Published: The Economic Times, June 16, 2005

By Pradeep S Mehta

Your recent pronouncement, dear prime minister, that the country will not be able to cross 7% growth rate is perhaps right, and catharsis must begin from this confession. Much more needs to be done than just pursuing growth strategies. The NCMP has recognised widely that competition needs to be promoted to achieve higher growth.

But declarations are not enough. If we adopt a competition policy and promote competition in the marketplace, we can achieve at least 10% growth rate, let alone 8%! A well-designed and implemented competition policy promotes economic growth by ensuring better allocation of resources and proper functioning of markets.

A study carried out for the Australian economy in the ’90s estimated the expected benefits from a package of competition-promoting and regulatory reforms (including improvements in the competition rules) to be an annual gain in real GDP of about 5.5%. Of course, the Australian and Indian economy are not alike. Unlike in Australia, corruption distorts competition in India, causing huge delays in implementing projects and starting businesses. It is estimated that the GDP is affected by nearly 2% due to this. And yet, a double-digit growth is quite attainable.

Recently, CUTS has published a research report: Towards a Functional Competition Policy for India, which has thrown up interesting data. It was seen that it is government policies in many cases, both at the Centre and at the state level, that distort competition. Coupled with regulatory failures, the cost of these anti-competitive policies and practices to the economy is huge. On the issue of adopting a competition policy, some of the policy makers and opinion leaders that we lobbied, asked why do we need a competition policy now that we have a new competition law. You too may ask the same question. My response is quite simple. Competition policy and competition law are two distinct concepts.

Unfortunately, most of the policy community considers both terms synonymous and interchangeable, which is not the case. Though we have liberalised trade, some elements of the policy regime have severe anti-competitive dimensions, such as the use of anti-dumping measures. Competition law is but a subset of competition policy. Besides encompassing the law, competition policy tries to bring harmony in all government policies that affect competition and consumer welfare, such as trade policy, industrial policy.

The country, as you rightly said, has a competition law, but not a policy. And we require one. It is another story that the competition law is itself in a quandary.

The corollary to the above query is, why competition policy? Won’t the competition law suffice? Distortionary elements also exist in industrial policy, labour policy, etc. Then, there are several policies/practices at the level of state governments that lead to anti-competitive outcomes. These cannot be checked under a competition law, but need policy responses.

For example, many of our states implement their excise policies in such a way that liquor lobbies collude and fleece the consumers through exploitative pricing. The collusion also leads to revenue losses. The proposed competition authority cannot act against a policy-induced cartel.

Secondly, other forms of pernicious cartels exist in the construction sector and the trucking industry. The other day, farmers were up in arms against the truck unions in Sikar, Rajasthan, because of exploitative pricing, while threat of violence against competing trucks leave farmers at the mercy of the local truck union leaders.
In the public works construction sector, in nearly all activities contractors not only corner the market but also fleece the treasury by executing poor quality work. Most of the supervising engineers are happy with their standard ‘commissions’, and hardly ever bother to check either the collusion or the quality. Therefore, there is an urgent need to do strong policy advocacy to rationalise the role of the government, so that its intervention promotes the functioning of markets, rather than impeding it. A ‘competition audit’ of all new and old policies will help the government to promote competition.

What is the role of competition law and policy in a country where there is significant illiteracy, unemployment and poverty? Incidence of poverty, etc is a stark reality of our country. Distortions in markets hurt the poor the most. Let’s take the agriculture sector, for example. The market for agricultural products is often considered to be an example of a perfectly competitive market. However, there is a huge gap between the prices consumers pay and the prices received by farmers, due to a chain of intermediaries that do not always work in a competitive manner. For example, paddy millers in some areas often collude and pay low prices to farmers, but charge a high price for rice to consumers.

In the same context, the freedom of moving farm goods to the market which can deliver best prices is throttled by the myriad regulations which operate at the local level. The central government is trying to push states to adopt the new Agricultural Produce and Marketing Act, which can liberalise the movement of agriculture produce. But, you know how responsive the states are. Granted it is a state subject, but surely there can be a public debate about this, and our farmers’ organisations be made aware of the facts, so that they can campaign for freer markets.

In a country where two-thirds of the people draw their livelihood directly from agriculture, the linkage between market imperfections in agriculture goods and poverty is manifest. This is where competition law and policy can play a key role. It also needs to be understood that competition law is not a luxury of the developed world, but one of the necessary tools for developing countries, in their fight against poverty.

In January, 2005, through the front page of this newspaper, you had asked people to adopt this year as the ‘can-do’ year. We can do it, so can you.