Free and fair competition

Free and fair competition
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First Published: Tue, Mar 24 2009. 09 38 PM IST
Updated: Tue, Mar 24 2009. 09 38 PM IST
Free markets need an independent regulator to ward off price-gouging cartels or monopolies. But from time to time, the regulator needs to ward off its own overzealousness.
The Competition Commission finally came into full existence earlier this month. Already, both the Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry expressed reservations last week that the commission would slow mergers and acquisitions (M&As).
That concern may have some substance to it. According to the 2002 Competition Act, it is mandatory for every M&A to get clearance from the commission which, in turn, gets 210 days to give its approval. But in this current slowdown at least, this level of compliance may prove too onerous.
The slowdown has already prompted consolidation across the global economy. Last week, business leader IBM signalled its intent to acquire California-based software firm Sun Microsystems. Both firms have a prominent presence in India. Recently, pharmaceutical firm Merck announced a merger with Schering-Plough Corp., while Reliance Industries Ltd merged its subsidiary Reliance Petroleum back with itself. This is soon going to become the norm as executives look to increase economies of scale and augment shrunken cash balances while cutting costs.
Companies have it hard enough, and increasing regulation can do more harm than good. The commission has been designed to be more effective than its predecessor, the Monopolies and Restrictive Trade Practices Commission. In almost all cases, this is welcome. But more compliance can also impede M&As; rather, a shorter approval time, along with a voluntary clearance regime, would help. In the event, companies end up using the slowdown to abuse the market, the commission anyway has the power to probe M&As post-facto.
That’s not to say that industry lobbies, which stalled the formation of the commission, are right. But now that it has gotten off the ground, the commission has sufficient autonomy to steer clear of such politicking. It should instead focus on preventing potential overreach.
Should M&As be regulated in this slowdown? Tell us at views@livemint.com
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First Published: Tue, Mar 24 2009. 09 38 PM IST