National Competition Policy is soon going to be a reality, as the mood of the government suggests. What will be the outcome of the policy and how far will it be successful in infusing competition principles in the various policies and regulations to promote a competitive market structure and achieve economic growth and social development? Lex witness finds out in this cover story
On the 22nd September, Federation of Indian Chambers of Commerce and Industry (FICCI) in association with the Ministry of Corporate Affairs organized a consultation on the draft National Competition Policy that has been prepared under the stewardship of Dhanendra Kumar, the former Chairman of Competition Commission of India and aims at ushering in the economic freedom much desired by the Indian business. If the policy gets accepted, it is going to create a barrier free access to the national market thereby unlocking the full growth potential of the economy.
Historically, the jurisprudence and theoretical frameworks of the competition policy have been aimed at countering the anti-competitive behaviour of the powerful companies manifested in the creation of monopolies, concentrations of businesses, anti-competitive agreements, cartels and the unfair trading practices.
India in the initial years of its independence chose mixed economy through which it wanted to achieve the ideal of economic justice. Though initially it helped in stabilising the national economy, somewhere in the middle the demons of corruption and license and quota raj stifled the entrepreneurial spirit of the nation and the nation had to suffer the much maligned hindu rate of growth as this model accumulated a lot of policy generated inefficiencies apart from the systemic distortions. This model of the economy was simply unsustainable andthe government was close to default, the RBI had refused new credit and the forex reserves had just tanked which were reduced to such a point that India could barely finance three weeks’ worth of imports. India had to airlift its gold reserves to pledge it with International Monetary Fund (IMF) for a loan.
To address the ills of the ailing economy the NarsimhaRao government launched economic reforms in early 1990’s thereby liberating the national economy from the shackles of the license, quota raj. But by late 90’s it became amply clear that the monopoly of the state and its instrumentalities over different sectors of the economy like transportation, education etc. were counter productive as the different policies of the state were designed and implemented in such a fashion that they distorted the market and the competition. The distortions in the economy ranged from procurement of goods and services to the government related distortions to pricing, distortions in the trade policy and other distortions generated by the rules, regulations and policies of the various state governments. So much so that the various states competed amongst themselves and indulged in a lot of anti-competitive behaviour because of which ultimately it was the nation and its citizenry which suffered.
Thus the entire thrust of the economic policy in India post the economic reforms in 1991 was to promote entrepreneurial spirit in the nation, bringing in technological dynamism thereby makingthe national economy highly competitive in the global arena. But after twenty years it is being thought pertinent to do away with policy-engendered inertia producing nothing yet keeping locked tremendous economic potential within the state enterprises and fostering inefficiencies.
As per the chapter 11 of the 11th Five Year Plan document, there is a positive association between GDP growth and competition. Competition enhances productivity at industry level, generates employment and lowers consumer prices.
A pro-competitive policy environment has been found to have pervasive and long lasting effects on economic performance by affecting economic actor’s incentive structure, by encouraging their innovative activities and by selecting more efficient ones from less efficient ones over time.**
The Policy further states that introduction of competition in the procurement policies of the government can bring in good governance, transparency and has resulted in 17-43 percent savings to the national economy.
“The country needs less of law and more of policy to deal with the socio-economic exigencies. And this policy is going to mark second big bang in economic reforms in the sector.”
“The National Competition Policy may harmonise the jurisdictional overlap between various sectoral regulators including the Competition Commission by making consultation between them made mandatory. All the relevant legislations regarding different sectors may be tweaked in so as to make consultation between various regulators mandatory. Mandatory consultation would therefore help in harmonising the jurisdictional overlap issues of various sectoral regulators. In the consultation process Competition Commission may have precedence over other regulators on the implementation of competition principles and in other issues like pricing, quality, sectoral regulator may have precedence.”
In such a scenario the competition policy is sought to be used as a tool for addressing systemic distortions in the economy and to uphold the interest of greater common good by infusing the competition principles into all policies of the central and the state government. The World Trade Organisation (WTO) defines a competition policy as: “the full range of measures that may be used to promote competitive market structures and behaviour, including but not limited to a comprehensive competition law dealing with anti-competitive practices of enterprises”.*
The policy aims at ushering in infusing competition principles in the various policies and regulations of the government at the central and state level to promote a competitive market structure. The competition principles will reduce the costs, promote innovation and investment in the state – of – art technologies, bring in better managerial practices and increase productivity. The drafting committee thinks that if economy can achieve this kind of efficiency then it will surely be able to achieve the objectives of economic sustainability i.e. economic growth, social development and poverty alleviation.
