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Corporations and cartels

Corporations and cartels
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First Published: Wed, Feb 11 2009. 11 47 PM IST
Updated: Thu, Feb 12 2009. 10 56 AM IST
A growing Indian economy with many market players needs prudent, but efficient, laws. A recent story highlights the case for a watchful eye to ensure fair competition.
This week, simultaneous announcements by Kingfisher, Air India, SpiceJet and IndiGo to raise fares have prompted suspicions that these airlines may have colluded to fix prices. The airline sector isn’t the only one to have raised eyebrows. Last year, the cement industry faced similar allegations of “cartelization”—market players ganging up to cheat consumers.
The current checks that deter cartelization are weak. First, the governing law, the 1969 Monopolistic and Restrictive Trade Practices Act, is ineffective and takes ages to enforce. Second, the current approach—to appoint sector-specific regulators—only increases the threat of regulatory capture when market players influence authorities. India requires a central body under the aegis of a stronger law. Last month, former Reserve Bank of India governor C. Rangarajan spoke in favour of such a body.
But such a body and law already exist. The Competition Act, 2002, created a Competition Commission that can act quickly, levy harsher penalties and has the autonomy to steer clear of politicking.
The trouble is this commission has been held up by industry lobbies that would breathe easier if regulation remained toothless. The government has yet to appoint the officers who would comprise its executive arm. There is need for political will and market support to get the commission off the ground.
On Wednesday, civil aviation minister Praful Patel warned that in the event of cartelization, airlines would face “strict action”. One hopes this action involves the commission and isn’t extra-legal.
The government should not run wild in its zeal to punish unfair practices; poorly designed action can be equally unfair. Given that bureaucrats are often tempted to do worse—for instance, slap price controls in response to cartels, as they tried with cement last year—anti-competition laws give the government a clean checking mechanism. The 2002 law, especially, is a good step to get rid of cartels—a true scourge on the free market.
How can India prevent corporate cartelization? Tell us at views@livemint.com
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First Published: Wed, Feb 11 2009. 11 47 PM IST
More Topics: Ourviews | Kingfisher | Air India | SpiceJet | IndiGo |