A competition law alone is not enough

India’s elections have just demonstrated the benefits of effective and efficient competition. Now the polity needs to promote healthy competition in the marketplace so that the economy can grow. One way to address competition-related distortions in the market is by adopting the National Competition Policy (NCP) --- a costly omission on part of the UPA–II government.

Investment and competition are two sides of the same coin. The Government needs to promote investments seriously and address bottlenecks that come in the way of effective implementation of projects. Many of these bottlenecks are due to entry barriers; hence, promoting competition reforms can enable investment flows and immersion.

The ministry of corporate affairs had scripted an NCP after a process of consultation with policymakers, state governments, experts and business. When implemented, it will usher in the second big wave of economic reforms after 1991. In the medium-term, it will also curb inflation, currently a big issue in India.

The NCP exercise in India, among other countries, has been inspired by Australia, which adopted a national competition policy in 1995, a good 14 years after it had been operating a competition law. It did so because many of the distortions that showed up due to policy impediments could not be challenged under their competition law. When it launched ‘competition impact assessments’ of policies, it found no less than 1,800 impediments, at the federal and provincial levels.

The federal government roped in all its ministries and provincial governments, and launched an all-out war against competition-induced distortions.

Consequently, in the short term, Australia’s economy grew by 5.5 per cent. Inflation came under control and markets functioned well.

The Australian approach to competition policy can be useful in the Indian context. There, too, competition policy followed competition law. But, competition policy was preceded by an extensive review of all federal and provincial laws from the competition perspective, and all laws and measures that had provisions (over 2,000 in number) violating the spirit of competition were repealed or amended.

The envisaged NCP approach would ensure equitable application of competition rules to all economic agents in the economy. It works on the principle that social welfare is best served by promoting competition.

The NCP is distinct from the Competition Act, 2002, and yet there is considerable confusion over its scope. Competition law is designed to punish and prevent anti-competitive practices — acts of collusion among similar players or players linked to each other vertically in the supply chain. At a bigger level, given that industrial, trade, labour and other government policies too might have competition-reducing or competition-enhancing impacts, a systematic appraisal of all such polices is in order.

Competition policy allows the Government to weigh the competition distorting or enhancing effects of every important government policy, as well as consider other issues in the public interest: employment, poverty alleviation and equality in income distribution, promotion of infant industry and so on. For a successful NCP, extensive advocacy and consultation are needed.

This requires the cooperation and coordination of institutions such as the Competition Commission, civil society organisations, sector regulators and the government. Ensuring competitive neutrality is another crucial aspect of the NCP — government businesses should not enjoy any undue advantage over private businesses.

Competitive neutrality is necessary to ensure competition within and across public and private enterprises.

Given the vastness, diversity and complexity of the Indian economy and the varied policy interventions being undertaken by the Government to promote development, a competition policy that undertakes distinct appraisals of different policies is imperative.

We need to promote a healthy competition culture in India and move on a sustainable growth trajectory. Implementation of the NCP is can bring in a second wave of economic reforms in the country.

The writer is the director of CUTS Centre for Competition, Investment and Economic Regulation