February 01, 2005, Financial Times
New Delhi

India’s leading consumer rights group yesterday called on the government to give a new competition watchdog the power to attack several large cartels operating in the country.

The Consumer Unity and Trust Society (CUTS) in a report released yesterday welcomed a competition law passed in 2002 that created the watchdog, whose first probes into price fixing may begin next year. However, the watchdog said it would be ineffective unless it was independent of government and endowed with the legal power to break up cartels.

The watchdog, although set up, has faced a series of legal challenges that have delayed its operations. India’s Supreme Court recently cleared the last legal hurdles and a public debate over the watchdog’s role is under way.

Past attempts to promote competition have hit fierce opposition from cartels. In India, multimillion dollar indujstries such as steel, cable television, transportation, agriculture and drug retail remain insulated from competition and set prices above market rates, the report found.

Pradeep Mehta, secretary general of Cuts, said whihle cartels are illegal in India, many thrive because the current trade practices law is weak and hard to enforce.

The Cuts report claims, for example, that some popular drugs are costlier in India than in Canada and the UK because drug compaanies collude with doctors and pharmacists to raise profit margins.

Mr. Mehta said the most effective way to attack market collusion was to give the watchdog more powers and for New Delhi to adopt a comprehensive competition policy that spanned national and state boundaries, and made competition a principle of economic regulation.

But powerful business interests are likely to resist. Some producer lobbies have already attacked the watchdog to be called the Competition Commission of India, as a return, to the “licence Raj” of socialist-style government intervention.

There are signs that the bureaucracy, judiciary and govenment are closed to a rare consensus on the need for more competition to improve consumers’ welfare and reduce corruption.

As Mr. Mehta notes, competition in the telecommunications industry in the past four years means people no longer need to bribe bureaucrates to get a phone line.

“India does not have much experience with good competition regulations. That is one of the challenges for the new Indian competition Commission.” Said Frederic Jrnny, Professor of Economics at France’s Essec business school and a world competition expert.