A Major Milestone for the Indian Economy: Competition Act, 2002

Maitri Tandon, Student of Law, Symbiosis Law School, Pune

ABSTRACT

This Project concerns in itself an indepth analysis of the Competition Act, 2002. It is a socio econmic analysis of the act with history of the act, examples, comparison with the MRTP Act and also the current results in the economy due to the introduction of the Competition Act in 2002.

ANALYSIS

After Independence the Indian Economic Policy trended towards protectionism with a strong emphasis on import substitution, those policy were highly influenced by the colonial experience1. The initial stages of the country’s growth were focused on making the self reliant and attempts were made to close the economy to the outside world. This was done by making the Indian rupee inconvertible and charging high tariffs and import licensing on foreign goods which prevented the imports to reach the Indian markets. India also tried the system of central planning for the economy, in which the firms required to invest and develop. This policy could help India much and could not last long as by 1985 the Indian economy was in a deep hole by 1985. The country suffered a Balance of Payment crises, India could not clear off many imports, ran a high deficit, India borrowed from external sources, unsustainable government expenditure and also the foreign exchange of the country had hit the rock bottom with uncontrollable inflation. All of these reasons together aggrieved to the need for a change and introduction of the LPG (Liberalisation, Privatisation, Globalisation) Policy, which bent on liberalising and opening up the Indian economy for the world2. The aim was to make India a  investment friendly country for industries, which would eventually lead to rise in the foreign exchange reserves of the country and help it to dispose off its debts. The Indian economic liberalisation of 1991 was initiated by the then Prime Minister Narasimha Rao, along with the then finance minister Manmohan Singh. This reform did away with the License Raj reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of the FDI in many sectors. Since then the major thrust of liberalisation has remained the same, and by the turn of the 21st century, India had progressed towards a free market economy with a substantial reduction in state control of the economy and increase financial liberalisation.

With the wake and further development of Liberalisation and privatisation that was earlier triggered in the nineties, a realisation gathered momentum for the need for new procedure to take the completion aspect of the liberalised Indian economy which, was not being properly handled by the then existing Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP ACT),3Indian enterprises started facing the heat of competition from domestic players as well as from global giants, which called for level playing field and investor-friendly environment. Hence, need arose with regard to competition laws to shift the focus from curbing monopolies to encouraging companies to invest and grow, thereby promoting competition while preventing any abuse of market power4.

The need arose because of the existence of an open market economy  which means  free existence of trade and enterprises undermine the market by resorting to anti competitive practices for short term gains. These anti competitive practices can completely nullify the benefits of competition. It was for this reason that, India and other countries across the globe embraced market economy, and for this reason it became important for India to re enforce its economy through the enactment of competition law. The main reason to enact the Competition Act, 2002  was to in line with international trend and to cope up the changes in the country. The competition policy is a way used by the government to affect the conduct of enterprises and structure of industries with a aim of promoting efficiency and maximising consumer/ social welfare. There are two components of a full fledged competition policy The first involves putting in place a set of policies that enhance competition or competitive outcomes in the markets, such as relaxed industrial policy, liberalised trade policy, convenient entry and exit conditions, reduced controls and greater reliance on market forces. The other component of competition policy is a law and its effective implementation to prohibit anti competitive behaviour by businesses, to prohibit abusive conduct by dominant enterprise, to regulate potentially anti competitive mergers and to minimise unwarranted government/regulatory controls.

EFFECT OF COMPETITION AND ITS POLICIES

The whole idea of competition is to let new industries enter the market so as to allow free and fair competition to the existenting enterprizes. This process leads to increased number of firms and thereby increases number of productus/ output in the market. Hence, providing wider variety to the customers and now when customers get to choose between different providers, they benefit and so the economy as a whole. Their ability to choose forces firms to compete with one another. Choice for customers is a good thing in itself, but competition between firms also leads to increased productivity and economic growth5.

Capture 1

 

Economic Growth6.

Competition also leads to an improvement in allocative efficiency which is the basic economic problem along with scarcity of resources and unlimited needs faced by every country, by allowing more efficient firms to enter and gain market share, at the expense of the less efficiant firms .Regulations, or anti-competitive behaviour preventing entry and expansion, may therefore be particularly damaging for economic growth. Competition also improves the productive efficiency of firms (the so called within-firms effects), as firms facing competition seem to be better managed. This can even apply in sectors with important social as well as economic outcomes: for example, there is increasing evidence that competition in the provision of healthcare can improve quality outcomes. There is also evidence that intervening to promote competition will increase innovation. Firms facing competitive rivals innovate more than monopolies (although after such competition a firm may of course end up with a monopoly through a patent). The relationship is not simple: it is possible that moderately competitive markets innovate the most, with both monopoly and highly competitive markets showing weaker innovation. However, as competition policy does not focus on making moderately competitive markets hyper-competitive, but rather on introducing or strengthening competition in markets where it does not work well, this would still imply that most competition policies serve to promote innovation.

Because more competitive markets result in higher productivity growth, policies that lead to markets operating more competitively, such as enforcement of competition law and removal of regulations that hinder competition, will result in faster economic growth7.

CONCLUSION

The Competition Act ushers in a new Competition Regime in India. The new regime will herald a paradigm shift to the business environment in India. A significant section of Indian industry is, perhaps rightly so, apprehensive about this new enactment and its possible impact on them.Industry is also anxious that the advantages to various sectors arising out of competition should percolate to consumers and businesses for a level playing field, redressal against anti competitive practices, competitively priced inputs and optimal realization from sale of assets.  While the objective of the Competition Act, 2002, as stated in its preamble, is undoubtedly laudable and nneedless to say that this dynamic statute can and will touch and change the way Corporate India functions on a day to day basis, what is important is that the investigations and inquiries under the provisions of the Act should be concluded as expeditiously as possible and timing issuesneed to be addressed and also the act is comprehensive enough and meticulously carved out to meet the requirements of the new era of market economy, which has dawned upon the horizon of Indian economic system. The monopoly system could not have inany other way have survived in the Indian Economy because of the vast population with a diverse variety it had to deal with.

  1. Economy- Overview ,The  World Fact Book,  Available at : https://www.cia.gov/library/publications/the-world-factbook/fields/2116.html []
  2. Ramesh Singh, Indian Economy, 7th Edition []
  3. Monopolistic and Restrictive Trade Practices, Advocate Khoj, Available At: http://www.advocatekhoj.com/library/lawareas/mono/monopolistic.php?Title=Monopolistic%20and%20Restrictive%20Trade%20Practice&STitle=Monopolistic%20and%20Restrictive%20Trade%20Practice%20under%20Act,%201969 []
  4. Indian Competition Act: An Overview; Rajkumar Dubey []
  5. Factsheet on how competition policy affects macro- economics outsomes, october 2014, Available at: http://www.oecd.org/daf/competition/2014-competition-factsheet-iv-en.pdf []
  6. Ibid []
  7. Ibid []

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