Indian Competition Regime and Experiences with Cartels

Pradeep S Mehta CUTS International

Constitutional Provisions

Articles 38 and 39, part of the Directive Principles of State Policy The State shall, in particular, direct its policy towards securing: that the ownership and control of material resources of the community are so distributed as best to subserve the common good; and that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

Trigger Cause

There were essentially three enquiries/studies, which acted as the lodestar Hazari Committee report (1955): the licensing system had resulted in disproportionate growth of some of the big business houses Mahalanobis Committee (1964): big business houses were emerging because of the “planned economy” model; the need to collect comprehensive information relating to the various aspects of concentration of economic power Monopolies Inquiry Commission (1965) came out with the Bill for MRTP

Concentration of top three firms 1964

Concentration Level

High Medium Low Nil

Share of top three

75% or more Between 60 and 75% Between 50 and 60% Below 50%

Number of industries

1131 63 31 73

Thrust Areas

the prevention of concentration of economic power to the common detriment the control of monopolies the prohibition of monopolistic trade practices the prohibition of unfair trade practices

Amendment to MRTPA –1984

Rajindar Sachar Committee (1978) Provisions for UTPs included An office of DGIR created to investigate cases

Economic Reforms - Key Elements

Industrial Policy

: Licensing has been abolished except in respect of six industries

Public sector

: monopoly only where security and strategic concerns

Small scale industries

: many industries de-reserved

Price control

: Relaxed

Import Restrictions

: Relaxed

Foreign Investment

: liberalised

Financial Sector

: de-regulated

Exit Policies

: Not much change

Privatisation

: Limited progress

Impact on MRTPA

Prevention of concentration of economic power to the common detriment; and control of monopolies de-emphasized Major amendments were effected to the MRTP Act in 1991 in the following areas: pre-entry restrictions expanding an existing undertaking amalgamations, mergers and takeovers of undertakings

Experience with MRTPA

Inadequacy of budget and expertise Huge number of pending cases Not much success in handling cartels Unaware of international cartels and their impacts on India

The Metamorphosis

MRTP Act: neither definition nor even a mention of certain offending trade practices which are restrictive in character. Some illustrations of these are: Abuse of Dominance Cartels, Collusion and Price Fixing Bid Rigging Boycotts and Refusal to Deal Predatory pricing

New Competition Law

In October 1999, High Level Committee to advise on Competition Policy & Law for the country Involvement of Stakeholders Recommends a new law with all regular features Adopted after much debate, particularly surrounding M&A High threshold for M&A evaluation and voluntary notification

Other Regulations

Consumer Protection Act, 1986 Sectoral Regulatory Authorities Telecommunications Regulatory Authority of India (TRAI) Central Electricity Regulatory Commission (CERC) at the federal level and State Electricity Regulatory Commission (SERC) in most states Securities and Exchange Board of India (SEBI) Reserve Bank of India Insurance Regulatory & Development Authority (IRDA) There are other statutory bodies for regulating some other sectors and some more are in the offing

Dealing with Cartel Cases

Cartel cases in cement, transport (trucking), tyres, pharma-retailing, BOPP film (Biaxially Oriented Polypropelene film, used for packaging), rubber chemicals In some cases cease and desist order passed (trucking, pharma-retailing, tyres) In some cases matter went to Supreme Court (cement) In some cases not enough evidence was found(BOPP film, rubber chemicals)

International Cartel

Vitamins cartel India hit – CUTS intervention – No action Heavy electrical equipment cartel India hit – No action Flat-rolled steel cartel India hit – No action

Export Cartel

US Export Trade Act 1918 (Webb-Pomerene) ANSAC as export cartel Action in EU Action in India Restrictive trade practices (cartel) Predatory pricing Problems with enforcement Supreme Court verdict

Where we stand

The new Competition Act, 2002 became a part of Indian jurisprudence Certain sections of the new Act came into force One member of the Commission appointed Supreme Court case on the matter of the qualifications of the Chairperson and other issues Government proposed some changes Amendment Bill Commission engaged in advocacy and capacity building with limited staff

Thank you