March 13, 2005, Bangalore, Press Release

Competition Policy maximises consumer welfare, by ensuring goods and services at best possible quality, offered at lowest prices and available in adequate quantities. Alongside, competition policy also leads to business welfare, by ensuring, for instance, intermediates goods consumed by businesses are available through a competitive process. It also ensures a consistent policy and fair environment for businesses to operate.

These messages emerged while discussing questions, such as: How is competition policy going to affect the informal sector, which employs about 90% of the labour force? Should we encourage competition in an environment, where there are no effective social safety nets in place to smoothen the transition process?

These issues came up at a two-day joint seminar organised by the Centre for Public Policy, Indian Institute of Management, Bangalore (IIMB) and CUTS International, Jaipur at the IIMB campus. The seminar was organised to discuss issues relating to Competition Policy and disseminate the findings of project report on Functional Competition Policy for India, brought out by CUTS. The CUTS project has been supported by the Department for International Development (DFID), UK. British High Commission provided support, under the Global Opportunities Fund, to facilitate the participation of experts from UK.

The seminar was addressed by TCA Anant and Aditya Bhattacharjea, two renowned experts from the Delhi School of Economics; Pradeep S Mehta, Secretary General, CUTS International; Deepak Sinha, IIMB; and Partha Mukherjee, Infrastructure Development Finance Corporation. Among the international experts who addressed the seminar was Allan Asher, Member, Office of Fair Trading, UK; and Cathryn Ross, Senior Business Advisor, Competition Commission, UK.

In the deliberations, it was mentioned that there are several anomalies in the policies followed by the government. One such instance is the policy towards small-scale industries (SSIs). While on one hand the government follows the policy of reservation, at the same time, imports are allowed in several products, which are reserved for SSIs. Given that, the reservation policy has largely acted as an incentive for “small to remain small”, it is adversely affecting the natural growth of small enterprises, and consequently their ability to compete effectively.

It was realised that competition results in pure gains, by checking abuse of dominance, and various anti-competitive agreements, such as price fixing, cartel, etc. There are also situations where the gains are accompanied with pains to some sections of the economy, for instance, closure of firms, which are not able to face competition, and the resultant job losses. In this context, it was mentioned that closure of firms is a natural process of attrition, and job losses in one sector gets compensated by increase in opportunities in other sectors.

The case of UK and Australia, were cited, which in the past witnessed historically high levels of unemployment, but after liberalisation and introduction of competition, now have almost zero rates of unemployment. In the specific case of UK, competition led to job losses of about a million but was compensated by creation of five million new opportunities. This happened as, competition led to significant reduction in the prices of key intermediates, such as energy, used by businesses, which in turn spurred fresh investments, and consequently led to creation of new opportunities. However, the key is to manage the entire transition process, by rehabilitating and providing retraining facilities to workers who lose.

In the context of government policy, most often, state governments adopt and implement policies in a way that leads to anti-competitive outcomes or regulatory failures. The state excise policy in liquor is a classic example of this. Being one of the largest revenue source state governments follow policy to maximise their revenues, but quite often the outcome is the opposite, and governments lose revenue. This is because, often liquor operators, cartelise to subvert the bids. A similar situation arises in the context of construction works undertaken by states, where there is rampant cartelisation of construction contractors.

Under these situations, there is need to do a competition audit of all policies of the government (central as well as state), to ensure that all government policies have a competition dimension.

It was also realised that there is not much awareness about competition law in India. In order to ensure this, the Competition Commission of India, should investigate cases, which gives it a public buy-in. One such case could be, for instance, to investigate tied-sales in school education, where schools force their wards to buy books, stationery and uniform from certain select shops. This is clearly a restrictive trade practice and results in the students paying more than what is available at the prevailing market rate.