The Competition Act, 2002, which still hasn’t been completely enforced as yet, was devised as a replacement of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969. This act moved away from the earlier emphasis of curbing monopolies in particular industries, to a more particular and directed approach towards promoting competition and thereby increasing the size and scope of industry. Better competition is believed to lead to higher efficiency in competing companies, thereby leading to a better allocation of given resources.
An interesting fact to note about the Competition Act is that it frowns upon the abuse of dominance by a particular company, but not dominance per se. It has also negated certain clauses which were already under the protection of the Consumer Protection Act, 1986, and which had been repeated in the earlier MRTP Act. Largely based on the post-reform (1991) era, the new act is far more clear with certain well-defined punitive measures against offenders. Definitions regarding groups and mergers are now more explicit and result oriented.
There has been however some debate regarding the ambiguity and effectiveness of this new act. FICCI or the Federation of Indian Chambers for Commerce and Industry has expressed concern over the provisions regulating mergers and acquisitions in this act. It feels that such curbs might result in a slow down of the industry, particularly in the current larger world scenario. Citing the Section 5 of this Act, under which turnover thresholds are based, it states that an Indian company with a turnover of Rs. 3000 crore cannot acquire another Indian company without prior notification and approval of the Competition Commission. On the other hand, a foreign company (outside India) with turnover of more than USD 1.5 billion (or in excess of Rs. 4500 crore) may acquire a company in India with sales just short of Rs. 1500 crore without any notification to (or approval of) the Competition Commission being required. Such procedures might hamper indigenous growth, making it tougher for Indian industry looking for expansion through acquisitions.
There are also other irregularities with this act. For example, the Section 3(5) of this law excludes all IPR (Intellectual Property Right) from its applicability. Thus, companies with IPR can tend to monopolise industry. This is very relevant in the field of genome research and biotech firms. Such firms can have the sole licence to medicines developed through such research, besides other key genes of organisms they might discover. Medication derived through such research might become their own prerogative, which can affect pricing strategies. This means that the product, with the absence of competition in the industry, might be priced at an unaffordable price for most consumers.
Other concerns relate to the supreme control of the CCI, or the Competition Commission of India, the regulatory body covering the act. It is feared that the CCI will become a super regulator as other regulatory authorities will be subject to Competition Law. This means that regulation will largely centre around the CCI and the other bodies will loose strength and relevance. Leaving such control on a single authority is always a risky task.
The CCI, a committee of ten members besides a chairperson, has been designed to minimise the politicisation of appointments. A selection by a collegium will ensure the appointment of a judicial member, besides members from economics, international trade, commerce, industry, finance, etc. However, there is certain ambiguity in this attempt to make the CCI free from political intervention. Certain clauses to the act state that the government by notification may exempt a class of enterprises in the interest of national security/public interest, any agreement arising out of an international treaty/agreement, and (or) an enterprise performing a sovereign function on behalf of the government. The last bit is very disturbing as it leaves a huge scope for corruption and malpractice. The government can effectively blanket any industry/company from the purview of the CCI as it wishes, which amazingly is in stark contradiction to the so-called attempt to making the CCI free from political intervention.
The new Act, although a welcome change over the outdated MRTP Act, does come with certain flaws. Some changes like increasing the threshold limit (turnover, asset value) for it to come under the purview of the Commission were introduced in 2006. Also, the waiting period for approval has been reduced and fixed to a maximum of 210 days, to minimise wastage of time. Some Indian economists argue that this act has been a result of regular prodding by the WTO to open up our economy further. What effect the CCI has on the industry is yet to be seen, and it is felt that there are yet more measures needed to protect our indigenous industry. Once the new Act comes into full effect, only then will its relevance be fully known.
[Image source: http://www.nature.com/nrd/journal/v5/n12/images/nrd2206-i2.jpg]