Editorial Notes

[Editorial Notes] Indian economy in need of Fair competition

Fair competition is one of the four pillars to achieve India’s target of a $5 trillion economy. Competition law should support the independence of CCI in its effort to foster competitive and dynamic markets for growth.
By IASToppers
March 28, 2020

Contents

  • Introduction
  • Key institutional challenges
  • Competition Act, 2002
  • Role of CCI
  • Competition (Amendment) Bill, 2020
  • Independence of CCI
  • State intervention
  • Efficient adjudication
  • Conclusion

Indian economy in need of Fair competition

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Introduction:

Prime Minister Narendra Modi spoke about working on fair competition as one of the four pillars to achieve India’s target of a $5 trillion economy. In order to attain such an ambitious goal, it is clear that the government needs to design and adopt laws and policies that deliver economic democracy and competitiveness. In terms of laws, the government has recently proposed far-reaching amendments to the Competition Act, including critical changes to the scope and functioning of the Competition Commission of India (CCI).

Key institutional challenges:

  • The key institutional challenges that competition authorities around the world include- preserving their independence, which is considered necessary to perform core policymaking functions, diagnosing problems of competition accurately and fixing them.
  • It is needed to display legitimacy and effectiveness in the face of severe public doubts about the value of markets and the quality of public administration.
  • Addressing these challenges would be necessary for competition authorities to be effective in current times.

Competition Act, 2002:

  • The Competition Act, 2002 was enacted by the Parliament of India and governs Indian competition law and extends to whole of India.
  • It replaced the Monopolies and Restrictive Trade Practices Act, 1969.
  • Under this legislation, the Competition Commission of India was established to prevent the activities that have an adverse effect on competition in India.
  • It is a tool to implement and enforce competition policy and to prevent and punish anti-competitive business practices by firms and unnecessary Government interference in the market.

Role of CCI:

  • Chapter III of the Competition Act, 2002 provides for the establishment of Competition Commission of India (CCI).
  • To Prevent practices having adverse effect on competition.
  • To Promote and sustain competition in markets.
  • To Protect the interests of consumers.
  • To Ensure freedom of trade carried on by other participants in markets in India.

Competition (Amendment) Bill, 2020:

  • The Competition (Amendment) Bill, 2020 has been drafted for carrying out amendments in the Competition Act, 2002.
  • The Draft Bill proposes certain significant amendments to the Act, including:
  • imprisonment for non-compliance with directions of the Director General;
  • commitment and settlement procedure in non-cartel cases;
  • more expeditious combination review process; and
  • constitution of a Governing Board for non-adjudicatory functions etc.
  • India’s draft Competition (Amendment) Bill, 2020, does touch upon some of these issues, albeit only in varying degrees.
  • Despite a few good proposals made in it, some noticeable suggestions and omissions may constrain the government’s ability to foster a competitive business environment.

Independence of CCI:

  • The draft bill proposes an overarching governing board that would have general superintendence, direction and management powers over the CCI.
  • As envisioned, this board would comprise not just commission members, but also secretaries from the Union finance and corporate affairs ministries as ex-officio members, and also four part-time members appointed by the Centre.
  • The rationale: to enable better coordination between the CCI and the government, enable expert external assistance to the commission in undertaking key functions, and have structural consistency with other regulators like the Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI).
  • While some of these are valid objectives, no rationale has been offered for why these cannot be met within the existing design of the CCI, which was conceived to operate independently of the government.

State intervention:

  • At present, the CCI has adequate powers to appoint experts to assist it in discharging its functions.
  • It also communicates routinely with the government and the Parliament through submissions of periodic reports.
  • Moreover, while RBI has a “central board” and Sebi has a “board”, these are part and parcel of the structures of these regulators, and do not act as additional supervisory or governance layers—something that seems to be envisaged in the CCI’s case.
  • Reviewed closely, members of the commission together effectively act as its board, sans the nomenclature.
  • There are grave risks in creating a supervisory layer above commission members.
  • There is no such precedent anywhere in the world.
  • Given that ex-officio and part-time members of the governing board will be appointed by the government, unnecessary state intervention in its functioning cannot be ruled out.

Efficient adjudication:

  • Another challenge is to fix competition problems.
  • Efficient adjudication is one of the critical functions of any competition authority. Jurisprudence is developed and precedents are set through that process.
  • This requires expertise in competition issues, an understanding of interlinkages between different sectors, and an ability to interpret law in the light of changing realities without fear of or favour to interested parties.
  • It is for this reason that a dedicated body is needed to hear appeals arising from CCI decisions. Unfortunately, the draft bill does not move the needle on this.
  • Under the prevailing practice, it’s for the National Company Law Appellate Tribunal (NCLAT) to take up appeals against CCI orders, but this is a common appellate authority for all company matters.
  • The NCLAT is also overburdened with sundry cases, thus the need for a dedicated Competition Appellate Tribunal to hear appeals.
  • The draft bill also ought to have placed emphasis on awareness generation and capacity creation to foster competition.

Conclusion:

For PM Modi’s economic vision to have a better chance of fulfilment, India needs a national competition policy that could help fix policy-induced market distortions that hamper fair rivalry and keep entire sectors from achieving competitive dynamism and growth. The CCI is engaged in assessing many policies and laws on competition principles, but for the desired outcomes to materialize, the exercise needs the backing of government policy.

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