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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

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 India’s 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

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 India’s 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 India’s 11th Five-Year Plan. In enforcing the country’s 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, India’s liberalisation process is far from complete, but it has already provided significant dividends to Indian consumers, the competitiveness of the country’s 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.

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 Commission’s discussion paper on the Approach to the 11th Five Year Plan (Government of India 2006) and the GoI’s 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 India’s 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

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 India’s 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 India’s 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 author’s 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, India’s business community and India’s 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 author’s 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 India’s Eleventh Five-Year Plan, established a Working Group on Competition Policy. This Working Group, which had wide representation of professionals from government and non-government organisations, identified the need for the GoI to adopt a broad-based, overarching and comprehensive National Competition Policy (NCP) to promote coherence in the reforms process, to establish uniform competition principles across different sectors and to harmonise all other policies through taking full account of the competition dimension.

The amended Competition Act 2007 was passed without debate by the two houses of the Indian Parliament in September 2007. In the same year, all state governments, at the instance of the CCI, established “nodal points” within their administrations to deal with the subject of competition. The state governments have been encouraged to give these nodal points an effective role in promoting competition. In order to further strengthen the state role in promoting competition, the Planning Commission, in recent months, proposed that the Central Government should provide financial assistance, as an incentive, to state governments to adopt a business environment that will be in line with India’s NCP. Media reports indicated that the Planning Commission proposal is similar to the Australian practice of providing Central Government assistance to the Australian state governments to implement that country’s NCP. This Planning Commission proposal was subsequently placed before the National Development Council. Another positive development in recent years is the enhanced position of Company Affairs within the GoI. At the time the Competition Bill was introduced into the Parliament in 2001, the Department of Company Affairs, which at that time had the Company Law and the MRTPA, was under the Ministry of Law and Justice. After that, it was under the Ministry of Finance. More recently, the Department has become a full Ministry of Company Affairs, with responsibilities for the Company Law and the amended Competition Act of 2007. Finally, and most importantly, is the prominent role played by competition, consumer and other marketplace issues and proposals in Volume I on “Inclusive Growth” of the GoI’s Eleventh Five Year Plan for the period 2007-2012 (Government of India 2007:1). On pages 287-288, the document recommends that the government adopt “a comprehensive NCP to promote coherence in the reforms process, to establish uniform competition principles across different sectors and to harmonise all other policies, keeping in view the competition dimensions”. As outlined in the GoI’s “Inclusive Growth” document, the broad objectives of the NCP should be to: (i) preserve the competitive process; (ii) encourage competition in the domestic market so as to optimise efficiency, promote innovation and maximise consumer welfare; (iii) promote, build and sustain a strong competition culture within the country; (iv) achieve harmonisation in policies, laws and procedures regarding competition dimensions at all levels of governance; (v) ensure competition in regulated sectors and establish an institutional mechanism for synergised relationships between the Competition Commission and sectoral regulators; and (vi) strive for a single national market.

The document further states that the NCP should be based on the following competition principles: 1. There should be effective control of anti-competitive conduct which undermines

competition in markets in India. 2. There should be competitive neutrality or a level playing field among all players,

whether these are private enterprises, public sector enterprises or government departments engaged in non-sovereign commercial activity.

3. The procedures should be rule bound, transparent, fair and non-discriminatory. 4. There should be institutional separation between policy-making, operations and

regulation. 5. Where a separate regulatory arrangement is set up, it should be consistent with the

principles of competition; third party access to essential facilities on fair terms should be available.

6. Any deviation from the principles of competition should be only to meet desirable social, environmental, developmental or other national objectives which are clearly defined, transparent, non-discriminatory, rule-based and having the least competition-restricting effect.

The “Inclusive Growth” document concludes that the above principles of competition should be applicable across all sectors of the economy and be incorporated in the policies that govern themiii. The Eleventh Five Year Plan also proposed that the GoI should consider the establishment of a small and compact Competition Policy Council of about 25 members, which would be advisory, non-statutory and autonomous in its functioning and be headed by an eminent non-official person. The Council would be comprised of key officials from the GoI’s economic Ministries/Departments and non-officials from media, academia and civil society. The task of the Competition Policy Council would be to review the progress in the implementation of the NCP, including reviews of policies, regulations and practices and of the competition impact assessments of new laws, regulations and policies. The proposed Competition Policy Council would, therefore, play an important monitoring and oversight role for ensuring that the NCP achieves the competition principles and objectives that are outlined in the Eleventh Five-Year Plan document. The Council’s review and oversight role would be expected to encompass competition policy advocacy and promoting the development of a competition culture in India; identifying competition problems and proposing solutions to the relevant parties in and outside government; and monitoring and reporting on progress in implementing the principles and achieving the objectives of the NCP. It is essential that the new Competition Policy Council be given the resources and independence to successfully carry out these important functions.

