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Competition has become a driving force in today’s globalised world. Measures such as deregulation, liberalisation and privatisation are necessary, but not sufficient to ensure the efficient functioning of markets. Vested interest groups, large monopolistic firms and other stakeholders could distort the process of competition. These market distortions deprive markets of their ability to deliver efficient results, adversely impact growth and hurt the poor most of all through higher prices. Hence, the need for a robust competition law to protect and nurture the competitive process.
Evolution of competition law in India
India was among the first developing countries to have a competition law in the form of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969. This was necessitated due to a high concentration of economic power in most industries: a direct outcome of restrictions on freedom of entry in Indian markets due to industrial licensing. The Act was designed to check concentration of economic power, and prohibit restrictive or unfair trade practices and control of monopolies.
Then came 1991, a watershed moment in the history of India’s economic development. India embraced economic reforms and a market-driven economy with competition as the key driver. The new India required new rules. Hence, the need for a new competition law in tune with the new economic philosophy. Based on the recommendation of an expert committee, the Competition Act was passed in 2002. Unlike the MRTP Act, the new Competition Law does not restrict the size of firms or concentration of ownership.
When the Act was being proposed, there was a debate on whether the country and business were ready for a competition law so soon after deregulation. The debate was settled in a perverse manner: the Act had a legal challenge, which delayed the establishment of the Commission and enforcement of the Act. The Competition Law in India has come a long way from its precursor and embodies the modern principles of competition law. As with most international competition laws, the Indian law seeks to: prohibit anti-competitive agreements, including cartels; prevent abuse of dominant position; and regulate mergers and acquisitions.
The Act has established a Commission comprising a chairperson and a maximum of six members. The Commission enjoys the same broad powers as given to competition authorities in other jurisdictions. The law was substantially enforced from May 2009.
Our journey so far
The Commission will soon complete five years of successful enforcement of the Act. The legal architecture on competition and enforcement has gradually evolved over the past few years. Since enforcement commenced in May 2009, the Commission has processed more than 425 cases relating to enforcement of section 3 (anti-competitive agreements) and section 4 (abuse of dominance) of the Act. The majority of cases received have been resolved. Orders have been passed with far-reaching implications in a number of cases encompassing a wide range of sectors, such as real estate, pharmaceuticals, cement, steel, coal, sports, etc. Anti-competitive conduct of certain companies who are subsidiaries of MNCs has also come to our attention. We have issued cease-and-desist orders in many cases as well as ordered for the modification of agreements, such as in the DLF and Paper Merchant Association cases. Heavy penalties have been imposed in many cases to discourage the anti-competitive conduct by erring enterprises, such as in the case of the cement cartel.
Public procurement makes up a substantial proportion of state spending in emerging economies. Many cases involving cartelisation in public procurement contracts have been decided. We found that, often, suppliers take advantage of inadequate specifications and a lack of vigilance by procuring authorities, and raise the cost of procurement causing a drain on the exchequer. This highlights the need for competition with a tender/bidding model, which can make bid rigging difficult, save valuable resources and release funds for development.
To provide a level playing field, our law does not discriminate between private and government enterprises except for limited exemptions relating to sovereign functions of government (including activity relating to energy, currency, defence and space). Thus, law is competitively neutral and is being enforced by us in the same spirit. The Commission has heard several cases of anti-competitive conduct relating to public entities. The recent penalty of about 17.7 billion rupees imposed on Coal India, a state-owned monolith, for abuse of dominance, sends a clear message that public entities cannot escape their responsibility under the Competition Law.
Coming to mergers and acquisitions, Indian law provides for mandatory prior approval above the notified thresholds. Owing to some apprehension within the industry, it was only after an extensive consultation process that merger review came into effect from 1 June 2011. The amendments in February 2012 were also issued after taking into account the concerns of stakeholders. After gaining some experience, we have further amended the regulations to provide relief to the corporate entities from making merger filings, which are prima facie unlikely to raise adverse competition concerns. Our Act provides for 210 days before finalising a decision on a merger filing. Aware that time is of the essence of merger transactions, we have a self–imposed limit to clear cases within 180 days on a best-endeavour basis. As per provisions in our merger regulations, most of the filings are likely to be approved within 30 days and only those with serious competition concerns are likely to go beyond this period to the second stage of investigation. During the last two-and-a-half years, the Commission has received around 150 M&A filings, almost all of which have been cleared within 30 days.
A cornerstone of a successful market economy is the existence of a ‘competition culture’ for which competition advocacy is vital. In India, this is mandated by the law. We take this responsibility very seriously and address the whole range of stakeholders including industry, consumers and government at the federal and provincial levels. As government policies may be an important source of market distortions, we are engaging the government to review economic policies and make them competition-compliant.
