Time for a National Competition Policy for India

1
Time for a National Competition Policy for India

• Presentation by
• Pradeep S Mehta
• Secretary General, CUTS International
• sg-cuts_at_cuts.org c-cier_at_cuts.org
• Presented on 11 November 2005 at
• Yojana Bhavan, Planning Commission, New Delhi

2
Contents

• Background
• Key Policy Objectives
• Present Scenario The Policy Vacuum
• Need for National Competition Policy for India
• The Nine Principles of Competition Policy
• Key Elements of Competition Policy
• Competition Policy vis-à-vis Competition Law
• Countries with Competition Policy
• What Next?

3
Background

• Article 39(c) of the Constitution of India (part
  of the Directive Principles of State Policy)
  states that
• the operation of the economic system does not
  result in the concentration of wealth and means
  of production to the common detriment
• Mid-term appraisal of 9th Five Year Plan
  (1997-02), Para 66 of Ch. 32 "Direction for
  Reforms" reads
• there is an urgent need for articulating a
  National Competition Policy (NCP) in India to
  bring about a spirit and culture of competition
  among enterprises and economic entities to
  maximise economic efficiency and to protect and
  promote consumers interest and societys welfare
  and improve our international competitiveness

4
Background
Contd

• National Common Minimum Programme states
• Privatisation should increase competition, not
  decrease itwill not support the emergence of any
  monopoly that only restricts competition
• Indian industry will be given every support to
  become productive and competitive
• All regulatory institutions will be strengthened
  to ensure that competition is free and fair.
• Devolve full managerial and commercial autonomy
  to successful, profitmaking companies operating
  in a competitive environment

5
Key Policy Objectives requirements

• Sustained economic growth of 7-8
• Competition, contestability intrinsic to ensuring
  efficiency, productivity and thereby sustained
  high growth
• Employment generation
• Enabling environment required to unleash creative
  energies of entrepreneurs, and productive forces
  of society
• Poverty eradication
• Well-functioning markets required to expand
  opportunities for the poor, and to provide value
  for money
• Inflation control
• Competitive pressure key to checking inflationary
  elements

6
Present Scenario The Policy Vacuum

• Market-oriented economic reforms undertaken to
  stimulate competition and efficiency
• But, government policies continue to be framed
  and implemented without acknowledging the market
  process (please refer Dossier)
• gt Achievement of policy objectives thwarted
• Guiding principles to formulate policies and
  practices in a liberalised regime - - missing
• gt There is a lack of coherence in government
  policies
• Thereforepolicy vacuum exists

7
Need for National Competition Policy for India

• To complete the process of liberalisation and
  deregulation by having a competition policy
• To provide a declared intent to the governments
  resolve of promoting competition in the market
• To rationalise the role of the government, so
  that its intervention facilitates functioning of
  markets
• To provide guiding principles to different
  branches of the Government for an effective
  competition assessment of policies and practices.

8
The Nine Principles of Competition Policy

• Foster competitive neutrality
• Purchase preference policy favouring Central PSEs
• Procedural delays affecting competitiveness of
  public sector airlines
• Ensure access to essential facilities
• Interconnection in telecom still unresolved
• End of CONCOR monopoly but what about access to
  railway tracks and engines?
• Free movement of goods, services, and capital
• Value-Added Tax big step towards a single market
  for the country as a whole

9
The Nine Principles of Competition Policy
Contd

• Separate policy-making, regulation and operation
  functions (to avoid conflict of interests)
• Intervention in regulatory functioning (telecom,
  power)
• Ensure free and fair market process (to
  facilitate liberalisation and deregulation)
• Anti-dumping measures increasingly used to
  protect competitors
• Procedural formalities affecting the climate for
  doing business
• Balance Competition and IPRs
• Patent (Amendment) Act inadequate in dealing
  with abuse of IPRs

10
The Nine Principles of Competition Policy
Contd

• Notification and Public justification for
  deviation from competition principles
• Free Power policy to farmers
• Access Deficit Charge (ADC) to BSNL
• Ensure transparent, predictable and participatory
  regulatory environment
• Involve stakeholders, make decisions public, etc.
• Practice followed by TRAI (open house
  discussions, consultation papers, all decisions
  made public)
• Respect for international obligations

11
Key Elements of Competition Policy

• Competition Law (enacted but in limbo)
• Restructure reform public monopolies (in
  progress)
• Conduct periodic Competition Audit of all
  policies and regulations
• Reform policies, legislations and regulations
  that distort market process
• Establish effective and credible regulatory
  framework

12
Competition Policy vis-a-vis Competition Law
Competition Policy
Trade Policy
Industrial Policy
All Government Policies that affect the
functioning of markets
Disinvestment Policy
FDI Policy
Fiscal Policy
Competition Law
IPR Policy
Labour Policy
Competition Policy a broad concept that seeks
to harmonise all government policies
others
13
Is Competition Law Sufficient?

• No, because
• Cannot curb market distortions emanating from
  policies and practices of government (central as
  well as states)
• Examples government procurement policy and
  rules, anti-dumping measures, reverse tariff
  escalation, public sector policy, SSI reservation
  policy, state excise policy
• Cannot facilitate ex-ante assessment of
  government policies to check market-distortionary
  elements

14
National Policies and Related Legislations
Sector-specific
15
National Policies and Related Legislations
Cross-cutting
Draft prepared encompasses all existing
national policies for environmental management
under development
16
Countries with Competition Policy

• Australia
• National Competition Policy adopted in 1995 by
  federal and provincial governments throughout
  Australia
• Consists of a set of policy reforms ensuring that
  the same competition principles and rules apply
  throughout the economy
• Gain of 5.5 in the GDP estimated from effective
  implementation of competition measures (Unctad,
  1997)
• Hong Kong
• Comprehensive Competition Policy Framework
  adopted in 1997
• Government bureaus required to state competition
  implications of major policy submissions and
  review existing regulations

17
Countries with Competition Policy
Contd

• Mexico
• National Programme for Economic Competition
  2001-06
• Cooperation mechanisms established to facilitate
  coordination of competition policy with
  industrial, regulatory, trade, and consumer
  protection policies
• Botswana
• Draft Competition Policy presented to Parliament
• Seeks to ensure coherence between Competition
  Policy and other Government policies and laws
• Fiji
• Uzbekistan
• India (?)

18
Benefits of Competition Policy Excerpts from
Select Studies

• Competition Policy led to large price
  reductions, innovations, and product development
  - - The Benefits from Competition Some
  illustrative UK Cases, University of East Anglia,
  May 2004
• Ensuring fair competition in the market is an
  essential ingredient for enhancement and
  maintenance of competitiveness in the economy -
  - EU White Paper on Competitiveness, 1994
• Strong competition policy is not just a luxury
  to be enjoyed by rich countries, but a real
  necessity for those striving to create democratic
  market economies - - Joseph Stiglitz, Project
  Syndicate, August 2001

19
What Next?
20
What Next?
Contd