The new CCI will also make important contributions through: (i) policy advice, technical assistance and its competition policy and law advocacy, education and compliance initiatives within and outside the government; (ii) sharing its knowledge and expertise by working as partners with the business community, civil society and other government ministries and agencies, including the sectoral regulators on competition policy issues of interest to the CCI and the Commission’s partners; and (iii) most importantly, effectively enforcing the new competition law in a proactive and highly visible manner. In particular, it is essential that the competition law enforcement priorities, policies and practices of the Commission be co-ordinated with and fully supportive of the broader competition policy initiatives of the other GoI ministries and agencies with competition responsibilities. This is the approach that has been taken throughout this paper, particularly in sections four-six. The Commission will be the major source of competition policy and law expertise in the GoI and India for a long time to come and its policy advice to government and other parties will be strengthened by the fact that the advice and related competition policy initiatives will be based on, guided by and backed up by a modern competition statute. The author’s personal experience is that policy advice is more likely to be listened to and followed when the advice has statutory backing. Moreover, the CCI has an important stake in the success of the NCP. To the extent that the competition objectives and principles described above are realised, the design and implementation of a comprehensive NCP will significantly enhance the effectiveness of enforcing the new competition law as well as the competition policy advocacy, education and voluntary compliance activities of the new Commission. At the same time, for the next number of years, the first priority of the Commission will be to successfully enforce the new competition law and to educate the government, the business community and the country’s consumers and civil society of the law’s major features and benefits for them and the total Indian economy. It is essential, therefore, that the design and implementation of the NCP be a government-wide and nationwide project that will encompass the active support and participation of all GoI ministries and agencies with competition responsibilities, interests and impacts; as well as the state and local (municipal) governments; the business, legal and academic communities; consumers associations and other civil society groups; and all other Indian groups and citizens with an interest in competition policy and law. One major advantage of making the NCP a government-wide and nation-wide project is that broader engagement in and ownership of the policy will help to minimise political and bureaucratic influence and interference in the implementation of the country’s competition policy and the enforcement of its new competition law by the CCI (see CUTS International 2008). While this paper gives some attention to the inter-relationships between competition policy, law and culture and the importance and the role of the CCI in promoting all

three in India, the paper emphasises that the GoI is the “responsible and accountable entity” for the design and implementation of India’s NCP. References to the CCI, therefore, focus on those aspects of competition policy and law implementation where the Commission is expected to play an important role because of its expertise, mandate and statutory authority.

3. Implications for Different Indian Industries and Markets This section employs the analysis in Appendices A and B on India’s special characteristics and their implications for competition policy and law in order to group Indian industries for the purposes of theoretical and empirical research, competition analysis, competition policy design and competition law enforcement. A five part grouping is suggested below. In the final analysis, competition issues in each industry grouping would need to be investigated on a case-by-case basis. However, each group may have some features in common that will be helpful in designing competition policy, establishing competition policy priorities and monitoring competition policy progress by the GoI and the proposed Competition Policy Council and in establishing the compliance, enforcement and case selection policies, priorities and programmes of the Competition Commission. 3.1 Traditional Manufacturing Industries That Are Actually or Potentially Tradable The first group would be India’s traditional manufacturing industries and perhaps some traditional service activities. These goods and services are actually or potentially tradable in international markets. In some cases, they may not have been traded in the past, but are coming under increasing competitive pressure from both domestic and foreign sources of supply. Some of the key characteristics of this grouping include the following. Barriers to entry in the past were significant in these industries (the result in large part of the licensing regime and other government policies and regulations) and may still be important today for some of the more traditional industriesiv. Barriers to exit continue to be important in the formal sector and, therefore, continue to negatively influence business entry. At the same time, liberalisation means that business entry is now easier and potentially more profitable in many markets that in the past were protected by government imposed entry barriers. The danger is that, as the government-imposed barriers come down, incumbents with deep pockets may attempt to replace them with entry deterrence strategies and other exclusionary practices such as extensive use of anti-dumping relief in order to establish and entrench dominant market positions. In this manner, liberalisation can result in the “privatisation” of both trade policy and entry barriers and related anti-competitive practices that before 1991 were largely the result of GoI policies of protection, self-sufficiency and favouring incumbents over potential entrants.

