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@cuts.org; c-cier@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 society’s welfare and improve our international competitiveness”

4. Background Contd… • National Common Minimum Programme states: • Privatisation should increase competition, not decrease it…will 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, profit—making 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) => Achievement of policy objectives thwarted • Guiding principles to formulate policies and practices in a liberalised regime - - missing => There is a lack of coherence in government policies • Therefore…policy 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 government’s resolve of promoting competition in the market; • To rationalise the role of the government, so that it’s 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…