Of fair competition & consumer interest

Of fair competition & consumer interest

The (come)petition:  A fair competition benefits consumers with a wider choice & lower prices. AFP

In a free economy, robust competition is the key for promotion of strong and effective markets. Not only that competition plays a vital role in protecting consumer interest it also acts as a catalyst for boosting productivity and growth in the economy.

With the evolution of free trade mechanism as an instrument of economic growth, countries wedded to the concept of market economy have been emphasising on formulating comprehensive Competition Law. 

As international trade practices have shown trade and competition are closely connected. Both trade laws and competition laws have the common objective of achieving economic efficiency, by improving the business environment for more efficient resource allocation.
Thus to achieve the objective of maximum economic efficiency, the liberal trade policy must be complimented through a sound competition policy by preventing anti-competitive business practices and unnecessary government intervention.

Multiple objectives

A good competition policy, along with a sound competition law, should help in fostering competition, economic efficiency, consumer welfare and freedom of trade, which should equip the governments in meeting the challenges of globalisation by increasing competition in local and national markets.

The genesis of the need for a evolving a comprehensive Competition Law in India can be traced back to early 1990s when the country virtually opened up its economy in 1991 by unveiling series of economic reforms.

The need for Competition Law was further accentuated when India became a party to the World Trade Organisation (WTO) agreement with effect from 1995.  Recognising the important linkages between trade and economic growth, the government subsequently took steps to integrate the Indian economy with the global economy by removing import controls and resorting to liberalisation of trade policies.

Too restrictive

But India enacted its first anti-competitive legislation in 1969, known as the Monopolies & Restrictive Trade Practices Act (MRTP Act).

Finding the ambit of MRTP Act inadequate for fostering competition in the market and eliminating anti-competitive practices in the national and international trade, the government in October 1999 appointed a high level committee known as Raghavan Committee on Competition Policy & Law to advise on the competition law consonant with international developments. As analysts say the MRTP Act over period of time became obsolete in the light of the economic developments relating more particularly to competition laws and the need was felt to shift the focus from curbing monopolies to promoting competition. To address these lacunas the government based on report of the Raghavan Committee drafted a new legislation, which resulted as the Competition Act, 2002 replacing the MRTP Act, 1969.

The new commission

This Act stipulates setting up of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure free of trade carried on by other participants in markets.  Thus six years after it was mooted by the Act the government finally constituted a four-member Competition Commission of India (CCI) in February this year.

As the CCI Chairman Dhanendra Kumar explains, the CCI will primarily seek to promote fair and healthy competition in the economy while preventing emergence of cartelisation in any sphere of economic activity. “We are of the view that competition alone can promote efficiency and productivity of the economy,” he said.

Citing examples how competition promotes growth he says empirical studies have indicated competition contributed to Gross Domestic Product (GDP) growth of countries to the extent of more than two per cent in some cases. The mobile telephony is a good example of how opening up of the telecom sector to competition has led to an explosive growth in the sector and tremendous benefits to the people in the form of low-cost connectivity, he explained.

But the question is: How will CCI ensure competition?
“Ensuring competition is, no doubt, a challenging job. In the simplest term one of the ways to promote competition is to curb anti-competitive commercial activities and ensure that there is no abuse of dominant position by any enterprise,” explains Augustine Peter, Economic Adviser to CCI.

In fact, the Competition Act stipulates that the CCI will seek to prohibit Anti-Competitive Agreement, Abuse of Dominant position by an enterprise and to regulate certain combinations which include acquisition of shares, acquiring of control and mergers/amalgamation between and amongst enterprises.

As analysts say the most important job of the CCI is to enforce section three and four of the Competition Act which deals with the sensitive issues of anti-competitive agreements and abuse of dominant position respectively. 

On a reference from a statutory authority, the Commission is mandated to give its opinion on a competition issue arising during the course of proceedings or suo motu referred to the Commission by any statutory authority.

Not binding

The Commission has to give its opinion within 60 days of the receipt of such references. The Commission can also make a reference to a statutory authority for its opinion.
The Central or a State Government may also make a reference and seek opinion of the Commission on the possible effect on competition emanating from its policy, statute, rules, regulations framed, adopted or contemplated by it.

However, the opinion given by the Commission is not binding on the Central and State Governments.

The Commission is to enquire into cases relating to Anti-Competitive Agreement, Abuse of Dominant position by an enterprise and Combinations through a process of enquiry. Interestingly, the Commission is not bound by the Civil Procedure Code and has the power to regulate its own procedure. After an inquiry, in case the Commission finds that any agreement referred to in Section three or action of an enterprise in a dominant position, is in contravention of Section 3 or 4, it can issue direction to the concerned firm to discontinue and not to re-enter such agreement and  discontinue abuse of dominance.
In layman’s language if CCI issues such a direction it means asking the concerned firm to cease operation.

In this context there is growing apprehension that CCI’s overriding mandate to promote competition in the economy may act as road block to growth.

On the other hand CCI Chairman asserts that it would not be a “stumbling block” on the path of industrial growth.

“Contrary to apprehension expressed in some sections we are not going to be a stumbling block as far as industrial growth is concerned. Rather we will be facilitator for growth as we stand for fair and healthy competition in every sector of the economy,” said Dhanendra Kumar.

Minor irritants

However, legal experts say it is not that Competition Act is a perfect legislation on competition. It also has several lacunas.

The Act stipulates that the Commission would initiate action upon complaints of anti-competitive agreements or abuse of dominant position either suo moto, or on the voluntary motion of a person seeking an opinion of the Commission.

Experts say the lack of a mandatory provision compelling persons or entities, whether public or private, to approach the Commission and the corresponding logistical limitations of the Commission to be able to take cognizance on its own motion of every malpractice in the economy can negate the very spirit of the Competition Act, which primarily seeks to promote competition in the economy.

The Centre also enjoys unbridled power in the matters of policy framing and issues direction on questions of policy which shall be binding on the CCI. The government also has the power to supersede the CCI, against which the CCI can make a representation to the government.

Such provisions, legal experts say, will seriously affect the independence and efficacy of the CCI. In fact, consultation by the Central Government in evolving competition policy with the CCI should be made mandatory, instead of discretionary, as contemplated in the Act.

DH News Service

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