Competition Law in the reform era

By C. R. L. Narasimhan

Competition law in this country is about to get a completely new look. In its important areas there are going to be innovations too.

The draft competition bill, which was approved by the Union Cabinet during the last week of June, is a major step forward for several reasons. At a philosophical level, the thinking behind the bill represents a fundamental change in the way the interaction between the Government and business interests is perceived. When enacted by Parliament, the new competition law will replace the Monopolies and Restrictive Trade Practices Act (MRTP) of 1969.During the more than three decades since the MRTP enactment, there has been a sea-change in the government-business equation everywhere in the world. India cannot be an exception. The draft bill is based on a report on competition prepared by a committee headed by Mr. S. V. S. Raghavan. Naturally the report had to take cognisance both of global trends and circumstances special to India. Needless to point out, in a globalising economy issues such as competition cannot be confined to the geographical borders of a country.

The big change, however, lies in the official perception of business interests. In the 1960s and 1970s (and earlier) the belief in a command economy and the dominance of the state in economic matters dominated Indian economic thinking. Through a system of licensing and numerous other controls business groups were kept in fetters. It is questionable whether the MRTP regime checked the abuse flowing from monopoly positions. For the Indian consumer, the problem has been one of coping with lack of choice and often even with scarcity, which a system based on licensing helped foster. The MRTP legislation has been a necessary adjunct to the economic beliefs of those times.

Promoting stakeholders

The proposed competition law, in contrast, recognises the fact that business groups can and do work for the betterment of their own interests as well as those of their several stakeholders. In the new thinking the size of the firm and its market share are not by themselves a threat to the consumer.

It is only when a firm that has acquired a dominant position and uses its dominance against consumers' interests should the regulators step in. It is not the potential to exploit but the actual commitment of a rapacious act that would bring in the enforcement machinery of the new competition set up. This concept of abuse of dominance rather than just acquiring a dominant position has become the central point of the new legislation and probably its most distinguishing feature.

Elaborating the point further, under the MRTP Act all restrictive practices are presumed to be anti-competitive. The draft competition bill adopts a radically different approach: not all agreements between business groups (for expanding, consolidating) are prima facie anti-competitive. Only when they impact adversely on competition do they become anti-competitive, enabling the new regulator, the Competition Commission, to step in. This feature of the bill which would determine anti-competition on the basis of specific acts and not by the potential to carry out such acts has uniformly been praised.

Several other advantages have been claimed for the new dispensation. It will be more flexible than the MRTP Act. While the MRTP Act listed out 14 offences the new law recognises just four. Unlike the MRTC, the new Competition Commission can start suo motu proceedings. Competition advocacy is enshrined in the new law for which purpose a new competition fund will be put in place.

More clarification needed

More clarifications on the competition bill will emerge in the coming weeks. At this stage there are a few points of criticism against the bill. The Federation of Indian Chambers of Commerce and Industry (FICCI) and other industry organisations say that the norms for determining whether an enterprise enjoys a dominant position are totally subjective and that there is a need to spell out the extent of share and size to call a position dominant. Second, while the draft law allows for the prohibition of predatory pricing by a dominant enterprise, the method by which ``below cost pricing'' will be determined by the regulator is unclear. Three, mergers and amalgamations have been a sensitive area. The original bill provided for a mandatory pre-merger notification beyond certain threshold limits. (Global assets exceeding Rs. 500 crores and turnover Rs. 1,500 crores).

The Government has been seized of this matter and changes may emerge in the bill in the days to come. Only after the bill is passed and the new Competition Commission becomes functional can any judgement be made on the efficacy of the new start up. There is inevitably a measure of subjectivity in the new law that cannot be wished away.

It is not the position of dominance per se as much as the abuse of dominance that is considered anti-competitive.

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