Most of the major issues of the recently concluded 2014 Lok Sabha elections, which gave the Narendra Modi-led Bharatiya Janata Party (BJP) an outstanding mandate to form India's next government, are the outward manifestation of a still more important one: to enhance the competitiveness of the Indian economy.
For example, the next government is determined to reduce inflation. A competitive Indian market, besides other fiscal initiatives, would compel producers and distributors to keep prices closer to cost and reduce opportunities for price collusion, besides forcing firms to innovate to efficiently use their limited resources. One of the manifesto promises of the BJP is to allow foreign direct investment (FDI) in all sectors except retail. A competitive Indian economy will buoy the capacity of Indian firms to attract FDI, by creating a level playing field between domestic and foreign firms. A competitive market disallows the accumulation of market power and thereby reduces returns from corruption - another major agenda for the incoming government. The BJP's nationalist sentiments would want Indian companies to be global players and the maintenance of a competitive economy at home forces Indian companies to hone their edges, so that they can compete successfully abroad.
The Competition Commission of India (CCI), which has the mandate to sustain the competitiveness of Indian markets, will have a lot to contribute in this backdrop. On May 20, last week, the CCI completed five years of enforcement and this is the most suitable occasion for some stocktaking.
India was relatively late to the antitrust table - it was one of the last major economies to introduce a modern competition law regime. Although, India's Competition Act was enacted in 2003, its enforcement was delayed by legal challenges and legislative processes. The CCI, which became fully functional from May 20, 2009, has since then reshaped ways of doing business in India.
Indian economic regulators have a reputation for being bureaucratically obtuse and functionally opaque. However, the experience of practitioners of Indian competition law has been different. Practitioners have often commended the CCI for its economic pragmatism, with one Indian lawyer describing the CCI to have taken a "quantum leap forward" in its case selection and the quality of legal and economic analysis. Arvind Panagariya, a professor of Economics at Columbia University, has described the CCI as a "game-changer". Given CCI's mandate to regulate almost every aspect of Indian business and its capacity to inflict jaw-dropping financial penalties, it certainly has the resume for being the most powerful regulator of the Indian economy.
Within this short span of time, the CCI has reviewed anti-competitive practices in diverse sectors such as stock exchanges, infrastructure, travel, automobile, real estate, pharmaceuticals, financial services, publishing, manufacturing, mining and entertainment, and it has gone on to impose more than Rs 8,000 crore in financial penalties, including imposition of approximately Rs 18.25 crore in personal fines on senior officers of erring enterprises. But the CCI is not a trigger-happy regulator and has often considered the nascent law as a mitigating factor for inflicting lesser penalties.
The CCI's overarching aim, mirroring those of other mature competition law agencies, is to create and sustain competitive markets and protect the interest of Indian consumers. In these five years, the CCI has worked to achieve this mandate. Whether it is challenging the abuse of dominance of economic giants such as DLF (the world's largest real estate developer in the), Coal India (the world's largest coal producer), the Board of Control for Cricket in India or investigating cartels in key economic sectors, including cement, sugar, steel and tyre, the CCI has demonstrated its commitment to make markets more efficient and competitive. Such enforcement actions have jump-started the process of cleansing Indian businesses of its entrenched disruptive trade practices, setting the stage for India's transition to a more mature and better-managed economy. Several Indian trade bodies have already started urging their members to adopt internal competition law compliance codes and legislative efforts have been initiated to make competition law compliance a pre-requisite for Indian companies to get listed on stock exchanges.
What is more, the CCI has co-opted the cause of the Indian consumer, where the country's consumer protection laws have not been very effective. Initiating investigations against price-fixing by onion traders, domestic airlines and LPG gas traders, curbing anti-competitive practices of several Indian chemist associations of limiting the sale of drugs in India, and educating the Indian consumer of her rights, through several advocacy initiatives, the CCI has kept the Indian consumer at the heart of its enforcement priorities.
In the area of merger control, the CCI has received more than 150 merger filings, all of which have been assessed and approved within a period of 30 days, with some being cleared in as little as 15 days. Further, the CCI has been pragmatic in listening to the demands of the industry and such efforts have garnered praise from several industry stakeholders. For instance, the CCI has frequently amended India's merger regulations (once each year) to accommodate industry concerns and streamline the filing process. Further, the agency has institutionalised pre-merger consultation in both procedural and substantive legal issues, to support the industry in its compliance with the evolving Indian merger-control jurisprudence.
In a country like India, where substantial business operations in several key sectors are still run by government-owned companies, the CCI has shown no reluctance in targeting government-owned as well as private companies. For example, the CCI recently penalised Coal India, a state-owned monolith, Rs 1,770 crore for abuse of dominance as monopoly suppliers of coal, sending a clear message that public entities cannot escape their responsibility under the country's competition law. The CCI has intervened in several instances of bid-rigging allegations in government procurement contracts. In one of its earliest cartel decisions, the CCI penalised United Phosphorus and two other companies approximately Rs 317 crore for collusive bidding for tenders floated by the Food Corporation of India. The Competition Appellate Tribunal later upheld the decision of the CCI, but reduced the amount of penalty imposed upon the cartelising firms.
Perhaps the greatest contribution of the CCI is the unleashing of the competition forces in restructuring several sectors of the Indian economy, from within. The CCI's investigations in several sectors, including cable television, real estate, banking and pharmaceuticals have revealed the regulatory fault-lines, prompting the government/applicable sectoral regulator to initiate ex-ante pro-competitive rule making.
However, the CCI's relationship with other sectoral regulators of India has not been always positive. Several sectoral regulators such as the Telecom Regulatory Authority of India, Central Electricity Regulatory Commission and Reserve Bank of India, taking advantage of their overlapping jurisdiction with the CCI, have attempted to chip away the CCI's mandate, not realising that the CCI's oversight can be beneficial to enhance competitiveness for their respective sectors. Such regulators have attempted to draft regulations and adopt policy initiatives, in addition to hectically lobbying the government to virtually eliminate the CCI's regulatory oversight in their respective sectors.
In order to restrict such sectoral backlash against the CCI, the government has proposed amendments to the Competition Act that make it mandatory for sectoral regulators to refer matters to CCI, if the decision taken by such sectoral regulator raises any competition issue. While we wait for such amendments to be implemented, the CCI seems to have kept the Indian economic actors on an efficiency-based diet, setting the stage for an economic revival under the new government.