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Implications of the Competition Bill

M. R. Narayana

THE structural adjustment programme under the economic reforms since July 1991 and Indias membership to the WTO have exposed economic agents to domestic and global competition, and provided consumers with choices of goods and services. Now, the policy- makers are getting ready to protect, promote and sustain, this competition through the Competition Bill 2001.

The professional background for the Bill is the High Level Committee on Competition Policy and Law that gave its recommendations to the Government in May, 2000. The Competition Bill 2001 is now ready to be brought before Parliament, in the current sess ion. An important aspect of the Bill of public and professional interest relates to its economic implications. An understanding of these implications will help form the basis for supporting/confronting the Bill on strict economic grounds.

The Bill's main objectives are clearly economic in nature: To (a) prevent non-competitive practices; (b) promote and sustain competition; (c) protect consumer interest; and (d) to ensure free trade for participants in markets. . These objectives are to be accomplished by setting up a Competition Commission of India as a quasi-judicial institution. Thus, the Bill outlines, among others, the composition and selection of members, and duties, powers and functions of the Commission.

The Bill does not define Competition, but aims to be free and fair. Thus, one has to guess what form of economic competition is aimed in the Bill. Fortunately, however, the provisions under prohibition of agreements, of abuse of dominant position, and r egulations of combinations in Chapter II of the Bill clearly aim at making the competition market-oriented, price-based.

Economic theory is that perfect competition is one of the conditions for achieving efficiency that leads to maximisation of national income and, hence, economic growth from the viewpoint of production. Consequently, the Competition Bill is indirectly and ultimately growth-oriented

In essence, competitiveness may be the culmination of high quality and wide variety of outputs at minimum cost of production due to application of the state-of-the-art technology and marketing strategies. Lack of competitiveness signals that the units in competition are not ready to be competitive due to unequal endowments of, and access to, improving these factors of competitiveness.

If the policy-makers (or the proposed Competitive Commission of India), do not recognise this sign, in terms of strengthening the competitiveness of units; merely enhancing competition may even prove disastrous. The Global Competitiveness Report 2000 has clearly brought out the multi-dimensional nature of measuring competitiveness of countries, including India. The Report ranks India 49th in growth competitiveness, and 37th in current competitiveness among the 59 countries.

Industrialisation has not been favoured in this country only for efficiency reasons. Balanced spatial development and equitable income distribution objectives have been considered equally important. This is historically evident, for instance, in encourag ing the growth of small-scale units (SSUs) in the private sector. For long the SSUs were protected from competition from within and outside the country. Now that they are exposed to all this competition,. can they withstand such competition from everywhe re? The answer is categorically positive, provided their national and global competitiveness is strengthened and increased. The non-projectionist approach to strengthening competitiveness is not new to policy-makers. For instance, while announcing the E xim policy in March, 2001, the Commerce Minister, Mr Murasoli Maran, remarked: If we do not improve our competitiveness and cry hoarse for needless protectionism, we will have to content ourselves with a low level of subsistence economy, looking inward s and feeling helpless to meet the hopes and aspirations of our people for a better standard of living.

Thus, the best of economic implications of the Competition Bill 2001 will be evident if competition is promoted, protected and sustained along with strengthening and increasing competitiveness of firms, industries and States in an era of globalisation.

(The author is Professor of Economics, Institute for Social and Economic Change, Bangalore.)