Published: Economic Times, 23 November 2004

By Pradeep S Mehta

Competition means that we should have several players in the market, trading fairly. It would also improve their competitiveness. Tragically, many policy makers and even economists do not understand the distinction between competition and competitiveness, thus skewing the debate. Competition does lead to better competitiveness but the reverse is not true.

Competitiveness means promoting a number of strong players churning out goods and services at the best quality and prices. But their behaviour can be anti-competitive through collusive practices and the like, as was illustrated earlier.
Therefore, the country needs an effective competition law to ensure that the market functions, and both consumers and the economy gain.

The government has now established a lean National Manufacturing Competitiveness Council, “to provide a continuing forum for policy interactions to energise and sustain the growth of the manufacturing industry”. It will be good if it can also examine how the lack of an effective competition law and policy affects our competitiveness, and recommend appropriate steps for correction.

Once again, it is important to understand the distinction between competition policy and competition law. Competition policy, which we do not have, needs to be a stated government intent on how it aims to promote competition in our economy.
It will envelop various other policies, viz., investment, trade, labour, consumer etc to ensure that wherever there are conflicts, decisions to promote competition would get priority. A good example of this is the continuous de-reservation in the SSI sector. A competition law is a market instrument to ensure that firms behave and trade in a fair manner. However, the competition law cannot be a panacea to cure all ills of the market place.

The marketplace comprises of enterprises, farmers and households. They are consuming a large number of goods and services. Their efficiency and competitiveness are thus determined by their input costs. When the new Competition Act 2002 was being debated, many business interests lobbied against it, for the valid fear that it might be a new avatar of the control regime’s MRTP Commission, and not a modern market regulator. This was grounded in the fact that once again like all our new regulatory bodies, we will have retirees manning the system, whose knowledge about economics and law is inadequate. Let’s take the telecom regulator as an example.

The CUTS research shows that the telecom sector’s phenomenal growth as a consequence of increasing competition is unfortunately true only to a partial extent.
The incumbent government operator: BSNL, which owns 60% share of the market, reports to the same ministry as Trai does. It gets a more favourable treatment from the government. While Trai, some of whose members and staff are former BSNL employees, too gives it a preferential treatment. One instance of BSNL’s status leading to anti-competitive outcomes: it operates an internet service and offers it to consumers as a package deal at a low cost vis-a-vis the charges on the use of the phone time.

However, consumers of other internet service providers, who obtain the service through BSNL’s landline network, are not able to get the same pulse rate as is being charged to BSNL’s internet consumers. Independent ISPs cannot therefore compete with BSNL. And they are fast losing their consumers.

Let me now turn to the goods sector particularly the raw material and intermediate goods sector, and how lack of competition affects our firms.

In many areas, there is a dominant player or if there are many, then they implicitly and/or explicitly behave in the same fashion. The chances of abuse are high in India due to high levels of concentration in many goods sectors. Let’s take the textile input sector for example. The textile and garment sector has a high growth potential following the demise of the WTO’s textile quota system by the end of this year. Of the two critical inputs: Reliance is the dominant player in the polyester staple fibre with a market share of 54%, while Grasim is the dominant player, almost a monopoly, in the viscose staple fibre with 91% of the market share. Per se they may not be indulging in anti-competitive practices but the possibility is distinct.

Considering the liberalisation of trade, if such dominant firms do indulge in anti-competitive practices, imports can offer an antidote. Of course this too would depend upon how they can get the tariffs ‘fixed’ favourably or ‘use’ the anti-dumping regime to take “engineered” actions.

Contrary to the belief of many economists, trade liberalisation is only a partial solution to competition problems in the market place. In this age of globalisation with pressures on tariff barriers, choice of goods has increased substantially.
However there is a catch in this. Increasingly firms world-wide enter into global cartels to exploit the market. Examining a small number of international cartels, which were discovered and prosecuted in the 1990s, a World Bank study has estimated that developing countries imported goods and services worth $81.1 billion per annum from these sectors, which would have collected monopoly rents in the range of $20-24 billion per annum. Another estimate showed that a cartel in bulk vitamins cost developing countries $3 billion during the 1990s. Of this the Indian industry paid overcharges of $25 million in that period, not a mean figure.

The subject of international cartels featured in the discussions on a multilateral framework on competition at the WTO as part of the Doha Round. Though negotiations on it have been stopped, it will be worthwhile to recall our SSI lobby’s plea for a multilateral agreement, because, “such an accord would result not only in improved market access for Indian products, but also help reduce the prices of raw materials where cartels operate”.

This adequately makes the point that an effective competition law, including international cooperation to deal with cross-border issues, will not only promote consumer welfare, but also business welfare, i.e., better competitiveness.