The establishment of British Rule in India left the Indian economy crippled. India served as a dumping ground for the machine made cloth and other factory goods from England and was reduced to a mere raw material supplying colony.
After winning Independence against the political competition posed by the British Rulers for many years, India, post independence, started its era of fighting against economic competition, the only difference being that the threat which India faced was now not only restricted to the British rulers but to the whole world which considered India as a dream destination for celebrating the advantages of ‘Globalization and Liberalization’. Winning Independence gave way to the entrance of many big firms into the Indian market exploring opportunities in various trades and businesses.
The condition of the Indian market was very weak and vulnerable to face the might of these foreign firms, because India at that time neither had the resources nor the skilled workforce to convert, if at all, such resources to compete with these foreign firms. The technological and scientific capabilities were poor, industrialization was limited and lopsided. Agricultural sector exhibited features of feudal and semi-feudal institutions, resulting into low productivity. In brief, poverty was rampant and unemployment was widespread, both making for low general standard of living.
These were the socio-economic settings in which the founding fathers had to chart out a programme of nation-building. The Indian Government, although did not have the weapons to wage war against such fierce competition against the foreign firms but the Government did not fail to rule out the possible defences to resist the competition posed by the foreign firms to protect its own domestic market. The ‘Monopolies and Restrictive Trade Practices Act of 1969’ turned out to be the most sought after ‘Defence Mechanism’. The history of the Indian competitive legislation goes back to the Monopolies Enquiry Commission.
In 1964, when the Indian democracy was in its nascent state – barely 17 years old – the Government of India appointed the Monopolies Enquiry Commission to enquire into the effect and extent of concentration of economic power in private hands and prevalence of monopolistic and restrictive trade practices in important economic activity other than agriculture. The commission submitted its report along with the Monopolies and Restrictive Trade Practices (MRTP) Bill, 1965 and on June 1st The Monopolies and Restrictive Trade Practices Act came into existence on 27th December, 1969.
The preamble to this enactment provided it to be An Act to provide that the operation of the economic system does not result in the concentration of the economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected therewith or incidental thereto. Therefore, in common parlance, the MRTP Act, 1969 aimed at preventing economic power concentration in a few hands, the intention behind this was to avoid damage, with the end result protecting consumer interest and the economic society at large.
HISTORY OF THE MRTP ACT, 1969 Post independence, when the Constitution of India, that is, the Blanket-cover regulator, was being enacted and adopted, the most important Articles which provided for recognising the effect of the MRTP Act, and preventing and avoiding damage were Article 38 and Article 39 of the Constitution, which was adopted and enacted and came into effect on the 26th day of November, 1949. Article 38 of the Constitution provides for the Directive Principles of State Policy which mandates upon States to secure a social order for the promotion and welfare of the people.
This provision recognised the need to eliminate and minimise the inequalities in income, which applied not only to the individuals but also to the groups in different areas. However, the MRTP Act of 1969 owes its existence to the provision provided under Article 39(c) of the Constitution of India which provided that the States shall strive to secure that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.
The preamble to the MRTP Act rests on this very provision of the Constitution of India. In the case of State of Bihar v. Kameshwar Singh , the Court was of the opinion, that, a law aimed at doing away with the concentration of big blocks of land in the hands of a few individuals would sub-serve the directives laid down in sub-clauses (b) and (c) of Article 39 of the Constitution of India. Taking this judgment into perspective, the preamble to the MRTP Act, 1969 gets reinstated where the objective or the intention f the legislature behind enacting such an Act is to avoid damage by concentration of economic power in the hands of only a few and thereby causing damage. However, the MTRP Act was not a result of just the two provision of the Constitution of India. After enacting the aforementioned articles, the Government of India assumed the responsibility of overall development of the country. It was incidentally that the Government appointed the ‘Mahalanobis Committee’ on the Distribution of Income and Levels of Living in October 1960.