As per the draft policy: “…would seek to inculcate a competition culture across various sectors to induct greater efficiency and dynamism, bringing in innovation and technology, delivering goods and services which are competitive, thus contributing to accessibility for consumers and consumption and thereby accelerating economic development, globalcompetitiveness, unleashing entrepreneurial energy, creating more jobs and opportunities to raise the living standards of people, thus ensuring inclusive growth.”
The distinction is in terms of having a thought process which is proactively infusing efficient and competitive economic behaviour from the business enterprises leading to democratic market; and the competition law on the other hand is aimed at investigating and punishing the anticompetitive behavior. Essentially competition policy is a comprehensive approach which shall guide all other policies of the government not just at the level of the central govt. but also at the level of the state governments and at the level of other instrumentalities of the state to bring in efficiency in the economy by correcting systemic disorders. On the other hand the competition law is a part of the competition policy framework which has been specifically legislated to regulate the anticompetitive behavior of the firms thereby investigating and punishing such negative behavior by the participants of the market.
“India in the initial years of its independence chose mixed economy through which it wanted to achieve the ideal of economic justice. Though initially it helped in stabilising the national economy, somewhere in the middle the demons of corruption and license and quota raj stifled the entrepreneurial spirit of the nation and the nation had to suffer the much maligned hindu rate of growth as this model accumulated a lot of policy generated inefficiencies apart from the systemic distortions.”
As per the draft policy the competition principles include: “Fair market process to ensure rule bound, transparent, fair and non-discriminatory market regulation; institutional separation between policy making, operations and regulation i.e. operations in and regulation of a sector should be independent of the government branch which deals with policy formulation in the sector and is accountable to the legislature; ‘Competitive neutrality’, such as adoption of policies which establish a ‘level playing field’ where government businesses compete with private sector and vice versa; fair pricing and inclusionary behaviour, particularly of public utilities and intellectual property rights holders, which could be imbued with monopolistic characteristics and a large part of the consumers could be excluded; third partyaccess to ‘essential facilities’, i.e. requiring dominant infrastructure owners to grant to third parties access (e.g., electricity, communications, gas pipe lines, railway tracks etc) to their infrastructure on agreed terms and conditions and at regulated prices, aligned with competition principles. Such treatment can be given to intellectual property rights as well if the IPR concerned possesses essential infrastructure characteristics; and finally harmonisation of various govt. policies with the competition principles and the co-operation between the various state, central and sub-state authorities i.e. municipalities, panchayats, universities etc.”*
The draft policy maintains that competition has a two-way linkage with various policies of the government such as fiscal policy, trade policy, investment policy, labour policy, consumer policy, environment policy, policy on intellectual property rights, sectoral regulatory policies etc. and all these would require harmonisation of thesewith the competition principles.
The draft policy further views that the competition process would first and foremost require a positive and constructive dialogue between all the stakeholders in the economic process be it central, state governments., the instrumentalities of the state which the policy calls as sub-state authorities including municipalities, panchayats, housing boards, universities, professional institutes, roadways, corporations which are created by statutes but are engaged in production, supply, distribution of goods or provision of services. The statutes, laws, procedures which govern the sub-State authorities may be reviewed so as to align them with the broad principles of the National Competition Policy. Such authorities will be encouraged to consult the implementation authority of the National Competition Policy on changes contemplated in the rules and procedures to ensure that competition is not undermined.
“Thrust of the policy apart from laying down the policy framework is upon the implementation process which has not been put in the public domain but it is in place. My experience as a trade negotiator tells me that the best way to achieve consensus around any policy for its implementation is by way of trade offs that is to say what you may lose in one you may gain in another sector. And that is what should be done to balance the interests of the various stakeholders in the economy.”
Further the policy proposes adialogue between the different sectoral regulators like Telecom Regulatory Authority of India (TRAI), Insurance Regulation and Development Authority (IRDA) etc. and the Competition Commission of India to avoid jurisdictional grid locks
To further promote competition in the market place, the government will establish and resource an agency, the National Competition Policy Council. The Government will encourage all departments/ministries of the Central, State, sub-State Governments to set up an in-house cell to Draft National Competition Policy, undertake Competition Impact Assessment, as described below, of various policies, statutes, regulations/rules enforced by them.
