remove policy hurdles that distort markets and
hurt economic growth
Economic Times, September 20, 2012
Pradeep S Mehta
Every new policy proposal is
greeted by apprehension coupled with ignorance and turf issues.
National Competition Policy (NCP)
formulated by the ministry of corporate affairs too may become a
victim of this phenomenon. The department of industrial policy and
promotion (Dipp) has reportedly picked holes in the draft policy
when it should, in fact, be the strongest supporter.
India has slipped by three notches on the World Economic
Forum's Global Competitiveness Index, 2012, while its partners in Brics - Brazil
and South Africa - have improved considerably, though they were behind India
earlier. If India has to become competitive, its firms need to face healthy
competition at home. Both Brazil and South Africa have effective competition
regimes that ensure well-functioning markets.
Looking at our dismal economic scenario, one of the
contemporary and important policy prescriptions by the government is to adopt
competition reforms through an NCP. The ministry of corporate affairs has
scripted such a policy after a long-drawn consultative process with
policymakers, state governments, experts and business. The NCP, when
implemented, will usher in the second big wave of economic reforms after 1991.
In the medium term, it will also curb
inflation that is currently a big issue in India.
The NCP is distinct from the Competition Act, 2002, and
yet there is considerable confusion over its scope. While the law empowers
Competition Commission of India (CCI) to check
anti-competitive practices, the proposed NCP seeks to clean up impediments in
policies and practices of the government that distort market processes, and
In this exercise, India, among other countries, has been
inspired by Australia that adopted a national competition policy in 1995, a good
14 years after it has been operating a competition law. It did so, because many
of the competition 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. These
existed both at the federal and provincial levels. Federal government roped in
all its ministries and provincial governments, and launched an all-out war
against competition distortions. Consequently, in the short term, Australia's
economy grew by 5.5% and consumers benefited annually
by A$9 billion. Inflation came under control and markets functioned well.
To implement the competition policy, the Australian
government established an independent National Competition Council - distinct
from the competition authority - to carry out assessments and recommend reforms.
Many reforms were carried out. States were incentivised to do so through
budgetary support wherever there was a case, somewhat like our VAT system. A
similar proposal has been made in the case of the Indian NCP. Many states have
welcomed it, rather than showing a lukewarm response. Other apprehensions were
also voiced by the
CCI in a rather sweeping way.
consensus among central ministries and the lack of capacity to
carry out assessments:
The draft policy was circulated to all ministries, before the
Cabinet note was prepared, and other than some queries, there was
an all-round support. In fact, the civil aviation ministry, when
consulted along with a basic study of distortions in the sector,
decided to go deeper and is on the way to address them.
may add to the regulatory burden:
There is no
proposal for any frequent reviewing and it will be done on a
voluntary basis, where gains would be highest, and through
specialised agencies. On the contrary, such competition impact
assessment will reduce the regulatory burden.
situations, government monopolies are desirable:
There is no quarrel against deviations in the NCP, including on
public interest, social and environment grounds. Indeed, such
exceptions, on a non-discriminatory basis, will need to be
defended rather claimed as a legacy and cloaked in opacity.
A macro policy, the NCP, like trade policy, is always broad and
across-the-board. This is because competition touches all areas of
The argument questions the need for a special
committee on competition since there is already a Cabinet
Committee on Economic Affairs. The proposal is meant to raise the
ante and provide focus on competition reforms.
advisory council, headed by the corporate affairs minister, will
do most of the groundwork. An official of CCI has raised fears of
dilution of power that it may suffer. Even in Australia, the
competition council and competition authority have co-existed
happily because their goals and functions are different from each
other. Together, they have been carrying out their distinct
mandates, thus ushering in a healthy competition culture, aiding
growth and creating jobs.
Don't we need to
promote a healthy competition culture in India and move on a
sustainable growth trajectory?
The author is
secretary general of CUTS International
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