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  • Discussion Paper Towards a Longer-term Agenda for Competition Policy and Law in India Written by Derek Ireland Economic and Policy Consultant, Ottawa Ontario, Canada April 2009 CUTS Centre for Competition, Investment & Economic Regulation

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    Contents 1. Introduction and Background ......................................................... 3 2. The 2009 Context for Competition Policy and Law in India ............ 5 3. Implications for Different Indian Industries and Markets ................ 8

    3.1 Traditional Manufacturing Industries That Are Actually or Potentially Tradable ..................................................... 8 3.2 Non-tradable Goods and Services ................................................... 10 3.3 The New Economy Network Industries ........................................ 12 3.4 Previously Regulated Sectors Now Experiencing Regulatory Reform and Some Competition ...................................................... 14 3.5 Indias Rural Economy ................................................................... 15

    4. Towards a Comprehensive and Functional Competition Policy for India .......................................................... 16 5. Eleven Components of an Integrated Competition Policy

    and Law Strategy for the Competition Commission and Government of India ...................................................................... 19

    6. Concluding Comments and the Forward Competition Law Reform Agenda ....................................................................... 28 References and Selected Bibliography ................................................. 31

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    1. Introduction and Background The first stage of liberal market reforms in India is now largely completed and the next generation of reforms is being implemented. The next generation reforms include the establishment of the Competition Commission of India (CCI) in October 2003 and enforcement of Indias new (amended) Competition Act of 2007, which has just come into effect from May, 2009. The new law and commission is replacing the erstwhile Monopolies and Restrictive Trade Practices Act and Commission (MRTPA and MRTPC) of 1969 and the proposals for a NCP contained in Indias 11th Five-Year Plan. In enforcing the countrys new competition law, it should be recognised that India, on balance, has had a pro-active and pro-consumer competition policy since the start of the full liberalisation programme in 1991. In fact, this process first began, in a tentative manner, in the early 1980s when domestic market reforms were first implemented, the MRTPA in 1984 was expanded to include unfair trade practices and the Consumer Protection Act (COPRA) in 1986 was enacted in order to promote and protect consumer interest by establishing consumer redress forums at various levels: national, state and district. The promotion of market competition and the consumer interest then accelerated after 1991, with the dismantling of the licensing regime, reductions in tariffs and other trade barriers, elimination of most restrictions on foreign direct investment (FDI), regulatory reform and some deregulation in telecommunications, energy, financial services and other previously highly regulated sectors and the many other bold moves made by the Government of India (GoI) to open up the Indian market to competition, new domestic and foreign competitors, new technologies and new ideas. The consequences for consumers include greater volume and range of products in stores, significantly improved product quality and choice and, in some cases, lower consumer prices. As will be stressed below, Indias liberalisation process is far from complete, but it has already provided significant dividends to Indian consumers, the competitiveness of the countrys companies and industries and competition in Indian marketsi. With the new Competition Act and Commission at the vanguard, the GoI, under the next generation of liberalisation reforms to be implemented through the 11th Five Year Plan, will be able to accelerate the implementation of, and increase the consumer and competition benefits from, the market reforms started over 17 years ago and thus ensure that industry and final consumers will enjoy the full benefits from dynamic inter-firm rivalry in all Indian goods and services markets.

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    The purpose of this paper is to explore the major competition policy design and competition law enforcement issues that the CCI, the Planning Commission and other relevant GoI ministries will need to address together in completing the next generation of reforms for promoting competition, innovation and the consumer interest in the Indian economy. In discussing the key components for a functional competition policy, particular attention is given to the major targets and challenges discussed in the Planning Commissions discussion paper on the Approach to the 11th Five Year Plan (Government of India 2006) and the GoIs subsequent Volume I for the Eleventh Five-Year Plan (2007-2012) on Inclusive Growth (Government of India 2007) (see Box 1).

    Box 1: Eleventh Five Year Plan Challenges That Are Most Relevant to Competition and Consumer Welfare

    In addition to specific proposals on consumer protection and the establishment of a NCP (Government of India 2007, pp. 282-289) that are described in the next section, the Eleventh Plan objectives and challenges that are most relevant to and will benefit from the design and implementation of a functional competition policy for India encompass the overall goal of faster and more inclusive growth, as well as more specific targets designed to: 1. Increase manufacturing competitiveness through: (i) technological modernisation,

    (ii) facilitating the exit of inefficient companies, (iii) allowing companies in the sectors reserved for small firms to expand and modernise through, e.g., bringing together the three company tiers, medium, small and micro, and (iv) removing other barriers to industrial growth and competitiveness.

    2. Regain agricultural dynamism, reduce the growing rural-urban divide and reduce urban and rural poverty.

    3. Promote more balanced development between regions, between urban and rural areas, across the primary, secondary and tertiary sectors and between the tradeable and non-tradeable sectors.

    4. Further expand the contributions of information technology and of professional, tourism, construction, retail and other services, to the Indian economy.

    5. Promote the creation of innovation infrastructure and develop and implement a national innovation policy, with greater attention to the role of innovation in improving the livelihoods and quality of life of the urban and rural poor.

    6. Accelerate the development of physical, innovation, social and other forms of infrastructure through public-private partnerships and related measures.

    7. Expand both inward and outward bound direct investment in order to further integrate India into the global economy.

    Other objectives and initiatives relevant to Indias new competition policy and law include: (i) the promotion of urban development in a manner that is environmentally, socially, economically and financially sustainable; (ii) improving the governance of the public sector and the administration of public sector programmes in part through

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    making improvements in how government ministries, departments and agencies interact with private citizens; and (iii) financing the development programme under the 11th Plan to include the employment of new innovative financing methods for both public and private sector investments. The paper is structured as follows. The next section provides the 2009 context for the implementation of Indias new competition policy and law. Section three describes, in summary terms, the implication for five different industry groupings and markets. Section four outlines some of the major issues in moving forward Indias functional competition policy over the Eleventh Five-Year Plan period (2007-2011) and beyond. Section five describes eleven possible components of an integrated competition policy and law strategy for the GoI to be implemented by the CCI and its many partners within and outside the government. These two sections and the entire paper are based on the authors experience from working with competition agencies in Canada and many other countries that the competition law policies of the CCI and the broader competition policies of the GoI are intertwined and, therefore, need to work together and support each other in order to build a strong competition culture within the government, Indias business community and Indias consumers, economy and society. The paper ends with concluding comments that emphasise the future competition law reform agenda of the Commission and the government.

    2. The 2009 Context for Competition Policy and Law in India The author conducted his original research for this paper during his field work in India for his PhD dissertation that took place during the summer of 2006. CUTS International was the authors host for that field research. Compared with when the field research was conducted, there is growing evidence over the past nearly three years that competition policy and law are now becoming more integral to the economic development models now being applied at the national, regional and local levels in India (see, e.g., Mehta 2007). While the process is just beginning and much still needs to be done, India is now on a more pro-competition and pro-consumer development path than at any previous time in its modern economic historyii. In the Spring of 2006, the Planning Commission, as part of its preparatory work on I

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