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The promotion of competition is vital to Indian Economy

  • IASbaba
  • March 24, 2020
  • 0
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INDIAN ECONOMY/GOVERNANCE

Topic: General Studies 2 and 3:

  • Statutory, regulatory and various quasi-judicial bodies.
  • Indian Economy and related issues 

The promotion of competition is vital to Indian Economy

Context: Draft Competition (Amendment) Bill, 2020 proposed by the government

Competition Act, 2002, which replaced “The Monopolies and Restrictive Trade Practices Act of 1969, provided for the establishment of a Competition Commission so as

  • To prevent practices having adverse effect on competition
  • To promote and sustain competition in markets
  • To protect the interests of consumers and 
  • To ensure freedom of trade carried on by other participants in markets

Key institutional challenges that competition authorities around the world face are:

  • Preserving their independence, which is considered necessary to perform core policymaking functions
  • Diagnosing problems of competition accurately and fixing them 
  • Displaying legitimacy and effectiveness in the face of public doubts about the value of fair markets 
  • The quality of public administration

In  Oct 2018, Competition Law Review Committee (CLRC) headed by Injeti Srinivas was set up by Ministry of Corporate Affairs, to comprehensively review the Competition Act and suggest substantive and procedural amendments for a robust competition regime.

Majority of the recommendation of the committee was accepted in the draft amendment bill. Some of the key features of the Bill are:

  1. Change in the regulatory structure of the CCI
  • CCI had been wearing many hats since its inception. It had been vested with adjudicatory, advisory, investigative, quasi-legislative, and advocacy functions
  • The bill proposes an overarching governing board that would have general superintendence, direction and management powers over the CCI. 
  • The Governing Board will consist of 13 members including
    • A Chairperson
    • Six whole-time members
    • Two government representatives (from the Ministries of Finance and Corporate Affairs) as ex-officio members
    • Four part-time members appointed by the government
  • The rationale for such a composition of Board: 
    • To enable better coordination between the CCI and the government, 
    • Enable expert external assistance to the commission in undertaking key functions, 
    • Have structural consistency with other regulators like SEBI & RBI

Criticism of the Board:

  • Members of the commission together effectively act as its board even without the explicit nomenclature.
  • 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 is expected
  1. Definition of a cartel:
  • Presently, the Competition Act defines cartels as an association of producers, sellers, or service providers who limit or control the production, distribution or price of goods and services. 
  • The Draft Bill amends this definition of cartels to include buyer cartels. 
  1. New thresholds for merger control: 
  • The Bill empowers the CCI and Central Government to define new thresholds (other than those based on turnover or value of assets) for merger notifications.
  • It will now enable the CCI to make sector specific thresholds based on deal value or size of transaction or any other criterion
  • This provision is in furtherance of the CLRC’s recommendation to capture transactions in the digital market.

Concerns with this provision:

  • Given the dynamic nature of the digital markets, application of this power requires exercise of caution. 
  • This may result in increasing compliance costs for businesses and impact the ease of doing business.
  • The sector specific thresholds should be backed with proper data & logic and needs to be put out in the public domain
  1. The regime of settlements and commitments:
  • The Bill introduces a system for settlements and commitments permitting the CCI to close the investigation on basis of such an application by the investigated party.
  • Such an application will have to be made after the Director General (appointed for inquiries under the Act) has submitted the investigation report to the CCI and before the CCI has passed the final order.
  1. CCI will now issue guidelines on imposition of penalty 
  • Earlier penalty system was left to the discretion of CCI member and was ambiguous in its character.
  • The new guidelines which will be released by CCI will ensure more transparency and faster decision making that encourages compliance by businesses.

However, there were additional provisions, suggested by the CLRC, that has been left out in the draft bill

  • Introducing a dedicated bench in NCLAT for hearing appeals under the Competition Act. This would have greatly assisted in faster disposal of competition cases.
  • Greater emphasis on awareness generation and capacity creation to foster competition. 
  • A national competition policy that could help fix policy-induced market distortions which hampers fair rivalry in the market

Conclusion

  • 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.

Connecting the dots:

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