Published: The Economic Times, August 19, 2005

By Pradeep S Mehta

The UPA government has been in office for over a year and it is time to assess its performance on the touchstone of competition as laid out in the National Common Minimum Programme (NCMP), which inter alia, states: “The UPA government believes that privatisation should increase competition, not decrease it. It will not support the emergence of any monopoly that only restricts competition. All regulatory institutions will be strengthened to ensure that competition is free and fair. These institutions will be run professionally”.

The most significant achievement over the past one year has been the implementation of the value-added tax (VAT). This is a big step forward in moving towards a single market for the country as a whole, and promises to remove several distortions in the market place.

True to the spirit of the NCMP, certain measures have been taken to end the monopoly of incumbents. For instance, monopoly of GAIL in gas pipeline infrastructure is set to end. Private operators have been allowed in the movement of container trains, thus bringing an end to the monopoly enjoyed by Concor.

Measures were taken to ensure level-playing field in certain areas. For instance, guidelines have been issued that puts major port trusts and private terminal operators at par on tariff determination. The new petrochem policy seeks to address the inverted import duty structure that disallows competition and cripples units producing finished products.

Given its resolve to strengthen regulatory institutions and run them professionally, the Planning Commission is busy preparing a policy paper for the establishment of an effective regulatory regime based on international best practices. The discourse that ensued suggest there is now an appreciation of the need for setting up independent regulatory authorities in infrastructure sector. However, certain turf issues still remain unresolved. For instance, while the Planning Commission is in favour of an independent rail regulator, the ministry of railways is strongly opposing the move.

Civil aviation has been one of the active sectors on the policy radar. The restructuring of Delhi and Mumbai airports is under way. Private airlines have been allowed to fly to foreign destinations, providing a platter of choices, and competitive prices, to consumers. However, the lucrative Gulf sector continues to be reserved for the public sector. Furthermore, domestic airlines with less than five years of experience have been kept out. Despite all the efforts, the long awaited civil aviation policy has still not been finalised. Even the proposal to establish a civil aviation regulator has not seen the light of the day.

Oil was another sector that generated a lot of news due to the spurt in international crude prices. There is absolutely no transparency in the pricing of petroleum products, and both the government and oil companies continue to reap benefits from distortionary policies and practices, at the cost of consumers. Hence the government’s proposal to set up a Petroleum & Natural Gas Regulatory Board is welcome.

The government seems to be continuing with discriminatory policy to meet its commitment of a strong and effective public sector. The recent announcement to extend the purchase preference policy for central PSEs for another three years is one example. The continuation of Access Deficit Charge (ADC) payments to BSNL is yet another instance. There are several such examples which distort the competitive neutrality principle!

As promised in the NCMP, the National Manufacturing Competitiveness Council (NMCC) is preparing a draft strategy paper to suggest measures for enhancing competitiveness in certain sectors. However, there are several competition concerns, which affect the competitiveness of manufacturing sector. For instance, Reliance is a dominant player in polyester staple fibre (PSF) with a market share of 85per cent while IndoRama produces the rest. Together, they are following an ‘exploitative pricing policy’, which affects the competitiveness of textiles, a huge growth area.

In several commodities the government continues to follow an inverted duty structure that hampers the competitiveness of domestic goods. For instance, while import duty on natural rubber is 20per cent, the duty on imported finished tyres is only 10per cent. While crude palm oil attracts customs duty of 65per cent, import of vanaspati attracts much lower rate of duty at 30per cent. These anomalies cause distortions in the market.

It would therefore be good if the NMCC also examines how government’s policy and lack of an effective competition law affects the competitiveness of Indian manufacturing industry. This also requires active involvement of the Competition Commission of India. However, despite being mentioned in the thrust areas for policy implementation in six months identified by the PMO for 2005, the fate of the Competition Commission is still vague.

In the absence of a working competition law, the economy continues to suffer from myriad abuses. Thus, deals such as the recent one between Videocon and Electrolux that is likely to reduce competition in the lower end of the consumer durables market, go unchecked.

The brouhaha over trade margins on medicines is still to be resolved. The country has moved to the product patent regime, which provides for an enabling provision for compulsory licensing. However, the role of Competition Commission to examine matters relating to abuse of IPRs does not find any mention.

The government needs to make a competition assessment of all its policies and practices. This calls for the adoption of a national competition policy to provide guidelines in maintaining the appropriate competition dimension.

On balance, the government has shown the right intent and there have been some major policy announcements, but the action on the ground is still to come. Moreover, most of the efforts have been half-hearted, which need to be reinforced by taking a holistic view so that their full benefits can be realised. Given the huge agenda that lies ahead, the real test of government’s performance has now begun.