Many of these industries produce more standardised commodities and products, which are more prone to cartel-like arrangements, compared with industries that compete on price as well as highly differentiated products. Because of the pre-1991 licensing regime, production has often been distributed among a large number of smaller producers that are not achieving economies of scale and scope and been conducted by firms affiliated with business groups that are too diversified and now want to restructure and divest in order to concentrate their resources on their most important capabilities, products and markets. Markets can often be fragmented by high transport costs, differences in consumer tastes between Indian regions and ethnic and religious groups and government barriers to inter-regional trade, particularly at the state and local levels. Markets were often dominated by one or more business groups and other larger companies that in the past preferred the “quiet life” over strong inter-firm rivalry. Many of these industries produce intermediate inputs used by other industries and companies. Anti-competitive conduct at the intermediate stage can seriously undermine the competitiveness of final goods producers that are competing with foreign suppliers in Indian and international markets. At the same time, many of these industries are in transition and are facing new competitive pressures – which provide both greater inter-firm rivalry and product choice for consumers and the danger of new and often unfamiliar anti-competitive conduct to be investigated by the GoI and CCI in the coming years. These traditional industries are likely to be the source of some of the most challenging competition policy and law issues that will be addressed by the GoI and the CCI in the coming years under all three major sections of the amended Competition Act 2007. These competition issues will be the consequence of both past business conduct and government policies, as well as corporate and government responses to new competitive pressures. Important questions in competition policy and law analysis for this first industry grouping would include: (i) Whether the fragmented markets of the past are becoming national and global

in nature – through liberalisation; the reduction and elimination of trade, investment and other government-imposed barriers in India and other countries that impeded trade and investment flows in the past; lower transportation costs; increasing similarity in consumer tastes and preferences across regions and ethnic and religious groups; and the corporate strategies of incumbents and new entrants;

(ii) Whether the entry barriers of the past are coming down and, if so, how quickly;

(iii) Whether incomplete liberalisation and related corporate strategies are resulting in potentially new entry barriers, for example, through the ability of incumbents to use anti-dumping and other trade remedy laws to deter entry; through their continuing influence with governments and financial institutions

to bar entry by more efficient foreign and domestic competitors; and because of government and other impediments to the exit of firms in financial difficulties;

(iv) Whether the market includes some smaller suppliers (the competitive fringe) that, through growth, improved product quality and lower prices, can place some competitive discipline on the major producers;

(v) Whether major greenfield entry by a multi-national corporation will lead to greater competition and consumer choice or simply new market dominance by the multi-national (Patibandla 2002); and

(vi) The expected future growth in the industry and market and whether growth will, in fact, provide greater opportunities for entry; there are some markets where concentration levels stay high and competition remains limited, despite significant expansion in production and consumer demand (Kwotka and White 2000).

For these traditional industries, competition analysts in India are essentially investigating a moving target that involves the exploration of current competition conditions, market structure and business conduct as well as the projection of conditions, structure and conduct into the future. Projections into the future are needed to explore whether the competition issues of today will be solved in the near future, lets say over the next two to four years, through normal market forces and through the anticipated adjustments of market participants in terms of entry and exit, the corporate strategies of incumbents and the learning and related behaviour of final consumers and business customers – including the experience and learning of large industrial, commercial and government purchasers that also have some influence and power over market outcomes (what the competition literature calls countervailing market power). For example, the introduction in the coming years of large retail chains and “big-box” stores into the Indian retail sector would place significant price and quality discipline on the domestic and foreign manufacturers and wholesalers of consumer products (Lewis 2004). Each industry and market will be different and each competition case will require detailed analysis and projections of market structure, business conduct and firm performance – and the interactions between them – at the product level and for the relevant competition law (antitrust) market. The analysis must go beyond anecdote, rhetoric, generalities and simple concentration indicators. These and other conjectures and generalities regarding the impacts of market structure and business conduct on competition must be subjected to rigorous product and market analysis and cannot be accepted on faith or on the basis of a few incomplete and/or misleading indicators and anecdotal evidence. 3.2 Non-tradable Goods and Services A second group of industries are those that are not traded in international markets at the present time and are likely to remain non-tradable for the foreseeable future. This group would encompass many primary and processed food products, cement and other

