Getting comfortable with competition

Author: | Published: 1 May 2009
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Dhanendra Kumar

The Competition Commission of India is finally ready to regulate anti-competive companies. Dhanendra Kumar, a former executive director of the World Bank, was appointed in March to lead the five-member body as chairman.

India has never had an effective competition regulator before, so many have high hopes for Kumar and his Commission. Since parliament passed the Competition Act in 2002 India has moved into the forefront of the emerging economies yet it is the last of the major world's major economies to establish a well-rounded, modern and functional competition regime.

Kumar is eager to have the Commission working effectively within three months to enforce the Act. It will tackle major anti-competitive practices such as abuse of dominance, cartels, price-fixing, bid rigging, predatory pricing and combinations. Here he discusses the Commissions pans for bringing competition to the top of the agenda.

IFLR: What are the key challenges the CCI faces and how will you address them?

Kumar: India was one of the first developing countries to have an anti-monopoly law in the form of the Monopolies and Restrictive Trade Practices Act. However, the new law, the Competition Act of 2002, is a modern law and has distinct features. It requires meticulous preparation before being fully operational. The first OECD Economic Survey of India from 2007 termed the law 'close to state-of-the-art'. The World Trade Organisation (WTO) Trade Policy Review of India, also from 2007 termed it as a modern law based on economic principles.

The most important challenges in enacting the law are that first and foremost, creating awareness among the stakeholders that the new law is business friendly and is aimed at promoting competition. It is a friend of the market. The most important beneficiaries are the consumers. This has to be achieved through a well formulated advocacy programme. The second challenge is selecting and training professionals to assist the Commission in its enforcement work.

While we have a number of reputable educational institutions and research centres in law and economics, experience in competition analysis is limited. This is especially true in the area of economics. We need to initiate a process of selecting young professionals and training them in competition analysis. In this context we will also consider seeking assistance of mature jurisdictions which have long experience in this line.

What stage are you at in formulating the competition appellate tribunal?

Establishing the Competition Appellate Tribunal (CAT) is a necessary pre-requisite for starting enforcement action by the Commission. The government is in the process of selecting the chairperson and members of CAT, on an expeditious basis. The selection committee has been constituted and advertisements have been issued for the posts of chairman and members of the tribunal

How does the CCI plan to effectively enforce compliance?

Compliance with laws of the land is the duty of every citizen and every enterprise. Ignorance of the law is not an excuse. However, because the Competition Act is new, there is need for creating awareness about the benefits of voluntary compliance of the Act by enterprises. The Act itself explicitly mandates competition advocacy. Under the advocacy programme a booklet on 'Competition Compliance Programme for Enterprises' has already been prepared and has been widely circulated among enterprises. The booklet also highlights the costs of non-compliance for enterprises.

Compliance may not be ensured by advocacy alone. Enforcement action and the certainty of being caught and punished if you violate the law would go a long way in ensuring compliance. The law endows the Commission with sufficient powers of investigation. It also includes sufficient penalty provisions. In the case of cartels, for example, the Commission can impose on each member of the cartel a monetary penalty of up to three times the profit during the period of cartelisation or 10% of the turnover during that period of cartelization.

The law also enables us to take a lenient view of cartel members who come out to assist the Commission with evidence or information against the cartel. The Commission is authorised to impose 'lesser penalties' which can reach a 100% waiver of penalty. This is expected to help in cracking cartels.

When will regulations of the Competition Act be finalised?

Draft regulations are in the final stages. Consultations with stakeholders are complete and the Commission is having a close look at them before finalising. These will then be presented before Parliament.

What competition issues does the CCI plan to tackle first?

The Competition Act mandates the Commission to address issues related to anti-competitive agreements and abuse of dominant position by enterprises. It also envisages regulation of combinations. Combinations involve mergers, amalgamations and acquisitions above a very high threshold level of assets or turnover of the combined entities as specified in the Act. All the three issues would be addressed by the Commission in due course.

The first priority of the Commission is to set up the infrastructure, both in terms of physical infrastructure and recruitment of professionals.

With regards to enforcement, the priority for the Commission would be cartels, which are a menace to the society. Cartels are likely to be more prevalent and aggressive in times of slowing demand. The dead-weight losses imposed on the economy, on consumers and producers, by cartels are well-known. The recessionary tendencies globally are also facilitating the abuse of dominant position by enterprises. This will also be an important focus for the Commission.

What is crucial to the CCI's success?

The Commission's ability to bring together a set of professionals and train them and to create a good image for the Commission among stakeholders will be most crucial to our success in the very first year. Industry still seems to have some apprehensions about what is in store under the implementation of the Act.

We are initiating a dialogue with them. We will impress upon them that this Commission is a friend of the market and that competition benefits everyone, including consumers and enterprises. The CCI will be a professional body, which will dispose of cases quickly. We would, in fact, be happy if we do not have to intervene at all, if competition prevails in the market and there is no need for us to step in. Regulations that are being finalised are available on our website and they are designed to make the functioning of the CCI transparent and market friendly.