The NCPC would provide technical assistance to the in-house cells of different government departments/ministries at the Central and state governments in undertaking competition assessment of the policies, laws, regulations and practices under their purview. Promote and encourage involvement of consumer movement in implementation of the NCP by building their capacities and strengthening their resource base; Encourage formulation, adoption and wide dissemination of Competition Policy Principles in all ministries, departments and bodies of the central government, state, sub-state governments, business and cooperative sectors to increase representation, accountability and transparency. Undertake, or get undertaken through appropriate agencies/experts sectoral studies orreviews and make recommendations for fostering policies and practices that increase competition in the concerned sector. Undertake measures to build capacity of government departments, ministries and other stakeholders. Frame and administer an incentive scheme under which financial grants will be given to State Governments linked to the progress in aligning their policies and laws with the principles of the National Competition Policy. Take measures to create public awareness and undertake advocacy, among various stakeholders, including consumer organisations.
The policy, a welcome step for private players, will come into effect by December 2011. It would require co-ordination between various ministries, state governments, and other authorities to reap full benefits of this policy. Though it is going to be a tough call yet one needs to begin somewhere. The challenges for the industry like ours are maximum at the local level where various municipal laws are in conflict with each other where we have to deal with the issues of registration, stamp duty etc. amongst others and I believe a policy like this can bring around fundamental changes in the regulatory environment which will definitely help the private sector.
The competition policy is definitely going to work in the interests of pharma industry by fostering competition between different pharma players and by bringing good quality medicines at fair price to the customers.
It has been envisaged that government departments and ministries will undertake Competition Impact Assessment to see if any anti-competitive effect is exerted by a provision in the policy / law / regulation / practice, enforced by them. The NationalCompetition Policy Council will facilitate development of a Manual for undertaking Competition Impact Assessment suited to the local context.
The draft policy envisages quinquennial review of the policy besides an annual report to be prepared by the Ministries/Departments of the CentralGovernment, and the other State/SubState Bodies of their laws, regulations, policies and practices, and submit annual reports to their appropriate Governments.*
Though the Constitution of India envisages a barrier free national economy when it seeks to ensure for its citizens— social, economic and political justice in its preamble, by guaranteeing “freedom to practice any profession, or to carry on any occupation, trade or business” by way of fundamental right in Article 19(1)(g). and further Articles 301-304 further aims at the same. The constitutional position on this issue was stated by the Hon’ble Supreme Court of India that Article 301 provides freedom not from all laws but freedom from such laws which restrict or affect activities of trade and commerce among and within the States; and that Article 301 refers to freedom from laws which go beyond regulations which burdens, restricts or prevents the trade movements between states and within states.
Yet the path is extremely difficult as the vested interests at the regional and statelevel being the beneficiaries of the prevalent policy framework have a greater stake in not allowing such a policy like national competition policy to take root. As the bogey of federalism can always be raised by such vested interests to defeat the objectives of the policy and the same has been held to be basic feature of the constitution rendering it to be unamendable.
There is also a chance of jurisdictional conflict between NCPC, Competition Commission and other sectoral regulators which at times may have jurisdictional overlaps thereby queering the regulatory pitch.
National Competition Policy undoubtedly aims at democratising themarket and bringing in efficiency in the way business is being conducted be it at the level of Public Sector level or at the level of Private Sector. But the challenges are daunting which have the potential to destabilise regional vested interests having a stake in the present state of affairs and this would require great political will, sacrificing vested interests for national interest and thereby calls for an unprecedented statesmanship which hitherto has neither been required and nor been seen in the post independent India. Therefore to end policy engendered distortions in the economy this competition policy is being formulated and it surely promises the much cherished economic freedom. But the question is whether the govt. will be able to enforce it as it would require extraordinary politicalwill to fend off entrenched and vested interests. Besides a lot of legal and constitutional hurdles will come in the way as it will have a direct bearing on the federal system of governance of our country which as per Keshavanada Bharti judgment of the Hon’ble Supreme Court of India. So the best is wished yet extreme and whole hearted caution is advised.
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