the-promotion-of-competition-is-vital-to-the-indian-economy

Recently in an event the Prime Minister of India spoke about working on fair competition as one of the pillars to achieve India’s target of a $5 trillion economy.

Need of the competition in an economy:

  • To achieve a 5 USD trillion economy: to attain such an ambitious goal the government needs to have clear and well designed policies.
  • To promote economic democracy: Competition has a positive impact, not only on the well being of consumers, but also on a country's economy as a whole. 
  • To bolster productivity and growth of the economy: Companies that are faced with vigorous competition are continually pressed to become more efficient and more productive.
  • Consumers get goods and services at competitive prices.
  • To establish a robust competitive environment through proactive engagement with all stakeholders, including consumers, industry, government and international jurisdictions.

Legislative provisions: Competition act 2002

Objectives of the act: 

  • to provide the framework for the establishment of the Competition Commission.
  • to prevent monopolies and to promote competition in the market.
  • to protect the freedom of trade for the participating individuals and entities in the market.
  • to protect the interest of the consumer.

Salient features of the act:

  • The Competition Act was passed in 2002 and has been amended by the Competition (Amendment) Act, 2007. It follows the philosophy of modern competition laws.
  • It replaced The Monopolies and Restrictive Trade Practices Act, 1969.
  • The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states, “No enterprise or association of enterprises or individuals or association of individuals may enter into an agreement regarding production, supply, distribution, storage, acquisition or control of goods or provision of services which may adversely affect the competition in the Indian market”.   
  • The abuse of dominant position is prohibited by Section 4 of the Competition Act: predatory pricing is a practice that is seen to be an abuse of dominant position. 
    • Predatory pricing, also known as undercutting, is a pricing strategy in which a company prices a product or service artificially low to gain new customers (loss leads), drive competitors out of the market, or create barriers to entry for new potential competitors.
  • Regulating combinations such as acquisition, acquisition of control, mergers and acquisition (M&A) which can have an adverse effect on competition within India.

Current Scenario: 

  • The competition act was legislated in 2002 but became fully operational in 2009.
  • Recently the government proposed major amendments to the Competition Act, including critical changes to the scope and functioning of the Competition Commission of India (CCI).
  • The Ministry of Corporate Affairs (MCA) has put the draft Competition (Amendment) Bill, 2020, in the public domain to seek feedback.
  • The draft is an outcome of the recommendations of the Competition Law Review Committee (CLRC) set up by the government to review and fine-tune the existing competition law framework. 

Rational behind the changes proposed in the draft bill:

  • To enable better coordination between the CCI and the government.
  • Enable expert external assistance to the commission in undertaking key functions, and have structural consistency with other regulators like the Securities and Exchange Board of India (Sebi) and Reserve Bank of India (RBI).

Key provision of the draft  bill:

  • The draft Competition Bill, 2020 seeks to amend the Competition Act.
  • It has sought to give monetary and penal powers to the director general for investigation under the CCI.
  • Earlier hubs and spokes were not covered: The MCA suggested hubs also be covered under Section 3(3), which deals with cartels that hinder competition.A hub-and-spoke cartel is basically an arrangement between companies where a dominant player (hub) is wooed by other firms (spoke), to destroy competition by, say, increasing or lowering prices.
  • Establishment of the Governing body: A ‘Governing Board’ to oversee the direction and management of the Competition Commission of India (CCI) is to be set up.
    • Members of the body: The Governing Board will comprise Members of the Commission, Secretaries of the Department of Economic Affairs (DEA) and Ministry of Corporate Affairs (or their nominees) and four part-time members. 
    • Functions of the body: It will be responsible for the general superintendence, direction, management and affairs of the Commission.

Issues with the draft bill:

  • Independence of CCI: The CCI investigates government enterprises.The presence of Senior Government officials in the governing body may hamper the independence of CCI.
    • The Competition Law Review Committee that preceded the draft bill, voted against the idea of a governing board.
    • Appointment of directors of the company: Directors of the company can also be appointed as per section 18B. the presence of a director of a company on the Governing Board (on which the Commission Members that do exercise judicial functions are also on) may again call its independence into question.
    • Unnecessary state intervention: No justification given by the government for why structural consistency  cannot be met within the existing design of the CCI, which was conceived to operate independently of the government.
    • For instance, at present, the CCI has adequate powers to appoint experts to assist it in discharging its functions.
  • There is no clarity about the qualifications and the procedure to be followed for the appointment  of the part time members to be appointed to the governing body.
  • Creation of additional layers hampers the governance: RBI has a “central board" and Sebi has a “board", these are part and parcel of the structures of these regulators, and do not act as additional supervisory or governance layers.
  • No dedicated body to hear appeals: a dedicated body is needed to hear appeals arising from CCI decisions.Currently NCLAT(National Company Law Appellate Tribunal) hear the appeals arising for all competition matters which is already overburdened.

Way ahead:

  • To fulfil PM’s vision of a 5 trillion USD economy India needs a national competition policy that could help fix policy-induced market distortions that hamper fair rivalry and keep entire sectors from achieving competitive dynamism and growth.

To fix competition problems an efficient adjudication is one of the critical functions of any competition authority. This requires expertise in competition issues, an understanding of interlinkages between different sectors, and an ability to interpret law in the light of changing realities without fear of or favour to interested parties.

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