This article is written by Lavish Sharma pursuing B.A. LLB. (Hons.) from the Institute of Law, Nirma University. This article discusses the need for legislation ensuring fair competition in the Indian market.
Table of Contents
A strategy that maintains genuinely open markets could help India close the difference between its expected and estimated growth and thus see the economy cross $5 trillion by 2024-25. The scale of the Indian economy (at current prices) was $2.75 trillion in 2018-19. It is projected to hit $3.03 trillion in 2019-20, with an actual growth rate of 5.5 per cent and inflation of 4.5 per cent. Based on the 2019-20 average, India needs to expand 11 per cent annually over the next five years to meet its goal of being a $5 trillion economy by 2024-25. When overall inflation is 5%, the actual annual growth rate of the economy will have to be 6%. All reports on the effect of competitiveness policy on macroeconomic results have been summarized in a study by the Organisation for Economic Cooperation and Development. Generally speaking, there appears to be an agreement that a successful competitiveness strategy will contribute to an additional 2-3 per cent rise. Competition regulation has had a substantial beneficial effect on productivity and unemployment and a major transfer of income among the weakest of society.
Scope of the Competition Policy
Competition applies to a commercial condition in which the vendors individually pursue the approval of the customer in order to meet the corporate goals of income, revenue or market position. In other terms, it is an act of rivalry between a company and other business entities with a view to obtaining market supremacy or receiving compensation or aim. It is the basis from which the capitalist economy works. To order for the open system to work efficiently, this rivalry will be free and equal. To order for the open system to work efficiently, this rivalry will be free and equal. This competition promotes creativity and efficiency and thereby contributes to an optimal redistribution of capital in the economy; ensures the security of market interests; decreases prices and increases quality; accelerates growth and prosperity and protects economic and political stability. In the absence of adequate protections, businesses can weaken the market by resorting to unfair practices for their short-term profits. As a consequence, market manipulation activities and anti-competitive forces can hinder the functioning of healthy competition in the economy.
There is, therefore, a need for a sound regulatory environment that can promote healthy competition so that all firms can grow and expand and boost the country’s economic development. Accordingly, the Government has developed a competition policy that protects the rights of customers and suppliers by encouraging and maintaining reasonable competition. The Government of India has adopted the Competition Act in compliance with the guidelines of the Competition Policy. Under the Act, an independent entity named the Competition Commission of India (CCI) was set up with legislative and quasi-judicial authority. In order to develop and further improve the ability of the Commission’s officers, the Competition Commission of India has set up a Competition Forum with prominent political, cultural, social, public administration, management and other related personnel.
Emergence of sectors
Until recently, government-owned monopolies controlled and governed network facilities under different laws. With the introduction of reforms and the liberalization of the Indian economy in 1991-92, private investment was authorized, initially in power and telecommunications, and subsequently in ports, roads and civil aviation. As a comparison to well-established trends, regulatory changes were not part of the initial plan for sectoral reforms in India.
Only after the first wave of privatization and liberalization struggled to draw much private investment did policymakers realize that autonomous sectoral control was necessary to create trust in private investors and ensure that their interests were covered. Therefore, unrestricted privatization implied that public monopolies would transform into private monopolies, especially in sectors with natural monopolies or minimal competition. In fact, the presence of many firms serving the same field will result in unnecessary duplication of wires, transformers, pipes, etc. As a consequence, separate regulatory bodies have been set up in telecommunications (Telecom Regulatory Authority of India), electricity (Electricity Regulatory Commissions at both federal and state levels) and seaports (Tariffs Authority for Major Ports). The cycle of setting up regulatory authorities in a variety of other industries (civil aviation, oil & gas) begins. Such organizations have been set up to serve a variety of tasks, such as managing competing desires, fostering competitiveness, encouraging innovation, democratizing decision-making, ensuring the general growth of the industry, etc.
Business regulators for capital markets (Securities and Exchange Board of India) and insurance (Insurance Regulatory and Development Authority) have already been created, while the Reserve Bank of India has been regulating the banking sector for a long time. The priorities of these organizations vary from those of the authorities in the transportation field. Thus, although RBI is more worried about financial stability, SEBI ‘s priorities are the security of investors and the dissemination of details.
Nevertheless, in the present sense, what counts is that such organizations have been granted adequate authority to carry out their brief and if they are permitted to conduct their duties – a matter which is similar to all regulators. There is no question that autonomous authorities would be regulating a large part of the economy and public institutions over the coming years; thus, regulatory efficiency will have an impact on the standard of public life.
The potential to recognize Competition Law and policy
The open economy guarantees productivity, resulting in the highest available option of product, lowest costs and sufficient supply for customers. This result occurs on the basis of the following three conditions:
- Competition: there is a vast range of suppliers selling the same commodity, or similar alternatives, so no single supplier controls the business.
- Full information: all buyers are completely aware of the choices that the industry provides them.
- Small switching costs: the risk that the customer experiences when transitioning from one alternative to another is not big enough to prevent this transition.