Driven by economic globalisation, the world is getting smaller and business and money no longer have any geographical boundaries. Competition authorities are facing a unique challenge: competition law is national, while markets are increasingly global in reach. Therefore, dialogue and cooperation among competition agencies have become a must, not a matter of choice. What is our approach to international cooperation? Our interactions with mature jurisdictions, as well as multilateral agencies, have helped us in learning how to best forge ahead. To help enhance relations with key jurisdictions, we have signed memoranda of understanding (MOUs) with the competition agencies of the US, the EU, Australia and Russia, and we are considering MOUs with few other agencies. We are also actively engaging with the ICN, the OECD, UNCTAD and the World Bank, among others. We have recently brought into focus the global relevance of BRICS competition authorities by successfully organising the third BRICS International Competition Conference in New Delhi.
Challenges we face
A competition law enforcement regime cannot operate in isolation. It is shaped and transformed by the challenges faced by the competition authority, which may be formidable in transitioning economies. These challenges necessarily change from time to time. At this juncture, I would identify five key challenges:
- a weak competition culture;
- inadequate business awareness;
- exemption seeking by some sectors;
- a strategic focus; and
- capacity building and institutional strengthening of the Competition Commission.
A ‘culture of competition’ exists where the rules and benefits of competition are widely known and form a natural part of the background for decisions by firms and governments. Decades of government controls in India have hindered the growth of competition culture in the economy and several areas of the economy are still subject to a variety of controls. They cover natural monopolies and networked industries also. In these sectors, a truly competitive market is yet to evolve. The task is further complicated due to the challenges posed by the increasingly transnational nature of business activities and India’s integration into the global economy.
The level of awareness even among economic stakeholders is limited. It is also perceived by some to be an albatross around the neck of industry. Not many perceive the Act as ‘business friendly’, a quality that, ultimately, will lead to higher efficiency, lower costs and an improvement in quality – goals which would gladden the hearts not just of businesses but of consumers too. Among the public, the Act is widely – and mistakenly – perceived as a vehicle for the limited objective of consumer welfare only. Quite clearly, there is need to further intensify our advocacy efforts.
In spite of the constructive approach that the Commission has followed, some of the sectors and government agencies concerned are seeking exemption from the M&A provisions of the Competition Act. This is being put forward on the specious ground that the sector regulators are themselves equipped to handle matters concerning those industries. The sectoral regulators are undoubtedly competent and have requisite domain knowledge to handle technical and tariff/royalty-related issues. Issues of competition, market behaviour and the interrelated matter of M&A have to be the function of the market regulator. That is not only appropriate and desirable, but also best international practice.
The Indian Competition Law provides for informants to notify the authorities about unfair competitive practices. It also gives the Commission suo moto powers. Evidently, the intention of the legislature was to ensure that the Commission keeps in mind its strategic focus so that it produces maximum benefits from the Act. The strategic focus – which will necessarily keep evolving – is something that the more robust competition jurisdictions around the world have followed with advantage. It would seem that there is scope for focusing on heavyweight sectors, which can yield handsome dividends in terms of enhanced competitiveness and hence lower prices both for consumers and producers.
Last, but by no means least, is the challenge of capacity and institution building. Capacity is limited not merely in terms of the number of talented people but also in terms of range and depth of experience. The credibility and performance of the Competition Commission is going to be assessed on the basis of effective intervention and the soundness of its pronouncements. Jurisprudence in competition law is at a nascent stage and, as a nation, we have to ensure that its foundations are strong.
The orders of the Commission reflect the robustness of the system as well as a determination to curb the anti-competitive practices in Indian markets. It is in recognition of its achievements that the CCI was nominated for Global Competition Review’s 2013 award for Agency of the Year – Asia-Pacific, Middle East and Africa. We believe that in spite of many challenges, we are beginning to make an impact and stakeholders are realising that fair play is integral to the functioning of a sound economic architecture. But we are equally conscious that the road ahead is both steep and slippery. We have therefore recently produced a vision statement and a ‘Mission 2020’ statement, which underscores the priorities of the Commission.
Our vision is to promote and sustain an enabling competition culture through engagement and enforcement that would inspire businesses to be fair, competitive and innovative; enhance consumer welfare; and support economic growth.
Our Mission 2020 is that the Competition Commission of India aims to establish a robust competitive environment through: proactive engagement with all stakeholders, including consumers, industry, government and international jurisdictions; being a knowledge intensive organisation with high competence levels; and professionalism, transparency, resolve and wisdom in enforcement.
It will be our endeavour to fulfil our vision and Mission 2020 in a judicious manner.
Competition law and policy in India is emerging as a tool to enhance economic development, promote competition and protect consumers in India. In order to give impetus to the evolutionary phase of competition law and policy in India, the government of India is considering wide-ranging amendments to the Act and also a National Competition Policy. The amendments cover both substantive and procedural aspects. We hope that our proactive role in India in uncovering cartels and other anti-competitive agreements would go a long way in encouraging fair market practices, deepening competition in markets and contributing to economic growth with equity.