Competition law moves forward

THE UNION CABINET'S approval of the draft competition bill is a major step forward. Principally meant to correct the irrelevance of the 1969 Monopolies and Restrictive Trade Practices (MRTP) Act, the competition bill is a welcome though belated attempt to change the way the Government interacts with business. That the MRTP Act had outlived its purpose is beyond doubt. Essentially a product of the times when the state had to decide on major economic issues, the MRTP provisions were in retrospect regressive and failed to achieve even the minimal objectives set out. But the big impetus to change has come from the dramatically altered and dynamic economic environment of the 1990s compared to the decades earlier. Recognition of the benefits of competition has been one of the most significant consequences. All the major parameters that have a bearing on competition will therefore need to be looked into afresh.

For instance, the size of a firm or a business unit, for long a touchy area and subjected to many stipulations, need not by itself be an issue for the regulators. Far more relevant now is to examine whether at a particular size a company achieves market dominance and abuses that strength to nullify the benefits of competition. Not surprisingly, neither a legal definition of terms such as dominance nor its practical interpretation will be easy. Inevitably, the competition bill will be viewed from many standpoints, but even the fairly large numbers that seek greater clarity or a modification in its key provisions do not discount its significance.

Increasingly, in these days of globalisation and far more liberal trade environment, the debate over parameters such as size of the firm, market share or dominance will be on the basis of international standards. One crucial issue: even granted that some Indian companies can dominate the domestic market, can the possible scope for abusing their strength be kept under check by resorting to imports? Another tantalising area is to find the means to rein in international cartels. The Law Ministry has since clarified that these questions will be addressed satisfactorily in the new dispensation. Most important, according to the Law Ministry the competition bill will in contrast to the MRTP legislation be flexible and therefore react swiftly to changes. Other advantages claimed are that the new bill will be far less onerous in its operation. For instance, unlike the MRTP Act which listed 14 offences the new competition bill recognises just four. Moreover, in the new setup, registration of agreements will not be compulsory.

However, for all the advantages claimed, the new competition law will be judged almost entirely in its practical application. Of particular interest will be the constitution and working of the enforcing agency, the Competition Commission of India. Compared to the MRTP Commission which dealt with labyrinthine rules but could issue only specific cease and desist orders, the Competition Commission can initiate suomotu action and further the cause of competition for which it will have access to a dedicated corpus. In the coming weeks, it is hoped that many more clarifications will be issued, even as the Government strives to get the bill passed. One remaining worry concerns the application of the competition law on mergers and acquisitions, which are going to occur with an ever-increasing frequency in the days to come. The competition bill requires proposals beyond preset thresholds of Rs. 500 crores of global assets or a turnover of Rs. 1,500 crores to be notified beforehand to the Competition Commission. Critics say that these limits are puny by global standards and in any case another regulator, the SEBI, already monitors such activities. At this stage, it is important to see the bill through and carry out the modifications as and when they become necessary.

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Section  : Opinion
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