non-metallic mineral products, local newspapers and other media, a lot of what is called “miscellaneous manufacturing” in published manufacturing data, construction trades and services, most personal and community services, many business, logistics, transportation and distribution services, most other infrastructure services and wholesale and retail trade. Based on experience in other competition law jurisdictions, these industries are likely to be major sources of competition complaints and investigations over the next number of years, particularly regarding alleged anti-competitive behaviour in sub-national markets. This is because these industries are not subject to the disciplines on price and product quality provided by imports and the threat of imports that are found in traded goods and services industries (see sub-section 3.1). As well, many of them supply goods and services that are seen to be essential to local industry, consumers and governments. Under these circumstances, local cartels and other anti-competitive agreements are often easier to establish and maintain, with impacts on local consumers, industries and governments that can be very serious and sustained for extended periods. Non-tradables will raise many of the same competition issues as the first group, as defined above, which comprises traditional manufacturing industries that are actually traded or potentially can be traded. The major differences from the first group are that: (i) the threat of imports will not be available to discipline the conduct of incumbents, (ii) FDI will often be limited to Indian markets where domestic demand is large enough to justify a relatively large foreign investment, (iii) foreign entry through merger and acquisition is more likely than greenfield investment, (iv) entry through domestic or foreign merger would normally not remove a competition problem and often could make it worse, and (v) the relevant market for competition law analysis will be state and local markets, even more frequently than under the group manufacturing industries. Because of close social relationships between government officials, businesses and their families within smaller communities and markets, maintaining tacit collusion, price leadership and formal cartel arrangements is often easier than in industries where companies are distributed across a larger geographic area. Major barriers to entry are likely to be inter-state barriers to trade and related government-imposed barriers at the state and local levels and cartels, positions of dominance and related entry-deterring strategies of incumbents that have been tacitly allowed or even encouraged by local governments in order to strengthen local companies and economies and to create local jobs. There are allegations and some evidence that various forms of anti-competitive behaviour can be found in trucking, distribution, local retail, cement and other non-metallic mineral products, the construction industry, especially in government tendering, and other local market-oriented industries in India (Mehta 2005 and 2006). These potential competition dangers indicate that the CCI will need to be sensitive to, and be prepared to respond

to, competition issues and complaints at all spatial scales – international, national, state and local. Increasing competition, efficiency and consumer welfare in the non-tradable sector will require both competition law enforcement and the successful application of broader competition policies by the GoI. These policies would include opening up the retail and wholesale sectors to larger firms, including foreign chains (Lewis 2004), and changing the small firm reservation system in a manner that would allow more efficient small and medium-sized companies to reach their full growth and size potential and thus become important participants in these markets (see Box 1 and Government of India 2007). The Competition Commission will need to apply a highly nuanced and flexible economics-based approach to competition law analysis and enforcement in these sectors. This approach would involve careful use of the competition and consumer test and the rule of reason and would thus avoid the legalistic approach under the MRTPA. Such an approach would rigorously enforce the competition law against cartels, bid-rigging and other anti-competitive agreements in these sectors at the national and sub-national level, while permitting efficiency and competition-enhancing vertical restraints and arrangements such as territorial restrictions, product-tying and other business practices that benefit the consumer and address the weaknesses in India’s distribution, wholesale and retail sectors and systems. 3.3 The New Economy Network Industries The third group of industries encompasses industries and companies in the new economy, high technology fields that: (i) create, commercialise and apply advanced enabling technologies, (ii) depend critically on innovation and human capital for success, (iii) often involve foreign equity and technology participation, (iv) are often co-located with other firms (including competitors, suppliers and business customers) and related universities and training and technical institutions in a technology cluster (such as the Bangalore, Hyderabad and Chennai IT clusters), (v) are now selling in global markets and participating in global supply chains and strategic alliances (Patibandla and Petersen 2001), and (vi) are familiar with and often apply international rules of competition, intellectual property, contract and corporate governance. In many ways, these new economy companies live in their own global business world and are insulated from and have separated themselves from the mainstream Indian economy, business culture and rules of business conduct. This industry grouping would cover India’s rapidly expanding information technology and consumer software industries, as well as, to varying degrees, other sectors such as financial and professional services and retail and wholesale trade that increasingly are applying information technology to reduce costs and improve customer service. The group encompasses as well the domestic and international pharmaceutical industries, agro-chemicals, seed and other agricultural supply industries and environmental

