Published: Economic Times, 10 December 2004

By Pradeep S Mehta

Anti-competitive business practices are rampant at the state level and we need state-level competition agencies, backed by appropriate laws, to tackle them.

To achieve progress and the elusive 8% growth, it is important that all policies are coherent with the singular goal of achieving a better market place.

Indeed, many of our central government policies are framed and implemented to promote competition, such as regulatory policies in the utility sector, or using import policy to offer competition.

One incongruent policy is that on small-scale reservations. Closely linked with it are the state government procurement policies, under which both price and purchase preference are awarded to both small-scale and other units in the state.

In the overall, all these restrictive trade practices affect our competitiveness to a large extent, and tragically remain unaddressed in the public discourse.

The CUTS research project, to develop a “functional competition policy for India”, discovered many interesting issues at the state level, which affect our competitiveness.

This is coupled with a huge number of regulatory failures. For instance, in one case in Rajasthan in late 1980s, the forest department tendered for purchase of barbed wire for fencing. A big percentage of this was to be procured only from the small-scale sector.

The local small units, who bid, formed a cartel and shared the supply order. To add insult to injury, the quality was hopeless. But the department was ‘forced’ to use the shoddy goods.

Similar to happenings at the central level, the construction sector is scandalously infested with collusive bidding at the state level too, without any regulation.

In the last piece, I had written about the flyover scam in Tamil Nadu, where contractors pooled up to share the contract at a considerable cost to the taxpayer. The scam had hit the state assembly, but nothing much came out of it.

Angered by the malicious process, the Rajasthan PWD minister announced in the assembly on July 20, 2004, that he will break all cartels, so that smaller contractors can bid for contracts. Nothing happened after, and it is now business as usual.

Such type of regulatory failures are galore in all our states. Hoping to break these cartels is as difficult as you and me travelling to the moon. What with the high levels of corruption among the responsible engineers, who are in cahoots to ensure higher ‘commissions’ from public works. One is reminded of what happened to Satyendra Dubey, after he blew the whistle on the contractor mafia in Bihar.

The mafia appears to dominate in most such businesses in the states, who indulge in all types of anti-competitive practices in collusion with politicians. In the area of goods transport, there is a mafia-led cartel in various places.

In March, 2004, ET reported of a truckers cartel operating in Baddi, Himachal Pradesh. Controlled by the local MLA, the truck union charges 30% higher on the Baddi-Delhi route and 15-20% on the Baddi-Mumbai route.

Trucks coming in with supplies, go back as empties, because they are not allowed to pick up freight, which only adds to the production costs. Further, new units are discouraged to establish factories in the area.

In a similar case in Alwar, Rajasthan, in the 1980s, the MRTP Commission had taken action against the local truck union, but to no avail. The local union was headed by an MLA, who later became a minister in the state.

Yet, on the cries of local industry, the district administration took action with the help of police and broke the cartel.

Another area which the research addressed is the state excise policy. This policy, purely under the state jurisdiction, generates the biggest revenue in the states, is often implemented in a manner that all liquor vends are auctioned annually.

Here too in many states, cartels operate and loot the consumers. The Beverage Manufacturers’ Association has been lobbying for uniformity but that is clearly an uphill task.

Other lobbies and ignorance are their enemies. On a query to a senior official in a state, his response was: “I care two hoots for consumers. My only consideration is to increase revenues”.

What a pity, because he did not realise that by promoting competition, the state would have protected consumer interest as well as increased revenues. One doesn’t need to be an economist to determine that when collusion takes place, bids are always suppressed.

No central law or authority can be used easily to curb the anti-competitive practices which exist in the retail sector. In Mumbai, the Pan Merchants Association decides and circulates a price list, which mandates members to sell at prices, which are higher than those printed.

This is a violation of the packaged commodities rules, but one cannot expect the weights and measures inspector to go around prosecuting every pan shop. Such type of practices need to be dealt with systemically by the state government, but no one bothers!

Tied sales is another menace. I wonder whether people remember the time when LPG suppliers insisted on the consumer buying the hot plate at twice the market price. In spite of an MRTP order and oil companies notices, the dealers hardly ever bothered to comply.

CUTS research showed another ubiquitous problem through out the country, with little effort by the state governments to curb it. Most private schools insist that students buy their uniform and stationery from either their own store or a nominated shop. Prices are usually high, and whenever a complaint is made, it is at the risk of the student being rusticated.

Most doctors and diagnostic centres are in league throughout the country, making that extra buck. While pharmaceutical companies ‘influence’ many doctors to prescribe their brands.

Finally, the very controversial cable TV sector.

At the consumer level, one has to deal with monopolies, which do not guarantee good service and escalate prices frequently. While Trai is dealing with the policy framework, they too have been exasperated with the situation at the ground level.

In a recent statement, the Trai has said that cable TV can best be regulated at the state level. But where is the legal framework, which can enable the states to deal with this and million other anti-competitive and anti-consumer practices? For a big country like India, we need state competition and regulatory institutions to deal with myriad competition abuses. Local problems need local solutions.