Published: The Financial Express,, December 23, 2002 ,
By Pradeep S Mehta
A new and quite modern Competition Bill was adopted by Parliament last week, but the financial outlay is so poor that it will just about limp. This was one of the drawbacks with its predecessor, the Monopolies and Restrictive Trade Practices Act, by virtue of which it could hardly deliver. This was compounded by poor quality of personnel, lack of political will, etc. These need to be addressed in the new law seriously.
In this article, I look at seven crucial ingredients which will enable us to turn our new competition law into an effective one: finances; personnel; advocacy; compliance education, capacity building, networking and political education.
Click here for bigger version of this article and other resource issues
A new and modern competition law in India has been passed, but the resources provided are peanuts. CUTS has taken up lobbying for an effective competition law through a series of articles in many business newspapers. The highlights of the article are given below:
+Increase budget to Rs.40 crores (US$8.3mn) from the current Rs.4 crores (US$0.83mn)
+Appoint young professionals as chairman and members; no sinecures
+Appoint full strength of members rather than one at beginning, so that they can be trained intensively
+Impart awareness generation and training programmes for all stakeholders
+Develop capacity by providing implementation training based on experiences of other competition agencies
+Provide policy advisory role
+Have global networking/cooperation with other competition agencies
+Impart political education to stakeholders to build public support
First, the bottomline. Assuming a gradual implementation of the new law, the Financial Memorandum to the Bill has proposed a total budget of Rs 12 crore over three years, starting with just Rs 140.78 lakh in the first year. It is a pittance and will not allow the new law to be translated into an effective competition regime. In fact, in the first year the budget should be higher for start up costs as a good beginning is an imperative.
In a pathbreaking project —7-Up — over 2000-02, which CUTS is implementing, we have looked at competition regimes in seven developing countries: India, Sri Lanka, Pakistan, Kenya, South Africa, Tanzania and Zambia. What is interesting is that the competition regimes of all the six countries had a higher budget than India as a percentage of the total government expenditure. Where India’s budget was 0.0009%, Zambia’s was highest at 0.05%. Being one of the most competitive economies, let us take the example of the US: the two competition authorities (Federal Trade Commission and the Antitrust Division of the Justice Department) jointly have a budget outlay of slightly over 0.01%. Thus, in the case of the new Competition Commission in India, an annual budget of at least 0.01% or Rs 40 crore is strongly recommended, given that the Central government budget for 2002-03 is around Rs 400,000 crore. When the Commission begins functioning, it should be able to generate sufficient revenues through fines, costs, etc., to be able to support part of its budget. To investigate the adverse effects of anti-competitive actions, the new agency will need generous resources, including alliances with research institutions. With a good budget, the agency can acquire spacious, modern premises, engage economists, lawyers and accountants to do the crucial research to implement sure-footed actions; conduct training for stakeholders and their own staff, maintain a good library, internet system, etc. The existent MRTP Commission (MRTPC) was quite poor in this respect.
Secondly, the chairman and commissioners need to be professional and young. The age limit for the chairman in the new law is 67 years while for members it is 65. Let that be the limit but not the standard. We need well qualified and young personnel to serve as commissioners and as research and education staff. While the new law was being deliberated with all interest groups, there was as much opposition from business as there was support from the less influential consumer movement. One of the reasons for scepticism from business was the concern that over-zealous commissioners would stifle business growth. This is valid as most commissioners in the MRTPC know little about competition policy and law. In nearly all cases around the world, competition authorities have been headed by sound professionals in their forties and fifties.
Thirdly, and this is indeed fortunate, the new competition law provides for competition advocacy, which has two strands. Primarily, to advise the Central Government on policy issues when asked for. Privatisation or disinvestment is an area, where the CCI needs to be consulted before the omelette is cooked, and is the practice in many developing counties. For instance, in the BPCL and HPCL disinvestment debate, if the CCI was in place, an independent report from them would have convinced the polity and the laity that we will not be jumping from a public sector monopoly to a private sector one.
The CCI will also need to do awareness generation and training programmes for all stakeholders, including state government officials. On anti-competitive actions, there are many examples at the national level, but those which take place at the sub-national level are galore, and escape from the clutches of the competition law. For example, bid-rigging in public works contracts or trucking unions in districts. Unless the state government officials are educated and trained, such abuses will never be curbed.
Fourthly, there is another important task, i.e., to do regular compliance education programmes for business, including other stakeholders, with a constructive approach rather than an enforcer’s approach. If genuine fears have to be addressed, a proper, structured compliance programme can do wonders. In many cases business suffers due to anti-competitive practices of their suppliers, thus affecting their competitiveness. Such programmes will build up confidence and ensure credibility for the agency, ensuring a good start.
Fifthly, we need to develop the capacity of the members and staff of the competition authority by learning from other authorities on how they function and implement their laws. The best training can come from other developing countries, because of common features of inertia, lethargy, corruption and political indifference. Also, many developed country competition experts are available for both short-term and long-term placements in the new agency. Capacity building on economic governance is on the active agenda of many donors, such as DFID India and the international development institutions. This can be drawn upon without burdening internal resources. All we need to do is to have the necessary personnel in place, and put them through the training mill.
One very important issue on which expertise needs to be tapped is in the area of research, investigation, and prosecution. In the scheme of the new law, in the second year, the law will be applied to anti-competitive practices and abuse of dominance. The regulation of mergers and acquisitions will be taken up in the third year. We do not have much skill or knowledge on how to do them properly. One needs to go up a fast learning curve by acquiring knowledge of real life examples from other competition agencies. Cartels is one tricky area where the new law has fortunately taken on the more modern approach, that of providing for lesser penalties (amnesty programme) for colluding companies which are ready to spill the beans. This has been very effective in countries like the US, which is now being emulated by the UK and EU. We have never been able to crack the cement cartels in India or been able to tackle international cartels, which have robbed our country. The impact of the vitamins cartel over the 1990s in India has been estimated by former World Bank economists at $25.7 million or Rs 1073.2 crore (considering a PPP of 8.7 and exchange rate of Rs.48), but no action has been taken. If so much money is lost to the economy, Rs 40 crore as the proposed annual budget for the new competition authority is just peanuts.
That brings us to the sixth important issue of networking and cooperation with other competition authorities. Among the countries which took successful action against the vitamins cartel, all were developed countries such as the US and the EU. Brazil was the only developing country which took action on the basis of getting confidential information from the US because it has a cooperation agreement with them. Further, much of this work is being facilitated through international networking.
Lastly, political education is the most crucial ingredient, and my seventh point. If the voter knows how his/her money is being swindled due to anti-competitive practices, that would translate into political campaigning. Often, it is political failures, which does not allow the competition agency to function fully. To do this, the CCI needs publicity and build up public support for its beneficial role. Politicians, who are also consumers, need to be targeted by it to get full support.
Click here for bigger version of this article and other resource issues