industries that are using a common “platform” technology to produce and market new product and process innovations to a wide range of farm customers, industries and final consumers. The platform technology is typically biotechnology at the present time, but potentially nanotechnology, alternative energy or other emerging technologies could provide the “platform” in the future. What this diverse group of industries and technologies have in common is that: (i) they create and/or extensively use more advanced technologies; (ii) many of the companies within these industries benefit from, and are in positions to manipulate for their own corporate benefit, technical standards and network externalities and effectsv, and (iii) many of these major enabling technologies that generate these network effects are protected by intellectual property rights and other proprietary assets of major companies (Anderson and Gallini 1998). These so-called network industries that are based and growing rapidly in India would seem to pose few competition dangers for India at the country’s current stage of development. These Indian industries and companies in, e.g., information technology (IT), biotechnology, pharmaceuticals and related sectors are relatively small players that are now striving to expand and achieve profitable and sustainable positions within global markets. With some important exceptions, such as pharmaceuticals, entry barriers are generally low, government intervention is modest, access to risk capital is relatively good from international corporations and expatriate Indian entrepreneurs working in, e.g., Silicon Valley and relevant competition law markets are multi-country and even global. These new economy companies and sectors in India supply to markets that typically experience greater entry, exit, changes in market share and foreign and domestic inter-firm rivalry than traditional industries and markets (Athreye 2005) and are more likely to be disciplined by the competition, corporate governance, contract and intellectual property rules of the major Organisation for Economic Cooperation and Development (OECD) jurisdictions (led by the US and the EU) than by Indian rules. However, as indicated by the Microsoft case and growing concerns with Google’s market power, the ‘competitive fringe’ of today can become, with a little luck, lots of business acumen and aggressive marketing and corporate strategies, the dominant player of the not-too-distant future. India, in fact, is hoping that one of its globally smaller IT companies and bio-pharmaceutical producers can, in fact, become a major global supplier in a comparatively few years. This will mean jobs, exports, royalty income and prestige for the Indian economy, but as well could pose competition dangers for the domestic industrial purchasers and final consumers of these products. At that point in time, the CCI could have its own home-grown Microsoft case. Before that day occurs, the relevant GoI ministries and agencies, including the Competition Commission, will have other reasons to develop expertise in advanced technologies and network industries from the Indian perspective. Some Indian firms

could be participants in global supply chains and strategic alliances that are investigated by, e.g., the US and EU competition authorities. The GoI and the CCI should be well positioned to monitor and, where necessary, co-operate in the case investigation, in order to ensure that India’s competition, consumer and perhaps producer interests are not unduly hurt by the remedies proposed and enforced by the major competition law jurisdictions. For example, a remedy that provided no benefits to India’s consumers, but unduly injured the Indian company participants in a global supply chain or strategic alliance, could be questioned by the Commission to see whether an alternative remedy is available that would provide similar competition benefits, but would be more favourable to India’s consumer and producer interests. Another example would be an international competition law case involving anti-competitive conduct and, e.g., the misuse of intellectual property rights (IPRs) in a global network industry where the anti-competitive conduct is particularly detrimental to the interests of Indian consumers and the entire Indian economy. The latter may be the case because royalties and other benefits from the anti-competitive conduct and the misuse of IPRs are going almost totally to foreign companies and rights holders. Therefore, there is no need to balance and compare consumer and producer impacts in India – as would likely be required in the home countries of the companies under investigation. In these circumstances, the GoI and the CCI should co-operate with the other competition law authorities and probably start their own case, employing the effects doctrine contained in the amended Competition Act 2007. The growing importance of network industries and more traditional industries that benefit from network effects in the knowledge-based economy will be a major source of tension between competition law and intellectual property rights in the years ahead (Church and Ware 1998). Because of the potential for these industries to generate significant long-term benefits for industrial customers, consumers and the total economy, most competition law jurisdictions apply a highly permissive, rule of reason approach to competition issues in network and related high technology industries (Jorde and Teece 1992). Based on the Competition Act 2007, the Competition Commission will likely adopt a similar approach. At the same time, India, which is projected to be a net importer of IP protected technology for a long time to come (and, therefore, a net exporter of IP royalties), should be particularly sensitive to and knowledgeable of the ways in which domestic and international corporations can, and do, use and misuse their IPRs to achieve and maintain dominant positions in national and global markets of the competition and consumer harm that can result from the misuse of IPRs for anti-competitive purposes (Ireland 1998 and 2007) and of the means at the GoI’s disposal, through the competition law, IP laws, or other instruments, to address the competitive harm that results from the misuse of IPRs.

