Bulletins – On CCI’s 7th Annual Lecture By Arun Jaitley

Excerpts on Hon’ble Finance Minister Arun Jaitley’s Lecture on ‘Competition, Regulator and Growth’ at the Annual Convention of Competition Commission of India

View the lecture on youtube

  • Competition law has evolved over the last 6-7 years. Although the bill got passed in the year 2002 the Competition Act became functional in the year 2009. The success story of this bill can be seen from the fact that verdicts on hundreds of cases over the last few years on competition issues have been passed and many more are awaiting trial at the appeal tribunal and thereafter at the higher courts.
  • The reason for the development of the Competition Act was because the founding fathers of our country took many great steps to nation building but encouraging competition in the economy remained at their hindsight, thus, we moved towards a more regulated economy with anti-competitive barriers.
  • For instance, the MRTP Act of 1969 didn’t really promote competition or efficiency in the market. It basically decreed market size and power as ‘evil’, thus criticizing economies of scale and having a view that promoting market efficiency will lead to the creation of monopolies.
  • In our constitution, it is documented with reason and justification that freedom of trade is only allowed to the State and the State only has the capacity and permission to create monopolies. Thus, State monopolies can’t be questioned or challenged but the existence of private oligarchy or monopolies can’t be allowed to exist.
  • To regulate the economy accordingly the presently denounced License Raj system came into existence which forcefully led to regulation of consumer choice and sluggish growth due to massive delays in issuing licenses.

Thus, the pre-1991 era was the era of shortages, long queues, delays and permitted discretions by the government. On Arun Jaitley’s maiden entry to the Parliament as an MP, he received booklets containing coupons which allowed sanctioning out of turn telephone connections and gas connections. Thus, in a non-competitive environment, discretions to get allocations in an era of shortages, restrictions of choices impacted growth.

  • India in the pre-1991 era was taunted by the World for maintaining a ‘Hindu rate of growth’ of around 2-2.5%. In 1991 first step towards reform was taken and doing away with State-owned monopolies and the Licence Raj system was prioritized.
  • In 1999 Yashwant Sinha, the then finance minister in his budget speech mentioned the necessity of Competition law in order to maximize market efficiency in the country. Henceforth, an expert committee was appointed, which gave a report. The creation of the regulatory institution led to ripples in the systems and delayed the 2002 Act from becoming functional till 2009. One of the concerns of the members of parliament that led to the delay was that could there be a good decision-making outside the government set-up.
  • But the seven years delay was not due to the conjecture of the Minister but due to the Supreme Court’s hegemony in these matters, as it thought how can someone other than a judge chair the Competition Commission. Now the experts would head the regulatory mechanism and a group consisting of both experts and judges would hear appeals against that before it could be finally challenged at the Supreme Court. Thus preventing delays of orders pending as in the cases of writ petitions in high courts even in cases of utmost urgency.
  • Movement from the regulated economy to competitive economy was required as competition could only create innovations. In a regulated socialized economy, we see restrictions and barriers in competition as it encourages state monopolies and monopolies in any form are anticompetitive and are beneficial only to the entity owning the monopoly and are thus never in favor of consumer interest.
  • Any forms of restrictions can curtail competitions. Restrictions in the form of capital and technology curtail competitions in the investment sector. FDI role in competition can be seen as an investment is the starting point of economic activity. Investors who bring in capital are not philanthropists and has a focused plan of generating higher returns with the help of state of the art technology that they bring along and provides the most competitive quality and cost for a product to compete with rest of the market and from these industries by knowledge spillover and the know-how spreads to other industries which also gears up in a more competitive fashion.
  • Till monopoly in telecom sector we had only 0.8% teledensity in the country and at present, by opening up our market we are having the largest and the cheapest telecom service in the World. In the auto sector we had the most obsolete technology and the most obsolete and old-fashioned cars but now we are having the most competitive auto sector in the World with better quality and latest automobiles. In the insurance sector, India was said to be the most under-insured society. But due to competition by 2022 India would have the highest insurance-density. In the banking sector, payment gateways, internet banking and other facilities for availing banking services easily are making great headways due to competition and opening up of the banking sector. The advent of the e-commerce is another head away made due to the encouragement of competition in the economy which changed the nature of business altogether. It provided a global choice of products to the consumers at their homes.
  • We can see a structural change in the economy due to efficiency in the market economy. The pre-91 and post-91 if we check 25 top industrialists, hardly we would find five names in common, the credit of these emerging industrialists lies with the encouragement of competition in all sectors of the market economy.
  • In international trade, dimensions with WTO have changed – the one who provides quality goods and services at cheapest rates dominates the markets. So, India was previously considered favoring the West but is now the global Service sector hub, China & Thailand are the global Manufacturing hub.
  • The contrast in sectors where we have opened up to competition and where we haven’t can be clearly seen as in the case of civil aviation where we have opened up competition thus leading to empowerment of the consumers with a greater choice bundle and state of the art infrastructure and facilities but on the other hand as we see in case of railways and state public transports, the condition is pretty much weary and licencing, corruption and inconvenience to consumers have become the regular norm.

This data reveals the benefits of competition and market openness –

The number of air passengers has risen from 1.7 crores a year in 2001 to 8.3 crores a year in 2015.

The cost of telephony has fallen from Rs. 16.9 in 1999 to Rs. 0.5 per minute in 2016.

Teledensity has increased from 0.8% in 1999 to 74.1% in 2016.

The number of automobiles produced has increased from 5.13 lakhs in 2000 to 33.18 lakhs in 2015.

Thus, when we talk about offering purchase preference or price preference to state sector companies on the assumption that these are government companies and are required to be protected then, in reality, we are incentivizing inefficiency in these sectors and restricting competition in these sectors and preventing these sectors from growing.

  • For a market to be competitive, easy entry and exit must be facilitated in the market. This further helps in ease of doing business. Thus, entry point restrictions must be done away with. Years spent in acquiring environment clearances, FIPB clearances not being granted for years, dissuasions due to PILs being filed against an investment are all forms of market entry barriers.
  • Even impossibility in exit from the market leads to discouraging of investors. The SICA act of 1985 providing for BIFR is completely a flawed legislation which has hardly helped in a company’s revival and providing credit to sick companies i.e. it was like an iron curtain to creditors. But recently with the enactment of the Bankruptcy and Insolvency code, exit facilitation was made much easier.
  • Being Pro-business only is not good enough. Russia, near the end of the communist regime, became pro-business and started privatization without encouraging competition, leading to the creation of oligarchs in different sectors. Oligarchs are again monopolies. Any pro-business policy per se also has to be pro-competition. Being pro-business only encourages oligarchs and crony capitalism which itself is dangerous.
  • In India in the days of regulated economy, the government assumed a dual role of being a regulator and also a participant in the market in different sectors, thus leading to the passing of rules which had an institutional bias towards the government-controlled company and hence this imperfection in competition kept the private competitors at bay.
  • The role of competition commission is thus important because people in the present World condition trust markets more than their governments as markets efficiently decides its own equilibrium levels of functioning. But there are certain aberrations as in the case of anti-competitive practices, abuse of dominance and elimination of competition by the process of mergers of the most preferred companies – this becomes highly detrimental to the growth and sanctity of competition. Thus, by managing these threats to competition the competition commission works towards attracting more foreign investments that become the starting point of every economic activity, increases revenue, allows the State to discharge its obligations towards the weaker sections of the society, creates jobs and hence thrusts growth rates.