Published: Economic Times, 15 November, 2004

By Pradeep S Mehta

One has to view the Naresh Chandra Committee’s report on reforming the aviation sector in India through the lens of competition.

Among many, two crucial points which emerge are: first, how to regulate the natural monopolies, which all airports are, through an independent regulator. And second, the issue of allowing private airlines to fly on overseas routes in competition with other airlines.

If Indian airports are privatised or even corporatised, they can become strong competitors to other more attractive airports in the region to serve as a hub for people who catch connecting flights to other parts of the world.

Singapore, Kuala Lumpur and Bangkok are models to be emulated. If our airports in India can come close to any of these, the other issue of allowing private airlines will pale in significance, because the demand will rise hugely to allow several players in the market.

In its editorial (Sense on aviation, November 5), The Economic Times has rightly argued that our two national flag carriers are not incompetent, but have been made so by bureaucratic insouciance or even deliberately (to allow the private sector to consolidate) by not allowing them to acquire new aircraft.

The issue of radically changing our whole transport policy came up at a research meeting recently at Jaipur, in the context of developing a functional competition policy for India, organised by CUTS.

It is not only transport, but several other sectors and policy interface, which the project is engaged in. A transportation expert observed: “Any one sector cannot be viewed in isolation, but the government should formulate an inter-modal transport policy, by looking at the interconnectivity between rail, air, road and water transport systems.” (The logic of developing internationally competitive airports applies to sea ports as well.)

Similar arguments were made for the energy sector, which should again work out a single policy by combining the petroleum, gas, electricity and coal sectors. It does make eminent sense to do so, and such an agenda is doing the rounds in our policy circles. Unfortunately, all these sectors are under different ministries, and thus the turf issue comes up as the biggest hurdle right at the start.

It may not be such a hurdle if the UPA’s National Common Minimum Programme is implemented in letter and spirit. The NCMP states: “Competition, both domestic and external, will be deepened across industry with professionally run regulatory institutions in place to ensure that competition is free and fair.”

The Planning Commission is currently engaged in how to improve the regulatory framework, and the results should set new benchmarks for the government and its various branches to follow. There will, of course, be hiccups, what with the usual “the right hand does not know what the left hand is doing”. The Left will also be breathing down the government’s neck to maintain the status quo. But the point is to go on despite all that.

One such discouraging example is the Left-led hullabaloo on the recent fuel price hike. Even an ordinary reader like me, was aware that prices would go up, in spite of the petroleum minister’s assurance to the contrary a few weeks ago. I knew the international oil cartel, Opec, is increasing international prices of crude. This cartel is not subject to any competition discipline, but that is another story. However, I am quite puzzled on two counts:

If we have moved away from the administered price mechanism, why is the government making noises. It doesn’t do so for cement and many other commodities. Furthermore, there is a choice of petrol pumps belonging to different companies in my city or any other for that matter, but they all charge the same price. What the government needs to do is to, first, reduce the fiscal overburden, and second to ensure that petrol pumps sell at competitive prices.

For that we will need a better competition law than the current MRTP Act. We have one, the Competition Act, 2002, but that is languishing in the Supreme Court because of the issue of who should head it, rather than what should be the head’s qualities.

Talking about cartelisation, the entry of private airlines into the Indian market comes to mind. Indian Airlines colluded with them to charge identical fares.

With private airlines acquiring bigger fleets, the scene has changed drastically. Now, even the national carrier is coming up with innovative ways to beat competition. The story in the telecom sector is quite similar.

Compared with approaches of other reforming economies, we have decided to stick to a mixed-economy approach, i.e., to buttress our public sector units, and bring in competition through private players. That’s good, but will it guarantee fair play.

For instance, it was reported in August 2004, that the public sector Hindustan Latex Ltd (HLL) had colluded with five other private firms to put in a common price bid to the ministry of health for Copper-T, the female contraceptive device.

The price hike itself from the last year’s HLL’s offer price of Rs 13 per piece, to the current offer at Rs 25 a piece, nearly a 100% jump, was plainly confounding. In fact, the contract was won by a private player at the rate of only Rs 8 a piece last year!

Cartelisation occurs in our country in every possible sector, especially when there are a large number of players. The list is endless: cement, tyres and a slew of intermediate goods and services. Wherever there is competition and an oversupply, businesses collude to protect their profits, and end up indulging in profiteering.

Bid rigging in construction contracts is another pandemic in the country. For instance, at the Jaipur meet, one consumer activist shared that in Chennai, the bids for a package of overhead bridges was awarded to one party. In return, the party shared the lucrative over-priced contracts with the other bidders working as their sub-contractors.

All this costs a huge amount to the economy, and affects the competitiveness of our firms adversely. It is also a dampener for foreign investment flows.