3.4 Previously Regulated Sectors Now Experiencing Regulatory Reform and Some Competition This fourth group of previously regulated industries has already been analysed in some detail by CUTS and other competition and consumer advocates in India (see, for example, Mehta 2005, 2006 and 2007). These are the industries that are in transition from being highly regulated to conditions of less regulation and more competition. These industries include, of course, telecommunications; energy; transportation; urban environmental infrastructure such as water supply, wastewater treatment and solid waste management; financial services; and some of the professions. In some respects, each industry is a microcosm of the total Indian economy. Each industry is in a transition process of its own from a “command-and-control” structure to a more (but still incomplete) liberal market and pro-competition environment. During the transition process, the familiar competition and consumer problems of the past related to, e.g., government-owned and operated monopolies (where the government is the owner, operator and regulator, often by the same department) can be augmented or replaced by totally new, quite unfamiliar and generally un-researched competition and consumer problems. Each sector throws out a different set of competition issues, which depend on the regulatory framework and competition rules (which vary, depending on the regulator), technology, consumer preferences and vulnerability, information asymmetries, the extent of foreign participation and a host of other factors. Moreover, the competition issues change as liberalisation and regulatory reform proceeds in each sector and the broader Indian economy. The Competition Commission will need to become knowledgeable about each previously regulated sector and about how these sectoral issues are changing through time, as a consequence of technological change, market forces, consumer preferences and improvements in the new regulatory regime in favour of competition and market outcomes. This will require information-sharing and joint research and policy analysis with the current sectoral regulators, which have the sector expertise, but may have less experience with competition theory and empirical research and knowledge of how markets, service providers and customers can be expected to respond to market liberalisation and greater competition in their sectorsvi. Most importantly, information sharing and joint work programmes with sectoral regulators should be designed to minimise conflict and to help to establish long-term mutually beneficial “synergistic” relationships between the regulators and the Competition Commission – as called for in the NCP, described in section two. (Government of India 2007). This is the approach used by the Canadian Competition Bureau and many other OECD competition agencies during their periods of sector regulation reform during the 1980s and 1990s (OECD 1992 and Crampton and Facey 2002). This issue is further explored in a later section (point 5 on page 23).

In this context, it should be noted that the corporate strategies of incumbents and new entrants in these previously regulated industries can involve a mix of practices that raise issues under both competition and consumer protection laws. These business practices can particularly disadvantage vulnerable consumers (Ireland 2004, OECD 2006:1, 2006:2 and 2007). Coordinated research, analysis and enforcement between the CCI and the COPRA will be required to properly address the anti-competition and anti-consumer effects of these business practices. 3.5 India’s Rural Economy Finally, as a fifth group of industries, it is proposed that the GoI ministries and agencies with competition responsibilities, including the Competition Commission, should become more familiar with the competition and consumer issues relevant to India’s huge and vitally important rural economy. Competition analysis of the rural economy should encompass: (i) current conditions and potential future opportuntities in agriculture; (ii) other primary industries and their contributions to rural income and

employment – including to rural residents whose primary occupation is farming;

(iii) smaller scale rural industry; (iv) rural businesses more generally; (v) the application of more advanced technology and product, process and

managerial innovations to agriculture, rural industry and other rural businessesvii;

(vi) social and community services to farmers and farm households; and (vii) national and sub-national supply/value chains and other actual and potential

linkages between the rural economy and smaller towns and cities as well as India’s very large and rapidly expanding metropolitan region markets (Chand 2006).

Particular emphasis should be placed on competition issues at the local, state and national levels that are: dampening agricultural and rural industrial and economic growth; preventing farmers from realising a higher return from their production; preventing small industry and service firms from flourishing in rural India; and result in higher than desirable prices for food and other products for consumers in both rural and urban India. Making competition work for rural India will mainly involve competition policy advocacy and education in the early years by relevant GoI ministries and agencies, including the Competition Commission of India, supported by more detailed GoI and academic research on the role of competition policy and law in promoting agricultural development and rural industrialisation and in reducing rural povertyviii. However, specific competition cases that involve, e.g., (i) anti-competitive agreements and abuses of dominant position in the purchasing, transportation and distribution of farm and other primary products, (ii) barriers and anti-competitive conduct and arrangements in

