The significance of the Competition Commission of India4 min read . Updated: 16 Jun 2014, 11:33 PM IST
The success or failure of CCI will have no small significance for the Indian economy, but failure cannot be afforded
India’s regulatory landscape continues to evolve with change being the only constant. It’s been a legislative journey from the command and control mindset that prevailed at the time of Licence Raj to a more modern regulatory regime with the objective of enhancing consumer welfare by sustaining competition in the marketplace. In this globalized era, the business activities in any part of the world can impact the Indian market, and vice versa. This process of integration will only grow in the future. The Competition Commission of India (CCI) is empowered to take cognizance of such anti-competitive effects in the Indian market.
The country’s new competition law opens up a new vista and there are a few issues that need to be addressed. Has this idea of business facilitation achieved the desired objectives, or is there a lack of coherence towards these efforts resulting in failure to sufficiently reflect the aspirations of the beneficiaries, who are existing and emerging enterprises, and potential investors? As the role of the state in the utility sector decreases, infrastructure gets unbundled, market forces through private participation drive economic activities and each sector needs independent and constant attention. Are the sector regulators really equipped to curb anti-competitive behaviour of dominant firms, bid riggers and cartels, and effectively achieve a level playing field?
The legislative mandate of the sector regulator is to focus on the industry concerns within the terms of licences and policies issued by the government; frame regulations and consultation papers based on domain knowledge; and address economic issues like fixation of tariffs and issues relating to licences.
The objective of CCI is to play an overarching role as a market regulator across all sectors with the focus on anti-competitive behaviour of enterprises that may distort competition.
Sector rules and regulations are framed ex ante (laying down performance criterion) after consultation with industry and consumers, and reviewed from time to time for correction, whereas the market regulator, CCI, performs mostly ex post functions only to curb concentration in the market (laying down criterion for fair play).
Here lies the essential difference in their approaches as anti-competitive activities or any conduct that may harm competition usually involve collusion/cartelization or strategies to concentrate in a particular market. Legislation with regard to sectors neither defines cartels or abuse of dominance nor provides the investigative mechanism to establish such economic irregularities. Therefore, the Competition Act, 2002, has overriding effect and envisages that it shall have jurisdiction in addition to and not in derogation of other laws (section 60-62).
The idea to oversee deals ex ante before they are executed is to pre-empt combinations that could potentially have an adverse impact on competition in the relevant market. The analysis of competition concerns in any market invariably require an assessment of market power to see if the market dynamics would allow the parties to concentrate and deny market access to new entrants. Competition authorities intervene only for prevention of market failures, restriction or removal of anti-competitive practices, and promotion of public interest.
While the market dynamics keep changing with additional players and varied spectrum of services, how can the sector regulators gauge the impact of harm or benefit of consolidation in the market until the terms of a deal are assessed with the market structure at that time? On the other hand, mergers and acquisitions control by CCI is based on size of business test (as opposed to market share). On triggering of the thresholds specified under the Competition Act, CCI will look at the terms of the deal and impact on market from prevailing circumstances.
Commenting on the perceived conflict between CCI and sectoral regulators, CCI chairman Ashok Chawla says “…. broadly, the market regulator is a generalist while the sector regulator is a specialist. It is a misconception that when there are sector regulators, there isn’t the need for another (market) regulator…" While both competition authorities and sector regulators share the common goal of protecting public interest and play complementary roles in fostering competitive markets and safeguarding consumer welfare, they employ different approaches and have different perspectives on competition matters.
The starting point, however, is for both to try and appreciate the difference between the technical domain of the sector regulators and anti-competitive behaviour within the domain of competition authorities. This would help in delineating the roles of the two regulatory bodies. The chairperson of the Competition Appellate Tribunal, Justice V.S. Sirpurkar, believes that the success of the competition regime lies in the benefit reaching the common man.
The shift from the previous competition regime to the current one is from structure to conduct and from rule of law to rule of reason. To enable this task, robust powers are granted to CCI in terms of enhanced authority, penalizing provisions, and a dedicated appellate authority. A competition law expert can test all haphazard ways of commercial life to iron out distortions and market strategies that are not desirable for healthy competition. CCI is a new paradigm. No wonder the cartels in the cement industry and bid rigging in government procurements by liquid petroleum gas cylinder manufacturers and explosive manufacturers had not been brought to book till now.
Regulatory bodies are institutionalized for independent management of the sector. The Supreme Court has recently enunciated the important role of a regulator while considering the powers/competence of the Telecom Regulatory Authority of India. However, several high courts are failing to appreciate the role of regulators, particularly CCI, which was set up in 2009. Its jurisdiction is still questioned and high courts are brisk in stalling investigations initiated by them. The question then arises—do courts have a so-called mental picture of how the markets are watched by competition authorities in other jurisdictions? The success or failure of CCI will have no small significance for the Indian economy, but failure cannot be afforded.
The writer is managing partner at SAS Law Associates, Advocates & Legal Consultants.