Targeted efforts are needed to dilute barriers to entry and thereby boost small businesses and employment opportunities.

In addition, digital market regulations are being developed and, as digital markets are more prone to concentration, early implementation of the NCP is important to ensure the involvement of the competition authority in the process. development of these laws. The 2011 version of NCP is a good place to start. The draft policy, however, seeks to establish an NCP Council that would be responsible for overseeing and coordinating the implementation of the policy. In this regard, the government should ensure that the mandates of the NCP council do not overlap or conflict with the functions of the ICC.

Dr Arvind Mayaram is the former Union Secretary and President of Finance, Garima Sodhi is Senior Policy Analyst and Bhaavi Agrawal is Associate Researcher at the CUTS Institute for Regulation and Competition. Opinions are personal.

(Edited by Srinjoy Dey)

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