Published: The Economic Times, October 28, 2005
By Pradeep S Mehta
Many think that competition policy and law are tools for the rich and urban society, while some believe that one doesn’t need any competition rules at all. They are naïve. Another question which is often raised is how competition law will help a society which is illiterate and poor. For example, our agricultural marketing system itself is so anti-competitive that farmers, even small, do not gain the full value of their produce, which is usually cornered by middle-men.
This is aided by archaic laws, which our state governments are unenthusiastic to modify, probably to satisfy some vested interests. In this article, let me recount the tale of a poor peasant widow, who used the law to get redressal against another scourge of our society, the moneylender, and the collusion which prevails in our society.
Rukmini Devi, a poor elderly illiterate widow, lives in a village near Chittorgarh in Rajasthan. She had to sow her unirrigated 5-bigha farm in time, but did not have the resources to buy the seeds, fertiliser, etc. Fortunately, soft loans were available at the local cooperative bank situated at Rashmi, the sub-divisional headquarters under the government’s integrated rural development scheme.
In view of the frauds which are ubiquitous, illiterates are required to affix two passport-size photographs to the loan documentation. Rukmini approached one of the two studios to get her photo taken. When she went to collect the pictures, she was given one reason or the other for non-delivery.
The other studio did not help, when approached. This meant that she could not obtain the soft loan. As a result she was forced to go back to the usurious money lender to get the money, because rain gods would not have waited for her loan. Both the studios acted in cahoots with the moneylender.
Through a local consumer activist she complained to the local district forum under the Consumer Protection Act against the restrictive trade practice and the cartelised activity that the two studios were engaged in. She won the case and collected damages from the studio and the cartel was broken.
This real life example shows how cartels can operate at all levels in the country and sap the people and the economy. It also shows that the poor do benefit from action against competition abuses, if they can access justice.
The same situation can be projected onto the larger national canvas. But new laws such as the new Competition Act, 2002, alone cannot break cartels; we need policies to be amended to ensure that competition prevails, and the people benefit. Policies include trade policy, regulatory policy, etc.
On another occasion, a poor villager complained that he can now get a good drycell for Rs 2 each, which he had been purchasing for Rs 6, and felt very indignant. These cells were of Chinese make, and these are now available in India because we have had to free imports of consumer goods.
That was due to a trade policy measure that enabled prices to come down. A counter argument often heard is that the small units making such consumer goods are closing down as they cannot compete against cheaper imports, thus workers are getting thrown out of jobs. If one looks at government data, in fact, the number of small scale units, and resultant employment and exports, has actually been on the rise.
Indeed, some units will shut down due to attrition, while many new ones will continue to be set up, perhaps in newer areas. If we just take a look at the ball-point pen industry, then we can see the change which has been brought about. True, many small and tiny units making shoddy and leaky ball-point pens have shut down, while big brands have now occupy the scene. But aren’t ball point pens purchased by the poor also?
Examples of tied sales have also been seen. For instance, some bright bureaucrat thought of expanding the line of goods sold by ration shop dealers by adding razor blades, tea, etc. The intent was good, but the prices of these non-short supply goods were higher than the market prices.
When the poor consumers did not buy them, the shops started tied-sales, i.e., one had to purchase a quantity of tea and razor blades if one had to pick up the required quota of wheat and/or kerosene. The practice was stopped when the consumer movement raised cain.
So much about the goods sector. Let us look at the services sector. Independent regulatory policies in the utility sector is a good example of a competition policy measure meant to protect the interest of poor consumers. It does several things for the benefit of the poor, such as universal supply obligation enabling firms to supply its services to the poor, even in far flung areas. Alternatively it provides for budgetary support for the poor.
It is required to oversee consistent supply at benchmarked quality and quantity and provide a window for public participation in policy formulation and tariff-setting. In turn it will reduce corruption and make available an easy redressal system for the poor to resolve their grievances.
In sum, it is required to increase overall efficiency, thus furthering welfare gains. Indeed much more needs to be done as far as the regulatory and supply situation of our utilities, but one cannot argue against the utility of the framework.
This article can also be viewed at: