COMPETITION POLICY AND ITS IMPACT ON THE INDIAN INDUSTRY: A

CRITIQUE

LABOUR LAW I

SUBMITTED TO: DR. T RAGHAVENDRA RAO

SUBMITTED BY
PRANAV MENON
2009 - 46

NALSAR UNIVERSITY OF LAW, HYDERABAD.

Competition Policy And Its Impact On The Indian Industry: A Critique

TABLE OF CONTENTS
INTRODUCTION...................................................................................................................3
RESEARCH METHODOLOGY...............................................................................................6
RESEARCH PLAN.................................................................................................................6
COMPETITION POLICY IN INDIA PRE 1991 SCENARIO.....................................................7
COMPETITION POLICY POST 1991SCENARIO..................................................................10
POSITIVE IMPACTS ON THE INDIAN INDUSTRY...............................................................15
CRITICISMS AND SUGGESTIONS IN THE LIGHT OF THE NEW COMPETITION POLICY. .18
CONCLUSION AND ANALYSIS............................................................................................22
BIBLIOGRAPHY..................................................................................................................26

Competition Policy And Its Impact On The Indian Industry: A Critique

INTRODUCTION
Over the past one and a half decade, the overall approach to economic management in
India has been revised towards greater market orientation. Wide-ranging economic
reform measures have been undertaken, with the government assuming the role of a
facilitator rather than a controller. Economic reforms have been undertaken in policies
relating to industrial licensing, foreign trade, foreign investment, technology imports,
government monopolies and ownership, financial sector, etc.1 Underlying these reforms is
a renewed confidence that market forces and the individual decisions of consumers and
businesses can make a greater contribution to economic and social development than an
inward-looking centralized economic system. The thrust of the economic reforms has
been to allow for more competition.
The past few years have been challenging for the economy and for businesses world over,
making the task of policy makers even more daunting. India, in the pursuit of
globalization responded by opening up its economy by removing controls and resorting to
liberalization. In the light of this, the obvious need of the hour was that the Indian market
be geared to face competition from within the country and outside. The financial crisis
which gripped world strengthened the need and highlighted the importance of a strong
and effective competition policy, a policy which would encourage markets to work well
for the benefit of business and consumers, thereby increasing the countrys economic
fitness: markets characterized by effective competition makes firms innovate more, keep
prices down for consumers and improved total factor productivity drives economic
growth. These factors are all the more relevant given the financial challenges faced by the
country. It is clear that ultimately, the way out of this crisis for the financial sector and
the wider economy lies with competitive markets, backed up by a robust competition
policy.

John Preston, Implementing Competition Policy in Developing Countries: The Role of Donors at
www.businessenvironment.or g/dyn/be/.../Session3.4 Preston Doc.pdf

Competition Policy And Its Impact On The Indian Industry: A Critique

In recent times there has been wide-spread adoption of Competition Laws around the
world, so much so that it may be called a competition law spill. 2 Thus, what used to be
a feature strictly characteristic to a few highly industrialised and developed nations has
become a feature easily found in many jurisdictions of the world. It is key factor for the
economic development of any country. Competition is a mechanism that helps more
productive and efficient companies expand and take market share from less productive
ones, which either go out of business or become more efficient. 3 When Government
policies limit competition, even unintentionally, economic growth slows and nations
remain poor.
Competition policy is defined as those government measures that affect the behavior of
enterprises and structure of the industry with a view to promoting efficiency and
maximizing consumer or social welfare. The Raghavan Committee had observed that
Competition law must emerge out of a national competition policy, which must be
evolved to serve the basic goals of economic reforms by building a competitive market
economy. The World Trade Organisation (WTO) defines competition policy as: the full
range of measures that may be used to promote competitive market structures and
behaviour, including but not limited to a comprehensive competition law dealing with
anti-competitive practices of enterprises.4 World Bank also provides a definition of
competition policy as: government measures that directly affect the behaviour of
enterprises and the structure of industry. An appropriate competition policy includes both:
(a) policies that enhance competition in local and national markets, and (b) competition
law, also referred to as antitrust or antimonopoly law.
There are two components of a comprehensive competition policy.5 The first involves
putting in place a set of policies that enhance competition or competitive outcomes in the
2

Pradeep S and Manish Agarwal, Time for a Functional Competitive Policy and Law in India, CUTS
International, January 2006.
3
Bhattacharjea, Aditya, The Case for a Multilateral Agreement on Competition Policy: A Developing
Country Perspective 9 J. Int'l Econ. L. 293
4
Draft National Competition Policy, 2011.07.28
5
UNCTAD, Objectives of competition law and policy: Towards a coherent strategy for promoting
competition
and
development
http://www.fias.net/ifcext/fias.nsf/AttachmentsByTitle/Conferences_CompetitionPolicyTanz_Hassan+Qaqa
ya.prn.pdf/.

Competition Policy And Its Impact On The Indian Industry: A Critique

markets, such as relaxed industrial policy, liberalized trade policy, convenient entry and
exit conditions, reduced controls and greater reliance on market forces. The other
component of competition policy is a law and its effective implementation to prohibit anti
competitive behavior by businesses, to prohibit abusive conduct by dominant enterprise,
to regulate potentially anti competitive mergers and to minimize unwarranted government
or regulatory controls. Increasing number of countries migrating to competition oriented
policies. It is the foundation of efficiently working market system. It maximizes
consumer welfare, which is its ultimate raison detre by lowering prices, providing for
wider choices and better services. It acts as a redressal against exploitation and
accelerates economic growth with higher efficiency and productivity. It furthers
innovation and dynamic efficiency. For industries and enterprises, it provides for a level
playing field, redressal against anti-competitive practices followed by other bodies.
The Nine Principles of Indias Competition Policy6 are:
I. Foster Competitive Neutrality between public and private sector enterprises
II. Ensure Access to Essential Facilities
III. Facilitate easy movement of goods, services and capital
IV. Separate policy-making, regulation and operation functions
V. Ensure free and fair market process
VI. Balance competition and Intellectual Property Rights (IPRs)
VII. Ensure transparent, predictable and participatory regulatory environment
VIII. Notify and publicly justify deviation from competition principles
IX. Respect for international obligations

www.competitioncommission.gov.in

Competition Policy And Its Impact On The Indian Industry: A Critique

Research Methodology
The researcher has adopted the doctrinal form of research in completing this project. As
the project is primarily study of the leading questions the doctrinal form of research was
most appropriate. Primary as well as secondary sources of information have been used
from the NALSAR Law Library. The above category of material consists of journals,
books and commentaries on the said topic written by eminent authors. Also, secondary
soft copy sources of information have been perused from online databases such as jstor,
manupatra, legal services india etc.
Research Plan
Through this project the researcher aims to provide the reader with a detailed overview of
the competition policy of India. The researcher has carefully scrutinized the competition
law in India prior to the 1991 reforms and post reforms as well as the Competition Act,
2002. The researcher has also analysed the positives and criticisms of the policies and
presented suggestions for an improved policy.

Competition Policy And Its Impact On The Indian Industry: A Critique

COMPETITION POLICY IN INDIA PRE 1991 SCENARIO

In India, protection and controls are being replaced by a competitive and de-regulated
open economic system. The scenario before the nineties, India adopted a planned
economic development model. The broad policy objectives were development of a large
industrial base with a view to achieve self reliance and promotion of social justice. The
policy instruments used to achieve these objectives were controlling the pattern of
investment, industrial licensing, creation of large public sector, control of utilization of
foreign exchange, restricting the growth of private sector since entry & exit of firms were
restricted & industrial plant sizes determined by Government policy.7
With regard to the industrial policy per se, the public sector was protected from
competition through reservation. Industrial policies mandated that both central
government departments & public sector enterprises shall apply price and purchase
preference in favour of public sector. Several licensing & other restrictions were placed
such as the Industrial (Development & Regulation) Act, 1951 which regulated entry as
well as expansion of capacity, the MRTP Act, 1969 which prohibited entry & expansion
of firms beyond the limit. Small scale industry was granted exemption from licensing,
which promoted and fostered labour intensive production in consumer goods sector,
spread industrialization to rural areas Several policies were put in place to protect them
from competition from large scale industries. The Foreign Exchange Regulation Act,
1973 (FERA) restricted the equity of foreign companies in Indian companies to 40
percent, no incentive for greater assistance including technology transfer from the foreign
partner.8 Exit barriers were created by labour and bankruptcy laws e.g. Industrial Disputes
Act, 1947 especially in the matters of retrenchment of labour & closure of enterprises.
Growth of private sector restricted since most of the production was directly in public
sector. The prices in important sectors were administered by Government, allocation of
scarce financial resources determined by formal Government policy and informal
interventions. Competition from abroad was curtailed deliberately by high tariffs and
7

Nitin Desai, National Competition Policy of India, Policy Watch, Vol 3, June 2008
Rakesh Basant & Sebastian Morris, Competition Policy of India: Issues for a Globalising economy,
Economic and Political Weekly July 29, 2000.
8

Competition Policy And Its Impact On The Indian Industry: A Critique

quantitative restrictions such as one on Foreign Direct Investment (FDI). There was no
place for a competition policy.
India has had a competition law: the Monopolies & Restrictive Trade Practices (MRTP)
Act since 1969. The Act was enacted to prevent concentration of economic power,
control monopolies, and prohibit monopolistic and restrictive trade practices.9 Unfair
trade practices, a consumer protection provision covering deception, misleading claims
and advertising etc, was brought in through an amendment in 1984. However, the MRTP
Act did not deliver as expected. This was partly because the Act was created at a time
when all the process attributes of competition such as entry, price, scale, location, etc
were regulated. The MRTPC had no influence over these attributes of competition, as
these were part of a separate set of policies. Another reason for its inadequacy in dealing
with anti-competitive practices was the absence of proper definitions in the Act. A perusal
of the MRTP Act will show that there is neither definition nor even a mention of certain
offending trade practices which are restrictive in character. Some of the anti-competitive
practices such as abuse of dominance, cartels, predatory pricing and bid-rigging were not
specifically mentioned in the Act.10 The MRTPC was also unable to take any action
against any of the international cartels that attracted the attention of other competition
authorities. A key reason for the ineffectiveness of the MRTPC was that it was poorly
resourced. The inadequacy of the budget allocation was compounded by the need for the
MRTPC to seek governments permission to incur expenditure beyond certain limits. This
severely curtailed its independent functioning. The independence of the MRTPC got
further impaired due to the discretionary power of the government to appoint senior level
officers.
The consequences of these traditionalist socialist policies were adverse. There were
delays in decision making, high administrative costs and inefficient choices of scale,
locations and technologies. This was detrimental to economic efficiency & productivity
and resulted into a non-competitive and high cost industrial structure. The absence of
domestic competition with protection from imports led to inefficient domestic private
9

Pradeep S and Manish Agarwal, Time for a Functional Competitive Policy and Law in India, CUTS
International, January 2006.
10
R. Shyam Khemani, Interface between Competition and Trade Policies, 23 Intl Bus. Law 481 1995

Competition Policy And Its Impact On The Indian Industry: A Critique

sector besides blocking technological advancement. This resulted into creating a technical
inferiority with the rest of the world. The initial growth in industrial sector (7.1%) till
1965-66, reversed from 1966-67 to 1979-80 (5.5 %).11
There was slowdown in growth rates in consumer goods sectors, textiles & food
products. The concentration of industries in capital goods and intermediate sectors led to
monopoly power of the few elite by exploiting licensing system, due to limited domestic
competition and absence of foreign competition.

11

Ajit Singh, Competition

www.icrier.org/pdf/wto7.pdf.

Law,

Development

and

Developing

Countries

available

at

Competition Policy And Its Impact On The Indian Industry: A Critique

COMPETITION POLICY POST 1991SCENARIO

However, when there was a change in industrial policy in 1991, the following changes
were ushered in such as abolition of licenses for industries, abolition of monopoly of
public sector except those in defence & strategic areas, discontinuation of price
preference system, sick PSUs referred to Board for Industrial And Financial
Reconstruction (BIFR) for structural reforms, Participation of private sector in sick
PSUs.12 One key issue in the current phase of transition is of ensuring and managing
competition, to derive the most out of liberalization. The task is all the more difficult
because the nation is not starting with a clean slate as various institutional structures
continue to be in place. Besides, the decontrol, deregulation and privatization initiatives
are being taken at a time when global economic environment is also undergoing a major
change.
In the wake of economic liberalization and wide spread economic reforms introduced by
India since 1991 and in conformity with the commitments made at the WTO, in October
1999, the Government of India appointed a High Level Committee (Raghavan
Committee) on Competition Policy and Competition Law to advise a modern competition
law for the country in line with international developments and to suggest a legislative
framework, which may entail a new law or appropriate amendments to the MRTP Act.
The Committee submitted its report to the Central government. The Central Government
consulted all concerned including the trade and industry associations and the general
public. The Central Government after considering the suggestions of the trade and
industry and the general public decided to enact a law on Competition to replace the then
existing competition law namely, the Monopolies and Restrictive Practices Act (1969)
(the MRTP Act) which was primarily designed to restrict growth of monopolies in the
market with a modern competition law in sync with the established competition law
principles.13 As the first step towards this transformation, a new Competition Act, 2002
was enacted which received Presidential assent on January 13, 2003. The new
12

Bhattacharjea, Aditya, The Case for a Multilateral Agreement on Competition Policy: A Developing
Country Perspective 9 J. Int'l Econ. L. 293
13
Pradeep S and Manish Agarwal, Time for a Functional Competitive Policy and Law in India, CUTS
International, January 2006.

10

Competition Policy And Its Impact On The Indian Industry: A Critique

competition law, the Competition Act, 2002, is arguably a better piece of legislation as
compared to its predecessor, the MRTP Act.
The Competition Act regulates the following four broad areas of competition law,
namely, Anti-competitive agreements, both horizontal and vertical agreements, Abuse of
dominant position, Combinations and Competition advocacy.14 Explicit definitions and
criteria have been specified to assess whether a practice has an appreciable adverse effect
on competition. One distinguishing feature of the Act is that it emphasises on behavioural
approach to examine competition in the market as against the structural approach
followed by the MRTP Act. The regulation of M&As has returned to the scope of Indian
competition law, although the new law sets rather high turnover thresholds for
combinations to fall under its purview. The new law has extraterritorial reach. This
provision is based on what is known as the effects doctrine. Thus, actions or practices
taking place outside India but having an appreciable adverse effect on competition in the
relevant market in India would come within the ambit of the Act. The Competition
Commission of India is empowered to look into such matters. The Competition Act 2002,
as amended through Competition (Amendment) Act 2007 is currently in force. By
including provisions on competition advocacy, the Act extends the mandate of the CCI
beyond merely enforcing the law. Introduction of competition advocacy function is to
create a culture of competition in the country and increase awareness amongst various
stakeholders about competition policy and law. Enforcement is vested in the Competition
Commission of India (CCI), with appeals heard by the Competition Appellate Tribunal. 15
There are provisions for fines of up to 10 percent of turnover or, in the case of cartels,
either three times the profit arising from the cartel offence or 10 percent of turnover over
the cartel period, whichever is higher. The new law is also set to reintroduce merger
control in India for the first time since 1991.
The Indian Competition (Amendment) Act 2007 heralds a new competition policy
environment for companies operating in India. Built on the Indian Competition Act, the

14

www.cuts-international.org
Bhattacharjea, Aditya, The Case for a Multilateral Agreement on Competition Policy: A Developing
Country Perspective 9 J. Int'l Econ. L. 293
15

11

Competition Policy And Its Impact On The Indian Industry: A Critique

new Act adopts a broadly similar framework to that of EU competition law.16 It prohibits
anticompetitive agreements and abuse of dominance.
The major objectives of these reform measures are to promote sustained high level of
economic growth, enhance productivity and attain international competitiveness, and
generate employment opportunities. There is now an increased recognition that market
forces play an important role in helping achieve these objectives. In order to modernize
the Indian industry and make it more competitive, reforms have led to the virtual
abolition of industrial licensing requirements with a view to promoting domestic
competition, facilitating allocation of resources through the market mechanism,
encouraging entry and investment, achieving better capacity utilisation and economically
viable scales of production.17 These relaxations of the regulatory apparatus are expected
to make the industrial sector more competitive.
It is not right to say that the Indian legislators while following the competition law
models from other jurisdictions had complete disregard for the developmental needs of
the country. On the contrary, the phrase keeping in view of the economic development
of the country which is to be found in the first line of the Preamble of the Competition
Act, 2002, tells us that economic development of the country amongst other goals is
precisely what the legislators had in mind. 18 Section 19(3) provides for factors that the
Competition Commission must take into account while determining whether an
agreement has an appreciable adverse effect on competition under Section 3 of the Act.
Section 19(3)(f) mandates taking into account the promotion of economic development
while deciding if the agreement is anti-competitive or not and thus is saving clause for
such agreements which even though might have an appreciable adverse effect on

16

Trade, Investment and Competition Policy: An Indian Perspective, in Aaditya Mattoo and Robert M.
Stern (eds.), India and the WTO: A Strategy for Development, Oxford University Press.
17
R. Basant and S. Morris, Competition Policy in India: Issues for a Globalising Economy,
(Ahmedabad: Indian Institute of Management, 2000), p.157.
18
Preamble to the Competition Act, 2002. Text of the Preamble is as follows:An Act to provide, keeping in view of the economic development of the country, for the establishment of a
Commission to prevent practices having adverse effect on competition, to promote and sustain competition
in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other
participants in markets, in India, and for matters connected therewith or incidental thereto

12

Competition Policy And Its Impact On The Indian Industry: A Critique

competition must be tolerated for economic development of the country.19 Thus, the
residual effect of such an agreement on the society and its economic development is just
as important as its appreciable adverse effect on competition.
Correspondingly Section 19(4) provides for factors that the Commission must take into
account while determining whether an enterprise enjoys a dominant position or not under
Section 4 of the Act. Section 19(4)(l) again lays down an exception in terms of
contribution of the enterprise to economic development of the country and implies that
the Commission may tolerate a dominant firm in the broader economic interest of the
country.20 Section 19(4)(m) also allows the Commission to consider any other factors it
may deem important while deciding dominance of an enterprise in its inquiry and
therefore, it is free to read in developmental concerns into its decisions and save the
economy from strict black-letter interpretation of competition law making it more
conducive to India's developmental needs.
There is a similar saving clause regarding inquiry into Combinations by the
Commission under Section 20(4)(m) which allows the Commission to override the
possible anti-competitive concerns arising out of a certain combination, in view of
economic development21 and Section (20)(4)(n) which mandates to consider whether the
benefits of the combination for the economy outweigh its adverse impact on the
economy. Therefore the Commission has been given considerable discretion with regards
to arriving on a decision concerning anti-competitive practices in the country and the
onus now lies on the Commission to enforce competition law and render such decisions
which maintain a healthy balance between protection of competition and economic
19

124 Section 19(3) - The Commission shall, while determining whether an agreement has an appreciable
adverse effect on competition under section 3, have due regard to all or any of the following factors,
namely:- (f) promotion of technical, scientific and economic development by means of production or
distribution of goods or provision of services.
20
Section 19(4)- The Commission shall, while inquiring whether an enterprise enjoys a dominant position
or not under section 4, have due regard to all or any of the following factors, namely:- (l) relative
advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant
position having or likely to have an appreciable adverse effect on competition.
21
Section 20(4) For the purposes of determining whether a combination would have the effect of or is
likely to have an appreciable adverse effect on competition in the relevant market, the Commission shall
have due regard to all or any of the following factors, namely:-(m) relative advantage, by way of the
contribution to the economic development, by any combination having or likely to have appreciable
adverse effect on competition; (n)whether the benefits of the combination outweigh the adverse impact of
the combination, if any.

13

Competition Policy And Its Impact On The Indian Industry: A Critique

development of India. This again points to the intention of the legislators to have an
open to interpretation aspect of competition law which could be shaped according to
the newly arising and changing needs of an emerging and dynamic economy such as
India.
Some authors on the other hand has warned against these provisions in the Act
considering them to be meaningless and potentially dangerous as being ambiguous and
not helping to determine clearly the dominance of a firm or the effect of a combination on
competition; instead allowing the Commission a free-hand to condone such practice
which might be prima facie anticompetitive.22 The definition of dominance seeming to
purport development in the country. Further what would constitute as a developmental
gateway for anti-competitive practices to continue would again strictly depend on the
definition of development adopted by the Commission. To justify its decision the
Commission would again be free to adopt any definition of development which it deems
fit at that point of time, leading to inconsistent verdicts and legal uncertainties.

22

Ajit Singh, Competition

www.icrier.org/pdf/wto7.pdf.

Law,

Development

and

Developing

Countries

available

at

14

Competition Policy And Its Impact On The Indian Industry: A Critique

POSITIVE IMPACTS ON THE INDIAN INDUSTRY

Jobs are an important route to poverty reduction. Competitive markets are more likely to
provide the poor with opportunities to be employed or start their own small businesses.
This is because competition creates an enabling environment to unleash creative energies
of entrepreneurs and productive forces of society, and thereby expand opportunities for
gainful employment. Therefore, market-oriented economic reform is expected to help
achieve the policy objective of generating more employment opportunities.23
Further, competitive markets facilitate wider choice of goods and services for consumers
at lowest possible prices and best quality. Competition creates environment for firms to
minimize their costs and pass on the cost reductions to consumers. In this way,
consumers, especially the poor, can get value for money. Competition, therefore,
empowers the poor, creates opportunities for new firms, including small businesses, to
enter markets and grow, puts pressure on existing firms to innovate, ensures lowest
possible prices for consumers and better quality products. 24 It should be borne in mind
that well-functioning markets are one of the factors that determine the fulfillment of the
policy objectives. A well-functioning market is a key factor that can make a significant
contribution towards economic development. The point is that a market-oriented
economy has the potential to deliver goods, if it functions properly and is allowed to do
so.
There is now a growing realisation that the shift towards market-oriented economy does
not mean invisible hand will work to allocate resources efficiently and produce
competitive outcomes, as the potential benefits are often thwarted by marketdistortionary practices. In view of this, proper institutional arrangements need to be in
place to check such behavior of marker players. 25 It is, therefore, not surprising to see that
while increasingly more countries have undertaken market-oriented economic reforms, at
the same time more and more countries have either enacted a competition law or
scrapped their old laws to enact a new one. India has framed the Competition Act, 2002,
23

Competition Policy: India and the WTO, EPW, 22 December 2001.

Vinod Dhall, Overview of Competition Law and Policy, Member CII, Competition Commission of India.
25
CUTS Institute for Regulation and Competition (CIRC), Competition Policy in India -- A New Horizon
24

15

Competition Policy And Its Impact On The Indian Industry: A Critique

to replace the now outgoing Monopolies and Restrictive Trade Practices (MRTP) Act,
1969. Competition law, therefore, is intended to put a check on restrictive or unfair
business practices by firms in the market. It lays down legal principles and institutions
that govern the behaviour of firms in markets including restrictive trade practices, merger
scrutiny, provisions to deal with abuse of dominance, cartels etc. A competition law, in
general, consists of provisions with respect to behaviour and structure of firms in the
market; institutional and enforcement design; and competition advocacy.26
The regulation referred to here is a set of transparent, consistent, and non-discriminatory
rules that create a competitive and dynamic environment in which market players can
thrive. In its absence, anti-competitive practices and regulatory failures may not allow the
market process to yield desirable outcomes. The rationale for regulation differs for
financial markets from that of utilities (e.g. electricity, telecommunications) and also for
transportation. Regulation of utilities is mainly justified because of natural monopoly or
locational monopoly for airports and seaport. In the case of financial markets, regulation
is required due to information asymmetry, systemic problems and fiduciary
responsibilities, whilst in the case of public passenger transport the rationale for
regulation is to prevent destructive competition.27
Another reason for regulatory intervention is that while the market can be expected to
bring about equilibrium between "demand" and "supply", it will not be able to ensure a
balance between "need" and "supply". From a social point of view, it is desirable that all
consumers, regardless of their income status, have access to certain services, for example,
electricity. This requires regulatory intervention to promote equitable outcomes. Sectoral
regulatory policies, through mandating universal service obligation on the service
providers, ensure supply of services to the poor and disadvantaged consumers, at a
reasonable price even if it means incurring a loss. 28 Regulation in certain sectors thus
becomes imperative to ensure competitive outcomes. Markets and sectoral regulation are,

26

DFID,
Competition
Policy,
Law
and
Developing
Countries,
/http://www.dfid.gov.uk/Documents/publications/itdcompetitionbrief.pdf
27
Nitin Desai, National Competition Policy of India, Policy Watch, Vol 3, June 2008.
28
Bhattacharjea, Aditya, Indias New Competition Law: A Comparative Assessment, 4 JCOMLE 609

16

Competition Policy And Its Impact On The Indian Industry: A Critique

therefore, complementary instruments. The latter is required to compensate in some way
the failings of the former.

17

Competition Policy And Its Impact On The Indian Industry: A Critique

CRITICISMS AND SUGGESTIONS IN THE LIGHT OF THE NEW COMPETITION POLICY

In the context of the Competition Act, 2002, it is facing a challenge even before
becoming fully operational. A writ petition has been filed in the Supreme Court,
challenging, the constitutional validity of the Act, and the appointment of a bureaucrat to
head the Commission. Pursuant to the litigation, the Government has proposed to amend
the Competition Act, 2002 inter alia bifurcating the body into two: Competition
Commission and a Competition Appellate Tribunal. 29
There are certain provisions in the Act, which undermine the independence and autonomy
of the CCI. These include grant of money at Governments discretion, and the power
given to the Government to supersede the CCI on grounds of, for example, public
interest. CCI is also bound by directions of the Government on questions of policy. These
provisions severely affect the independence and autonomy of the CCI and need to be
reviewed.30
The provisions discussed in the context of autonomy of the CCI, mainly aim at keeping a
check on CCIs functioning by limiting its independence. However, this is not a good
approach of making an independent authority accountable, as it reduces its effectiveness.
Under the existing provisions, Parliament has an oversight over any rules and regulations
made, to carry out the provisions of the Act. CCI is also made accountable by requiring it
to submit an Annual Report of its activities, which is laid before the Parliament. Besides,
appeals against CCIs order/decision lie with the proposed Competition Appellate
Tribunal and the Supreme Court.31 Though these mechanisms exist, they are not likely to
be very effective.
The Competition Act implicitly recognises the overlap between the functions of sectoral
regulators and the CCI in competition matters. Accordingly, the Act and the draft
amendment bill provide for a sectoral regulator to make a reference to the CCI on such
matters. Unfortunately, such reference is voluntary in nature i.e. purely at the discretion
29

T.C.A. Anant and Jaivir Singh, An Economic Analysis of Judicial Activism, EPW, 26
October 2002.
30
R. Shyam Khemani, Slow implementation of Competition Law 25 Intl Bus. Law. 441, 1997
31
Kumkum Sen, Old wine in new bottle - 2011 Competition Policy, Business Standard, August 21, 2011.

18

Competition Policy And Its Impact On The Indian Industry: A Critique

of the sectoral regulator. As per the draft amendment bill, where any reference is made to
the CCI, regulators have to give speaking orders. Thus, even though CCIs advice is not
binding on the regulators, they will have to provide a reaction to such advice received
from the CCI. This would put a check on the way regulators use CCIs advice. This
amendment is a significant improvement from the earlier provision in the Act, which
allowed the regulators to take decision as they deemed fit. 32 However, by leaving the
consultation process voluntary, the improvement introduced in the draft amendment bill
would be ineffective. Considering that regulators have to give speaking orders on a
reference made to the CCI, they will have no incentives to refer the matter to the CCI in
the first place itself, given the discretion they would enjoy. Such inadequacies in the Act
will create conflicts between the competition authority and the sectoral regulators and
lead to inconsistent decisions and forum shopping.
The Act provides for exemptions to mergers and abuse of dominance on certain grounds,
such as Economic Development and Public Interest. However, there is no definition of
these terms. In the absence of clear definition/criteria, relevant provisions will be open to
varying interpretations, based on the subjective interpretation of economic development
and public interest.33
Further with regard to the other parts of the policy such as Regulatory laws, it is often
required by the government to issue policy directives to regulators. 34 Such directions
need to conform to the objectives of the relevant regulatory legislation and should be
confined only to policy matters and not relate to administrative and technical matters.
Unfortunately, most often regulatory laws do not define the scope of these policy
directives. Leaving the term policy directive vague and subject to arbitrary
interpretations has given rise to conflicts and confusions. Presently, in some cases, the
line Minister is made answerable to the legislature even for functions that have been
transferred to the regulator. This makes the line ministry continue to want to perform the
same functions and interfere in the domain of regulator, which impairs regulatory
functioning and consequently, its efficacy. A mechanism needs to be developed to make
32

S. Chakravarthy, Indias New Competition Act 2002-A Work Still in Progress, 5 Bus. L. Intl 240 2004
Predation, Protection, and the Public Interest, EPW, 8 December 2000.
34
C. Satapathy, Under-valued Imports and Public Interest, EPW, 3-10 February 2001.
33

19

Competition Policy And Its Impact On The Indian Industry: A Critique

the regulators directly accountable to the legislature. Furthermore, having appropriate
processes in place to facilitate consultations between the line ministry and the regulator is
required to avoid a possible compromise on regulatory autonomy. 35 The manner of
consultations between the Reserve Bank of India (RBI) and the Ministry of Finance is a
good model: the RBI holds consultations with the Ministry of Finance on a regular basis,
at formal and informal levels, without compromising its autonomy.
The existing regulatory legislations require regulators to submit an annual report of their
activities before the parliament.36 However, this provision is not sufficient to hold
regulators accountable in an effective manner. Expecting the Parliament to devote the
amount of time required for in-depth analysis would not be realistic. Some regulatory
agencies do not even submit their reports on time. Selection and appointment of
regulators is one of the most crucial aspects that need to be addressed upfront. There has
been a tendency in recent years to appoint retired bureaucrats and judges to regulatory
bodies without ascertaining their suitability. This is an unhealthy practice and needs to be
curbed. Indeed, attracting young talent is the key to making these institutions work in a
desirable manner. Equally important is to provide protection against a possible
discretionary dismissal. This would go a long way to ensure functional autonomy to
regulators. For instance, in the year 2000, the then government amended the TRAI Act
and in the process, reconstituted the Authority, which is considered as a rather weak
institution. This demonstrates the vulnerability that independent regulatory institutions
face in India.
Another approach for overseeing regulators functioning is by providing for appeals in
the relevant regulatory laws. This has, however, led to a disproportionate proliferation of
appellate tribunals, though most of them do not have enough work and is an unnecessary
burden on exchequer. It also fuels the undesirable trend of appointing retired bureaucrats/
judges to head these bodies. Secondly, there is often an overlap between the functions
performed by various regulatory agencies - between the competition authority and
sectoral regulators, between electricity regulators and the proposed petroleum regulator
35
36

R. Shyam Khemani, Interface between Competition and Trade Policies, 23 Intl Bus. Law 481 1995
Bhattacharjea, Aditya, Indias New Competition Law: A Comparative Assessment, 4 JCOMLE 609

20

Competition Policy And Its Impact On The Indian Industry: A Critique

and so on. Setting up an appellate body for each regulatory institution can lead to forum
shopping and inconsistent decisions at the appellate level.
Consumers have to be ensured a fair price for the services and a commensurate quality of
service. Regulatory agencies in India are increasingly taking measures to ensure
reasonable prices and quality of service. In addition, several regulatory agencies in India
follow a consultative process to arrive at their decisions/ recommendations. 37 This
provides an opportunity to consumers and their organisations to provide feedback. In
practice, however, representation of stakeholders is not balanced and most often service
providers dominate such discussions. Consumer groups, by and large, lack the capacity
and resources to effectively represent their views, though the system provides opportunity
for that.
Regulating the incumbent, especially the government-owned, is a challenging task not
just in India but elsewhere as well. There are several instances across the sectors when
regulators find themselves unable to enforce compliance of their directives by the stateowned incumbents. Public sector service providers hardly compete with each other for
better economic efficiencies.38 Therefore, incumbent regulation is a tricky area in any
sector. As long as regulator remains vulnerable to the discretionary powers given to the
executives of the related ministry to whom state-owned incumbents also report, it would
be difficult to expect the regulator to ensure competitive neutrality between the stateowned incumbent and other private operators.

37

S.
Ghosh,
Indias
New
Competition
Laws:
An
Global
Perspective
http://csgb.ubc.ca/files/2007_ghosh.pdf
38
Bhattacharjea, Aditya, Indias New Competition Law: A Comparative Assessment, 4 JCOMLE 609

21

Competition Policy And Its Impact On The Indian Industry: A Critique

CONCLUSION AND ANALYSIS

The Competition Act and Commission have ushered in a new Competition Regime in
India. The new regime will herald a paradigm shift to the business environment in India.
A significant section of Indian industry is, perhaps rightly so, apprehensive about this
new enactment and its possible impact on them. Industry is also anxious that the
advantages to various sectors arising out of competition should percolate to consumers
and businesses for a level playing field, redressal against anti competitive practices,
competitively priced inputs and optimal realization from sale of assets. While the
objective of the Competition Act, 2002, as stated in its preamble, is undoubtedly laudable
and needless to say that this dynamic statute can and will touch and change the way
Corporate India functions on a day to day basis, what is important is that the
investigations and inquiries under the provisions of the Act should be concluded as
expeditiously as possible and timing issues need to be addressed. In addition, it is very
important to have detailed guidelines and a framework within which the approval would
be given by the Competition Commission. This could help mitigate the likely element of
uncertainty by an upfront evaluation of the parameters contained in the guidelines. One
hopes the government will take such issues seriously and take steps to address them.
The basic philosophy behind and the common thread through the various reform
measures has been the resolve of the government to liberate the Indian industry from the
shackles of its various controls. The thrust of reforms has been to allow for more
competition and for the government to play the role of a facilitator rather than the
controller of economic activity. However, these brief resumes of the policies followed in
India the examples can be almost infinitely multiplied are all characterised by some
element of a maladroit understanding of the market process. Though the government has
adorned the role of a facilitator, it continues to intervene in the functioning of the market
and violates the principle of ensuring free and fair market process. This should not be
misinterpreted as a suggestion that all issues pertaining to the environment, trade,
taxation, industry, labour etc. be resolved by the market. The point is that as policy
outcomes are sought to be generated, it is a persistent practice, in India, to do so without
22

Competition Policy And Its Impact On The Indian Industry: A Critique

bearing in mind that policies need to be framed and implemented in sympathy with the
market process, and not in a manner so as to stall the process. a strong policy advocacy is
required to rationalise the role of the government, such as its intervention promotes
functioning of markets, rather than impede it. There is need to take pro-active steps to
promote competition, which requires a declared intent from the government of its resolve
to promote competition and fair practices in the market something beyond the scope of
a competition law. Similar to Central Government policies and practices, there is a need
for several policies/practices of state governments that restrict anti-competitive outcomes
and regulatory failures at the sub-national level and local levels, which are most often
ignored, partly because of lack of awareness and partly due to vested interests.
The researcher maintains that even though the Indian competition law is modelled along
the lines of EC law, the Commission is in no way bound to interpret similar provisions in
the Indian law in the manner interpreted under the EC law. According to the researcher,
the Commission on the other hand is bound by the Preamble of the Act to interpret it in a
fashion that promotes economic development of the country. This is because the
conditions that exist in India are remarkably different than those that exist in the EC and
to come to the level where there can be talk of similar interpretation of laws in the two
jurisdictions, similar development level would necessarily be a condition precedent.
The imperfections of the current law as pointed out should not necessarily be viewed as
imperfections but as opportunities where the Commission can take decisions which
favour economic development in the country. While it might be said that it was owing to
the benefits that Competition Law promised that the Indian Parliament adopted a
competition law, it would also not be wrong to also say that there was considerable but
subtle international pressure in terms of international trade agreements and globalisation
of markets that India yielded to the pressure and adopted a competition law. Thus now
that India has taken competition law, it has the full sovereign right to enforce and
implement it in a manner conducive to its needs and requirements. India is yet to
complete its journey of development, unlike the developed nations, until then asking
India to conform to strict competition policies would seem rather unjustified. As John

23

Competition Policy And Its Impact On The Indian Industry: A Critique

Preston has noted Competition policy and law can benefit all countries, whatever their
size and level of development, but the law must be appropriate to their needs.39
According to the researcher, the need for a tailor-made competition law or at least a
flexible competition law is stressed keeping in view the unique conditions and situations
that plague the developing world and India. India and other developing nations of the
world are yet to complete their journey of development to be at a level where they can
enforce competition law in the manner implemented in developed countries. The existing
Indian Law, as was discussed, gives significant amount of discretion to the Competition
Commission and therefore it is up to the Commission to ensure that the implementation
of the Competition Law takes place in a manner that does not undermine the country's
economic developmental goals, otherwise the very purpose of Competition Law would be
defeated. Therefore, this margin of freedom which has been intentionally given by the
Legislators to the Competition Commission must be taken benefit of and further the
economic development goals of India.
The various examples discussed above show us that while the basic principles of
competition law remain the same the objectives or the results cannot be the same for all
jurisdictions. As the Chinese proverb goes, A single dish cannot serve the tastes of a
hundred people.
Perhaps the implementation of a Competition Law can take place in three phases, where
the first phase would give preference to developmental issues over competition issues,
the second phase where there would be a balance between developmental and
competition issues, and the third phase where competition law would be enforced in its
full vigour like in the developed countries' jurisdictions. In essence, a progressive
realisation of competition policy goals would be the answer to an effective competition
law regime in developing countries. While the implementation of competition law even at
the early stages of economic development is not bad per se its blind implementation
following the path of the developed countries can kill its very objectives.

39

John Preston, Implementing Competition Policy in Developing Countries: The Role of Donors at
www.businessenvironment.or g/dyn/be/.../Session3.4 Preston Doc.pdf

24

Competition Policy And Its Impact On The Indian Industry: A Critique

Thus, competition law is a complex creation of law-makers which the Indian Government
and the Competition Commission should take time to understand in light of the special
needs and requirementsof the Indian economy and implement and shape it accordingly.

25

Competition Policy And Its Impact On The Indian Industry: A Critique

BIBLIOGRAPHY
Articles and Books Referred:

Aaditya Mattoo and Robert M. Stern (eds.), Trade, Investment and Competition

Policy: An Indian Perspective, India and the WTO: A Strategy for Development, Oxford
University Press.

Ajit Singh, Competition Law, Development and Developing Countries

available at www.icrier.org/pdf/wto7.pdf.

Bhattacharjea, Aditya, The Case for a Multilateral Agreement on Competition

Policy: A Developing Country Perspective 9 J. Int'l Econ. L. 293

Bhattacharjea, Aditya, Indias New Competition Law: A Comparative

Assessment, 4 JCOMLE 609

C. Satapathy, Under-valued Imports and Public Interest, EPW, 3-10 February

2001.

Draft National Competition Policy, 2011.07.28

John Preston, Implementing Competition Policy in Developing Countries: The

Role of Donors at www.businessenvironment.or g/dyn/be/.../Session3.4 Preston Doc.pdf

Kumkum Sen, Old wine in new bottle - 2011 Competition Policy, Business

Standard, August 21, 2011.

Nitin Desai, National Competition Policy of India, Policy Watch, Vol 3, June

2008.

Pradeep S and Manish Agarwal, Time for a Functional Competitive Policy and

Law in India, CUTS International, January 2006.

RAKESH BASANT, SEBASTIAN MORRIS, Competition Policy of India: Issues

for a Globalising economy, Economic and Political Weekly July 29, 2000.

R. Shyam Khemani, Slow implementation of Competition Law 25 Intl Bus.

Law. 441, 1997

R. Shyam Khemani, Interface between Competition and Trade Policies, 23 Intl

Bus. Law 481 1995

26

Competition Policy And Its Impact On The Indian Industry: A Critique

S. Chakravarthy, Indias New Competition Act 2002-A Work Still in Progress, 5

Bus. L. Intl 240 2000

S. Ghosh, Indias New Competition Laws: An Global Perspective

http://csgb.ubc.ca/files/2007_ghosh.pdf

T.C.A. Anant and Jaivir Singh, An Economic Analysis of Judicial Activism,

EPW, 26 October 2002.

UNCTAD, Objectives of competition law and policy: Towards a coherent

strategy for promoting competition and development

http://www.fias.net/ifcext/fias.nsf/AttachmentsByTitle/Conferences_CompetitionPolicyT
anz_Hassan+Qaqaya.prn.pdf/.

Vinod Dhall, Overview of Competition Law and Policy, Member CII,

Competition Commission of India.

Websites Referred:

www.competitioncommission.gov.in

www.cuts-international.org

www.jstor.org

www.books.google.com

27