telecommunications, energy, financial services and other previously regulated sectors that impede the extension of service to rural India (Uppal 2006 and Kodwani 2006), and (iii) anti-competitive conduct and arrangements by larger firms that prevent rural industry from capitalising on their natural competitive advantages, could be identified, investigated and adjudicated through time by the Commission, the sectoral regulators and other regulators and agencies (Chand 2006). The crucial issue is to ensure that competition policy design and competition law enforcement covers, is relevant to, engages and benefits all of India’s citizens, not just urban consumers and medium and larger scale companies located in urban regions. Media reports in recent years noted that, led by the Reliance Group, Hindustan Lever and ITC (the Indian Tobacco Company), some business groups are now moving into, or in the future will move into, the rural development field through modern agro-processing, rural supply chains, rural retailing and other means. This is a positive development, but there is the danger that these business groups may bring some of their more questionable business practices with them into the rural sector. These practices, which could pose dangers for existing smaller rural manufacturers and service providers and vulnerable rural consumers, should be addressed in the rural economy competition research proposed above. The reader will note that some sectors, such as the previously highly regulated sectors, would appear in two or even three of the above groupingsix. Sectoral regulation issues will probably be similar across groupings, but they may be addressed differently – and issues will be given different priorities – when, e.g., regulatory reform in telecom is assessed in relation to the unmet needs of rural India (Uppal 2006). In addition, smaller firms in the informal sector could play a role in competition policy analysis and competition law investigations in all five of these groups – although perhaps most often in the second group on non-tradable goods and services and this fifth group on the rural economy. The challenges of modernising the small firm sector and protecting smaller firms from the anti-competitive practices and arrangements of the larger players are addressed in the next two sections.

4. Towards a Comprehensive and Functional Competition Policy for India The purpose of this fourth section is to provide a broader canvas through briefly summarising some of the responsibilities of other Indian ministries, departments, agencies and policy regimes in implementing a functional competition policy for India. This brief section, in some ways, summarises and places some priorities on more detailed work completed by CUTS on this subject over the past three years (see in particular Mehta 2005, 2006 and 2007). Significant attention in this section is given to the need for greater understanding of the importance of market incentives and outcomes and the application of competition

principles by a wide range of economic ministries and agencies and their clients and stakeholders at all geographic scales: national, state and local. In particular, relevant government ministries, departments and agencies need a greater understanding of markets, competition, private incentives, corporate strategy and the requirements of the private sector in order to: promote public-private partnerships (PPPs) and other non-government sources of financing in infrastructure development; and encourage greater productivity, innovation, competitiveness and global market participation by Indian manufacturers and service providers. Partnerships with industry must be based on mutual trust and understanding of public and private sector interests and needs by both government and business partners. Information, coordination, advocacy, public good and other government services should be designed to promote competition, innovation, competitiveness and stronger and more inclusive economic growth – without favouring one competitor or industry at the expense of another. Sharing a common understanding of the competition principles put forward in the “Inclusive Growth” document and of how these competition principles should be applied to the eight policy issues listed below will be an important first step. First, liberal trade policies complement and strengthen the administration and enforcement of competition policy and law. At the same time, a major threat to competition in domestic markets is the misuse of anti-dumping and other trade policy measures in order to: (i) prevent entry by foreign suppliers; (ii) protect and entrench the dominant positions and collusive and other anti-competitive practices of Indian-based companies (both foreign and domestically owned); and, (iii) promote the narrow interests of a single competitor or industry at the expense of other companies, the consumer, competition and the competitiveness of the Indian economy. A functional competition policy for India requires that trade ministries and tribunals and related government agencies apply competition principles and competition and consumer welfare tests in administering anti-dumping and other trade policy measures. Otherwise, the consumer, efficiency and competitiveness benefits from trade liberalisation and a stronger competition policy and law will be seriously reduced and will be much less than anticipated and desired, resulting in less business and voter support for the GoI’s liberalisation and competition policies. Second, supported by coordination, leadership and technical and financial assistance from the national government (section 2.0), state level ministries of trade, economic development and related departments should apply competition principles in order to reduce and ultimately eliminate the inter-state barriers to trade and business entry within India. Realising the full benefits from international trade liberalisation and India’s functional competition policy requires the establishment of a fully integrated common market within the country.