In every event, the economic universe includes a variety of cases where economies do not follow one or more of these criteria. For these cases, fair markets can not occur or deliver favourable outcomes. Responsible considerations include cases where:
- Business companies are using unethical methods to limit competition and hurt other companies and customers.
- Markets collapse due to externalities, incomplete or asymmetric knowledge, and economies of size and volume.
- Government policy that paved the way for greater business alignment could, in the first instance, in itself be inadequate to ensure the proper functioning of markets. The first two reasons call for some sort of interference in the business cycle. The third element needs a fine-tuning of government policy and its execution in order to promote the operation of markets.
National Policy Required
Such quick summaries of the policies pursued in India – instances may be almost exponentially multiplied – are all distinguished by some dimension of a misunderstanding of the business mechanism. While the government has decorated the position of facilitator, it proceeds to interfere in the workings of the market and ignores the concept of ‘ensuring a free and equal market mechanism.’ This should not be misinterpreted as meaning that all problems related to the economy, commerce, taxes, manufacturing, labour etc. should be ‘resolved’ by the sector. The argument is that, when policy results are pursued, there is a pervasive trend in India to do so without keeping in mind that policies ought to be formulated and executed in compliance with the business environment and not in such a manner as to delay the cycle.
- Assess both government strategies and activities in light of the ‘Nine Values’ of Public Policy. For starters, a previous appraisal of competitiveness, previous to privatization, may contribute to more successful outcomes.
- Conflicts that occur between the goals of competition policy and those of certain policies (e.g., an environmental policy that contributes to obstacles to the entry), so there is a need for impact evaluation to determine the aspects of the effects. If such effects have been identified, steps will be made to comply with them.
- All government policies/practices will provide a clear stance on the possible effect of antitrust regulation and the procurement mechanism.
- The State will create a competitiveness audit/assessment framework that could be applicable to both current and prospective policies.
- The State will enact a National Competition Policy that lays out guiding criteria for policy strategies and activities and lays out the government’s declared aim to encourage competitiveness in the marketplace.
- Establish a National Competition Policy Committee with the Prime Minister as its own Chairperson, Heads of State and representatives drawn from industry, customer associations, media and academics to lead the introduction of the National Competition Policy in the region.
At most, the competition authority should work for the government to reform its policies and procedures in order to promote the workings of the business mechanism through its ‘competition advocacy’ feature. Under the Competition Act, the State may obtain the advice of the Competition Commission in the context of some new public policy or change. Nevertheless, the validity of this clause depends entirely on the decision of the Executive.
Alternatively, effective policy support is required to rationalize the position of the government, because its interference facilitates, rather than hinders, the operation of markets. Proactive actions are to be implemented to encourage competitiveness, which includes the government’s clear desire to foster business and equal consumer conditions – far outside the reach of antitrust legislation. Hence, the need for a nationwide competitiveness strategy.
Competition Policy and Law Required
The probability of market-distortionary behaviour, business disruption conditions and government-induced anti-competitive results, as described above, ensures that adequate steps ought to be taken to guarantee that the market-oriented economic system produces efficient outcomes.
What arises is that relevant business standards and regulations (business regulation and industry regulatory regulation) need to be formulated and enforced, and structural frameworks need to be placed in order for a market-oriented economy to produce products. Such interventions fall under the framework of the ‘Competition Policy,’ which aims to monitor the obstacles raised by private and government to the proper functioning of competition and encourages constructive action to establish an atmosphere in which competition works properly and achieve desired outcomes.
Many of the policy tools, such as competition law and sectoral regulatory regulation, have a strong direct influence on trade, whilst the policies set out above have an impact on the general economic environment and, generally, on the general climate of business in the region. Competition regulation, however, includes a position at several regulation tables. The evaluation of the different regulatory tools is carried out on the basis of the ‘nine standards’ of market policy. These concepts set out guidance for the multiple divisions of government and organizations at all levels to preserve the correct competitive aspect when taking some action or judgment that might have an effect on the economy and consumers.
Liberalization has decreased the degree of power exerted by the Center in certain regions, allowing even more room for state-level initiatives. State-level strategies and activities also merit far greater coverage than they get. Similar to the policies and practices of the central government, there are many policies/practices of the state governments that result in anti-competitive results and regulatory deficiencies at the sub-national level. Regrettably, such problems are most commonly neglected, partially because of lack of knowledge and partially because of special interests.
The Act governs and does not prevent the creation of different types of market combinations. Under it, no entity or corporation shall enter into a combination, in the form of an acquisition, merger or amalgamation, which causes or is likely to trigger substantial adverse effects on competition in the subject sector, and that combination shall be invalid. However, both combinations will not call for inspection unless the resultant combination meets the asset or turnover levels as defined by the Indian Competition Commission (CCI). Therefore, the Act does not aim to remove variations and instead aims to eradicate their adverse consequences. When an individual contravenes, without some fair basis, some order of the Commission or any provision or regulation subject to which any permission, authorization, instruction or exception in respect of any matter has been given, given, rendered or granted pursuant to this Act or refuses to pay the penalty levied pursuant to this Act, he shall be kept in civil custody.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: