State of Competition in India

Presentation made to the Planning Commission Working

Group on Competition Policy

Pradeep S Mehta
Secretary General, CUTS International
sg-cuts@cuts.org; psm@cuts.org
www.cuts-international.org

28 July 2006
 Background
 Market-oriented economic reforms undertaken to
stimulate competition and efficiency
 Competition Commission of India and Sector
Regulators established to ensure competitive
outcomes
 Govt of India making ‘competition’ a serious policy
issue
 State of Competition in India …???

2
 Some Basic Concepts
 Competition and its benefits

 Competition vs. Competitiveness

 Distinct concepts

 Competition and Regulation

 Two sides of the same coin
3
 Competition Policy vis-a-vis
Competition Law
Trade Policy
Competition Policy

Industrial Policy
All Government Policies
Disinvestment Policy
that affect the
FDI Policy functioning of markets

Fiscal Policy
Competition
IPR Policy Law
Labour Policy
Competition Policy – a broad
… others … concept that seeks to harmonise
all government policies 4
 Competition in Competitive
Sectors: Agriculture Markets
 Markets less competitive where agro-commercials
firms deal with consumers and producers
 Huge gap between prices consumers pay and prices
farmers actually receive
 Intermediaries do not always behave in a competitive
manner
 Agricultural markets brought under Agricultural
Produce Market Regulation Act to safeguard interest of
producers and raise standard of local markets
 But, Regulated markets still not competitive
5
 Competition in Competitive
Sectors: Agriculture Markets
 Evidence of collusion in purchase of basmati
paddy/rice from producers (Panipat, Haryana)
 Grants marketing monopoly to state
 Restricts farmer from entering into direct contract
 Model Act prepared by Central Government
 Allows for contract farming, direct marketing, establishment of
agricultural markets in private and cooperative sectors
 Alternative marketing avenues through cooperative
marketing agencies, government agencies provide
better prices to farmers
6
 Competition in Competitive
Sectors: Manufacturing
 Post-reforms, market concentration increased in
certain industries
 Emergence of one or two dominant firms
 Polyester Staple Fibre (Reliance: 54%, world’s 5 th

largest producer of PSF)

 Viscose Staple Fibre (Grasim: 91%, world’s largest

plant for producing VSF)

 Storage Batteries (Exide Batteries: 62%)

 Complaints of excessive pricing (e.g. Indian Cotton

Mills’ Federation, in case of Reliance in PSF)
 Impact analysis required to assess market behaviour
7
 Competition in Competitive
Sectors: Cement
 Market fragmented; few players dominate each of the
fragmented market
 Cement industry known to be prone to cartelisation
worldwide
 Accused of price rigging in the past; MRTPC initiated
inquiry; Builders’ Association of India boycott
targeting Grasim and GACL
 Government (major consumer with 30% consumption)
– Bid Rigging?
 Bid offers can give important clues
 Is there patterns of systematic rotation of winning bids?
 Is the share of companies in overall procurement stable?
8
 Competition in Competitive
Sectors: Steel
 Highly heterogeneous and fragmented industry

Hot Rolled Coils:

 Single largest steel product traded

 Allegations of differential pricing between

intermediate and end product

 Allegations of cartelisation

 Regulatory Authority?

 Instead required enabling government policies and active

role by competition agency
9
 Competition in Competitive
Sectors: Pharmaceuticals
 Consumption patterns not affected by prices; Doctors
and pharmacists – decision makers
 Collusive behaviour of pharmacies
 Central Government making efforts to curb trade
margins
 NCMP promises to "take all steps to ensure availability
of life-saving drugs at reasonable prices"
 Supreme Court order in K.S. Gopinath case, March 10,
2003, directing government to ensure that “… essential
and life-saving drugs do not fall out of price control" 
 Regulatory regime - hard on manufacturers but soft on
doctors and pharmacists
10
 Competition in New Economy
Areas: Information Technology
 India still to emerge as major user of ICT
 Hardware segment:
 Strong competition between Indian brands, foreign firms, and
non-branded sector
 Software segment:
 Microsoft operating system controls over 90 percent of
desktop software market
 Lack of competition sets limits on development of
application software based on this operating system
 Open source software can make software segment
competitive
 Enabling Government policy to promote use of open
source software, particularly in e-governance projects
11
 Competition in Regulated
Sectors: Energy

 Market structure for coal production and distribution

completely dominated by State owned entities
 Distribution of coal managed or mediated through
government agencies
 Petroleum products: Lack of transparency in pricing
 Power sector, poor regulatory environment due to
government’s continuous interference
 intra-state transmission and distribution still a monopoly
 Government still dominates most of primary as well
as secondary energy sectors
12
 Competition in Regulated
Sectors: Transportation

Freight Transport
 Seaports
 Intra-port and inter-port competition, not adequate
 Port Trusts as owners and service providers, possibility of
discrimination against competing service providers
 TAMP not given adequate mandate
 Container movement by rail
 Requires neutral regulatory regime to ensure access to
essential facilities
 Cartelisation of cargo operators; cartelised operation
of truckers’ union

13
 Competition in Regulated
Sectors: Transportation
Passenger Transport
 State-owned transport corporations given monopoly

on profitable routes, particularly inter-state

 Volvo fare: Rs.250 for Delhi-Vijaywada (intra-state; distance
276 kms and route served by private operators also)
 Volvo fare: Rs.450 Delhi-Jaipur (inter-state; distance 252 kms
and exclusively reserved for state transport corporation)
 Route dispersal guidelines in civil aviation
discriminates against state-owned carrier; Public
sector airlines subject to procedural bottlenecks
 Transport sector remains inefficient due to policies
that inhibit competition and their poor regulation
14
 Competition in Regulated
Sectors: Telecommunication

 Significant private sector participation after

liberalisation and establishment of a regulatory body
 Substantial growth and dramatic expansion in range
of services available, as well as fall in tariffs
 Interconnection in telecom – still unresolved
 Access Deficit Charge to BSNL: lack of transparency
 BSNL cross-subsidising competitive ISP business
with the less competitive dialup business
 Intervention in regulatory functioning

15
 Central Government Policies
and Competition
 Thrust of reforms to allow for more competition and for
the government to play the role of a facilitator rather
than the controller of economic activity
 Several policies and practices of the government
distort the market process and competition
 Examples emerging from sectoral slides
 Trade Policy: anti-competitive dimension exists (e.g. anti-
dumping measures, inverted duty structures)
 Labour Policy: exit difficult; inspection regime constitutes
a significant barrier to entry and operations
16
 Central Government Policies
and Competition
 Government Procurement
 Purchase preference to public enterprises
 Procurement rules result in anti-competitive outcomes (e.g.
procurement of concrete sleepers by Railways)
 Price Regulation
 Intervention in pricing of commodities (foodgrains, coal, oil)
 Rules and Regulations
 Clearances required for setting up business and time involved
 Essential Commodities Act: discretionary power to officials
and leads to excessive control and intervention

17
 Conclusions
 Generally, policies framed and implemented without
acknowledging the market process
 Government should evolve a system of ‘competition
audit’
 Government policies should have an explicit
statement about the likely impact on competition
 Adopt a National Competition Policy to provide
guidelines at all levels of government in maintaining
appropriate competition dimension

18