The main task at hand for this Committee was identifying the pattern of work of large business houses under the ‘planned economy’ regime and whether there was any concentration of economic power. It was after this Committee that the Monopolies Inquiry Commission (MIC) was set-up in 1964 which reported that there was high concentration of economic power in over 85% of industries in India at that point in time. MONOPLIES INQUIRY COMMISSION (MIC) • MIC appointed under Commission of Inquiry Act, 1952 • Scope of inquiry – extent and effect of concentration of economic powers in private hands. TOR excluded agriculture sector and public sector • MIC to suggest legislation and other measures to protect essential public interest and also suggest agency for enforcement of the legislation FINDINGS OF THE MIC • Adverse social effects of economic concentration • Government policies one of the main causes of economic concentration • Managing agency system • New technology – scale of production • Birth of equity culture – increase in size • War efforts of India • Political largesse • MIC used CR3 • Studied 100 products • 64 products were found having CR3 > 75% Infant milk food, biscuits, chocolates, tea, coffee • Dhoti, saree, shirting • Kerosene, coal, petroleum • Lantern, stove, fan, lamp, radio, refrigerator, geyser • Tooth-paste, razor, blade, cigarettes • Vitamins, penicillin • Cars, commercial vehicles, tyres • Cement, sanitary-wares etc • MIC distinguished between industry-wise concentration and country-wise concentration • Large number of industries had either single supplier or one supplier having large share of market. • Collusive behaviour in certain sectors • Entry barrier created by private players Evidence of predatory pricing • Many public sector enterprises enjoyed monopoly • Many restrictive trade practices (RTP) prevalent •Hoarding • Re-sale price maintenance • Exclusive dealing • Price fixing • Boycott • Price discrimination “Big business by its very ‘bigness’ sometimessucceed in keeping out competitors” RECOMMENDATIONS OF MIC • Non-legislative recommendation • Setting up public sector enterprises in sectors which have little competition • Promoting SMEs and Cooperatives to challenge private monopolies • Continuation of license system and import restrictions Proposed an autonomous Commission headed by a Judge to implement a new law. • The proposed commission to have an investigating arm • Punitive powers to the Commission • Scope of merger control limited to merger involving a dominant enterprise (at least 1/3 of share in production/ supply/distribution) • All proposals for expansion by dominant enterprises to be approved by the proposed Commission • IPRs to be under the purview of the proposed law. MRTP ACT • Made some significant departures from the recommendations of MIC • RTP prohibited MTP – Government can refer to MRTPC for inquiry and recommendation • M & As – powers entirely with the Government • Enterprises having Rs. 200 million in assets and dominant enterprises having Rs. 10 million in assets to seek prior approval of Central Government for expansion or setting up a new undertaking • MRTPC had limited Civil Court powers – enforcing attendance of witness and calling for documents – these powers were not provided to the investigating agency • Trial of offences in the domain of Courts
SACHAR COMMISSION • Set up in 1997 to consider the working of MRTP Act and recommend necessary changes. FINDINGS OF THE SACHAR COMMISSION • Reviewed the working of MRTPC during the period 1970-77 • Found that the actual role of MRTPC was limited and mostly advisory • The Government had not made use of the expertise – few references to MRTPC for opinion RECOMMENDATIONS OF THE SACHAR COMMITTEE – I • Definition of dominant enterprise to be changed –enterprises with ? arket share to be termed dominant • Harmonization of definition of ‘goods’ in the MRTP Act with the Sale of Goods Act • Inter-connected undertakings concept to be introduced to the MRTP Act • Government Undertakings to be brought under purview of MRTPC • Compulsory reference by the Central Government on MTPs to MRTPC • All M&As to be referred for advise of MRTPC, if the Central Government so desires. • Division of enterprises- MRTPC to pass final orders if the Central Government referred the matter to it. Certain Unfair Trade Practices (UTPs) like misleading advertisements to be inserted in the Law • Power to compensate against injury • Power to grant interim injunction • Power of contempt • Investigating arm to be provided more teeth by powers of conducting down raids and limited Civil Court powers 1984 AMENDMENT TO MRTP ACT • Many deviations from the recommendations of the Sachar Committee • Concept of deemed illegality to host of trade practices introduced • Exclusionary behaviour, tie in sale, re-sale price maintenance, bid rigging, allocation of market, boycott predatory pricing etc. Registration of agreements by dominant enterprises made mandatory • Mis-representation as well as misleading or disparaging advertisement included • Provisions prohibiting UTPs introduced 1991 AMENDMENT TO THE MRTP ACT • Provisions dealing with monopolistic enterprises seeking prior Government approval deleted • Government Undertakings, Government Corporations and Government owned Companies brought under the purview of the MRTP Act by notification • Granting of injunction without issue of notice to the effective parties PROVISIONS IN PRESENT MRTP ACT Has jurisdiction in RTP & UTP – 14 practices are deemed RTP, but there are gateways in S. 38 • MTP if referred or suo moto, but can only recommend to Government • M & A were deleted in 1991 • Can grant temporary injunction • Has powers of contempt • For disobedience, MRTPC must complain to criminal court RAGHAVAN COMMITTEE • A high level Committee on Competition Policy and Law set up in 1999. • TOR inter-alia included recommending a suitable legislation framework which could either be a new law or appropriate amendments to the MRTP Act FINDINGS OF THE RAGHAVAN COMMITTEE • Word “competition” used sparsely in the
MRTP Act – only twice • Absence of precise definition e. g. Cartels • Inadequate to deal with implementation of the WTO Agreements • No specific powers under the MRTP Act to deal with mergers • Inadequate in dealing with anti-competitive practices as in other modern competition law • Expedient to have a new Competition Law. Competition Commission of India: Duties Competition Act, 2002 notified in January, 2003 – Stated objective (as indicated in Preamble) is to establish the Commission to: • Eliminate practices having adverse effect on competition; • Promote and sustain competition Protect consumers’ interests • Ensure freedom of trade carried on by other participants in markets in India [Section 18]Preamble of the Competition Act, 2002 States: “keeping in view the economic development of thecountry”, • to prevent practices having appreciable adverse effect on competition; • to promote and sustain competition in trade and industry: • to protect the interest of consumers; • to ensure freedom of trade carried on by the participants in markets in India; • Objectives to be achieved through the establishment of the Competition Commission of India (CCI).
