The future of competition

The future of competition

India’s competition authority—the Competition Commission of India (CCI)—is in an incipient stage. While the legislation was passed way back in 2003, the competition watchdog came into existence only a few months ago through the much-awaited notification of the legislation. CCI has an onerous responsibility ahead. It ought to make optimal choices as it focuses on its mandate of consumer welfare and seeks to earn legitimacy in the eyes of the market. Among other things, this would involve getting the commission’s appellate structure right.

Respect can only be commanded, not demanded. The Indian experience with other regulatory authorities demonstrates a direct correlation between the quality of functioning of the authorities and their impact. For instance, the Securities and Exchange Board of India (Sebi) that regulates capital markets earned widespread respect during the tenures of G.V. Ramakrishna and M. Damodaran. However, market participants stopped taking Sebi seriously during other phases, when, say, D.R. Mehta and G.N. Bajpai were in charge. Other regulators, such as the Insurance Regulatory and Development Authority, are still yearning to seek legitimacy in the eyes of stakeholders.

The fundamental economic rationale behind the promotion of competition is the reality of the scarcity of resources. In order to carry out its mandate of enforcement, CCI faces competing demands upon its available resources. This is exacerbated owing to the lack of adequately trained staff. Accordingly, the need of the hour is to select those few cases that involve a substantial impact upon consumers, and then to concentrate the commission’s energy on them. That means prioritizing cases. The legislation provides CCI with powers to facilitate such prioritization.

It’s worth noting that competition law is about protecting competition, not competitors. Businesses, however, have perverse incentives to utilize such a law to protect their entrenched interests. CCI needs to be cautious in order to ensure that it does not become a handmaiden for rent-seeking behaviour.

But there are legal problems ahead. As per the legislative framework, CCI’s orders would be subject to appeal at the Competition Appellate Tribunal (CAT) and ultimately at the Supreme Court. Former Supreme Court judge Arijit Pasayat currently heads CAT. It is likely that CAT would employ the usual legal standards of judicial review for competition law cases. In spite of the emergence of a plethora of regulatory authorities after 1991, Indian courts have been reluctant to employ the US doctrine of deferential review. In this doctrine, courts give adequate value to the decision of expert bodies such as CCI. Contrary to deferential review, Indian courts have in the past applied the standard of what is called de novo reviews—here, the appellate authority is willing to start hearing the case from scratch. This perhaps explains why a multitude of Sebi orders are often overturned by its appellate authority, the Securities Appellate Tribunal.

The trouble is that such reversals lead to uncertainty and unpredictability, increasing transaction costs for stakeholders. CCI’s endeavour to seek legitimacy and credibility in the eyes of consumers here would mean getting courts to adopt some kind of deferential review.

Such legitimacy, if earned, will enhance certainty and predictability in CCI’s decision-making process. As a result, businesses would have the opportunity to arrange their affairs in such a manner that they would be in a position to voluntarily comply with the law. Indeed, it is unfair to expect businesses to adhere to competition legislations if decision-making and jurisprudence at the competition authority suffer from fits of unpredictability.

CCI is currently at a critical juncture. Carefully calibrated steps have the potential of ensuring that it does not become yet another humdrum regulator.