Pradeep S Mehta: Defanging the Competition Act

The Supreme Court had termed the Competition Act, 2002 as an obnoxious act, mainly because retired bureaucrats were going to man it.

In the end, it passed an order of the most peculiar type, which merely noted the government's submission to split the authority into two: regulatory and adjudicatory, without expressing its own definitive opinion, and left all the questions open.

The government has prepared an amendment to the Competition Act, 2002, and appears to be bending backward to accommodate the court, but at the same time ensuring that retired bureaucrats head the Competition Commission.

A Competition Appellate Tribunal (CAT) is also proposed, which is to be headed by a retired judge and experts (read: retired bureaucrats) as its members.

There will be two selection committees to appoint the people, but one doesn't really know whether the posts will be advertised.

They will follow the old process of a search committee, which will hunt for suitable candidates. Surely such a non-transparent system will again promote jockeying and horse trading.

Be that as it may, the amendments propose to remove all teeth from the ambit of the Competition Commission. It will have no powers to receive any complaints.

It will also not be able to hear any cases, because it cannot entertain any complaints. And because it cannot entertain any complaints, it also doesn't need the tools of the Civil Procedure Code, such as discovery or summoning witnesses, or taking evidence on oath, among others.

The Competition Commission will become a mere investigating and research agency doing its work solely on market research.

On the other hand, the relevant clause empowering the Commission to levy fines and so on has been retained. But, without any powers of adjudication, one wonders how it will discharge the function.

The proposed CAT has been empowered to function as a court with such powers, but the amendment too is ambiguous about the same, and speaks about its mandate to hear appeals only.

Appeals against what, seems to be a question begging an answer. Whether the tribunal will have suo moto powers or not has also not been clarified, that is, if the intention is to give it original jurisdiction.

There is no public debate on the proposed amendments, indeed the amendments are being circulated as a draft secret Cabinet Note.

When the Planning Commission supremo Montek Ahluwalia was questioning the need for a merger control regulation to the incumbent Commission Member, he was flummoxed.

Ahluwalia felt that the existing provisions on anti-competitive practices were a sufficient safeguard against any anti-competitive outcomes, and if required, a demerger can be ordered.

Ahluwalia's views are based upon a paradigm that many free-trade economists hold, that competition can be promoted through trade policy and industrial policy measures.

Unfortunately, in the real world it doesn't work so smoothly. Wherever there is excess capacity, suppliers collude through cartels and market sharing, both domestically and cross-border.

Trade liberalisation is the macro policy measure, while a competition law with strong merger control works as a micro policy measure.

No wonder of the 100 countries currently having a competition law, 91 have a pre-merger notification requirement. The rest have a voluntary notification procedure, which is what has been provided for in the Indian Competition Act, 2002.

One issue under debate is the overlap between sectoral regulators and the competition authority. The proposed amendment has made it mandatory for consultations between regulators and the competition authority.

One is aware of the egos that often skew good intentions. Thus there should have been a clear demarcation of jurisprudence.

For instance, in France, the competition authority is empowered to deal with all behavioural issues in independently regulated sectors (including banks), while the sectoral regulators take care of the structural issues.

Second, consultations are also mandatory but the role division has been made explicit.

There are other equally serious problems in the amendments, which have not addressed many key issues.

One, for instance, is the coverage of abuse of IPRs (allowed under the TRIPs agreement). The current text is rather weak. Even a small country like Zimbabwe covers abuses of IPRs explicitly.

Second, and more crucially, the Commission's independence. It assumes greater importance due to the fact that the Planning Commission is currently engaged in developing a paper on regulatory framework for India by adopting the best international practices.

In most countries the competition authority is independent of the government. There are exceptions, but they too are moving towards granting independence.

The Netherlands is the latest, after having the competition authority declared independent from July 1 this year.

The Competition Commission can be superceded and is not even financially independent. Other than these two areas that have been kept under the government's purview, it can issue policy directives too.

One knows what policy directives can mean, as we saw in the case of the first Telecom Regulatory Authority of India, when the then Communications Minister issued instructions on the operations of the authority, which were far from being policy issues.

If the proposed amendments go through, the competition authority will become a eunuch. And India will become a laughing stock.

The writer is the Secretary General of CUTS International, a leading research and advocacy group working on economic policy issues.