The Competition Act, 2002 – new wine in a new bottle There is a significant contrast between the repealed MRTP Act and the Competition Act. The intent of the Competition Act is not to prevent the existence of a monopoly across the board. There is a realization in policy-making circles that in certain industries, the nature of their operations and economies of scale indeed dictate the creation of a monopoly in order to be able to operate and remain viable and profitable. This is in significant contrast to the philosophy which propelled the operation and application of the MRTP Act.
The word monopoly is no longer taboo in corporate and political India. The Act declares that person and enterprise are prohibited from entering into a combination which causes or is likely to cause an “appreciable adverse effect” on competition within the relevant market in India. A system is provided under the Act wherein at the option of the person or enterprise proposing to enter into a combination may give notice to the CCI of such intention providing details of the combination. The Commission after due deliberation, would give its opinion on the proposed combination.
However, entities not required to approach the Commission for this purpose are public financial institutions, FIIs, banks or venture capital funds which are contemplating share subscription, financing or acquisition pursuant to any specific stipulation I a loan agreement or investor agreement. The Act definitely is a new wine in a new bottle. The Competition (Amendment) Bill, 2006 The Competition (Amendment) Bill, 2006, contains provisions designed to address the Supreme Court’s concerns.
It also proposes to make several other changes in sections of the Act dealing with anti-competitive practices. Some proposed amendments are quite sensible, while others (notably a modified leniency programme for firms that provide information about their participation in a cartel) have been inadequately thought out. The amendments designed to placate the Supreme Court will also have some negative consequences. Several weaknesses in the original Act remain unaddressed.
Finally, the scarcity of the kind of economic expertise required to interpret the Act’s multifarious technical clauses also remains a matter of concern. Intensive capacity building and a re-assessment of the Act itself are urgently required. Conclusion The quality of governance of the state is being watched very closely by the citizens, investors and the international community. As more freedom is available to businesses to choose from various countries for investment, the competing governments are also conscious about the role of governance in attracting investment.
Any perception that the environment is not conducive to competition and the state has been captured by a few big businesses certainly negatively affects the global investment decisions of firms. The same is also true of the situation within different provinces in a country as same considerations are used by the firms in making investment decisions while choosing locations for establishment of an industry. In a market structure where firms face weak competitive pressures and the profits and prices are predictable the firms have little or no incentive to use resources efficiently.
Hence competition is accepted worldwide as the life blood of the market economy. It spurs innovation and higher productivity leading to accelerated economic growth; to the consumers it brings the benefit of lower prices, wider choices and better services. The effect of competition on price and accessibility is best illustrated with an example from Indian telecommunications. Tele-density in India has risen from mere 2. 32 in 1999 to 11. 32 in December 2005-07. Also there has been a dramatic fall in telecom tariffs from Rs. 6 per minute to Re. 1 per minute with increased competition in this sector. Similarly, consumers have benefited from competition in other sectors such as civil aviation, automobiles, newspapers and consumer electronics. The enactment of the Competition Act is a commendable step towards achieving the twin mantra of “open market economy” and “liberalization” in a mixed economic system. The need for reform in the legal system with regard to competition law has been rightly recognized by the legislative bodies in the country.
However, the reforms have not been smooth or speedy which has resulted in a stagnation of the legal framework guiding the corporate sector. Further reforms need to be undertaken as fast as possible to ensure that the development of the nation does not take a backseat due to the pending legal reforms. Reforms must provide for good corporate governance, less of government controls and interference, protection of consumers and public interest, rewarding the merits and all to be achieved as soon as possible because world has also options available other than India.