Third, based on the requirements of the World Trade Organisation’s (WTO) Trade Related Aspects of Intellectual Property Rights (TRIPs) agreement, the ministries and agencies responsible for administering IPRs and for designing IP and innovation policies have an obligation to ensure that abuses of intellectual property do not distort market competition, do not provide dominant incumbents with an unfair advantage vis-a-vis smaller competitors and potentially more efficient entrants and do not provide rights holders with monopoly rights and powers and other advantages that go beyond the intentions of Indian and international intellectual property rules (Rahnasto 2003 and Ireland 2007). Fourth, sectoral regulators and their home departments need to apply competition principles in the design and administration of regulatory policies and regimes in order to accelerate regulatory reform and deregulation and to ensure that service providers in these sectors are meeting customer needs at a competitive price/tariff (Mehta 2005 and 2006). In particular, more work is needed on how the application of competition principles can promote the greater use of market incentives, non-government sources of investment and PPPs in addressing the infrastructure bottlenecks that are holding back India’s growth, prosperity, domestic competition and competitiveness (Government of India 2006). Fifth, domestic market competition requires both easy entry by potentially more efficient firms as well as orderly exit by firms that are poorly managed and can no longer meet their financial, economic and social obligations. The reform of labour market, bankruptcy, insolvent/sick company and related policies, laws and regulations by the responsible ministries and agencies would benefit greatly from the application of competition principles in their design and administration. Sixth, the enforcement of the amended Competition Act 2007 against collusive tendering (also known as bid rigging) will make a major contribution to promoting fairer, more competitive and more cost-effective government procurement processes. However, government ministries, departments and agencies at all geographic scales also have a responsibility to apply competition principles to their procurement policies, processes and programmes to ensure that these processes are fair, transparent and competitive for all potential bidders and that Indian taxpayers and their governments are receiving good value for money from all government purchases. Seventh, the adoption and application of competition principles by relevant ministries responsible for agricultural, small industry and rural development can play a major role in: (i) accelerating agricultural and rural development, (ii) greatly expanding rural-urban linkages in a manner that benefit both rural and urban residents, and (iii) reversing and starting to eliminate the rural-urban divide – as called for by the Planning Commission’s two Eleventh Five-year Plan documents reviewed in sections one and two above (Government of India 2006 and 2007).

Eighth, as stressed by the Raghavan Committee Report (2000), the Government of India’s policies to provide protection and preferential treatment to small enterprises and to reserve many key sectors and products to small enterprises in a manner that protects them from competition from larger domestic and (more recently) foreign firms, is now under major pressure because of the removal of quantitative restrictions, major reductions in tariffs, and other trade policy reforms resulting from the implementation of India’s WTO obligations. The consequence is that companies in the sectors reserved for small firms are still protected for the most part from competition from larger domestic firms, but potentially are subject to much stronger competition from foreign companies. As described in the GoI’s Eleventh Five-year Plan (Government of India 2007), the small-scale firm policies of the past, based on reservation, protection and small firm preferences, will need to be replaced with positive and proactive policies needed to encourage and achieve growth, innovation, technological change, dynamism and competitiveness in India’s very large and economically important small firm sector. This will require the adoption and application of competition principles by the relevant government ministries and agencies at all spatial scales. These competition principles would be intended to promote the expansion, dynamism and competitiveness of smaller firms, make them stronger competitors against larger domestic and foreign firms and protect them from the anti-competitive conduct of larger firms located in India and overseas. 5. Eleven Components of an Integrated Competition Policy and Law Strategy for the Competition Commission and Government of India In contrast to the previous sections, the final two sections of this paper place greater emphasis on: (i) the potential role and contributions of the new competition law (once the amended Competition Act is fully enacted and full enforcement begins from April 1 2009); and (ii) the potential contributions of the Competition Commission – working closely with its competition partners in government, the business and academic communities, consumer groups and other non-government organisations (NGOs) – in assisting with the design and implementation of India’s NCP (see section 2.0 above). As stressed in section 2.0 above, the CCI cannot do it alone and, in many cases, other government ministries and agencies will need to take the lead role in advancing the Government of India’s NCP. All Indian government ministries, departments and agencies at all geographic scales have a responsibility to increase understanding of competition principles and of market incentives and outcomes and to build a competition culture within their own agencies and among their clients and stakeholders.

While the competition policy education and advocacy efforts of the CCI will make an important contribution, in many cases, other ministries and agencies must play the leading role in building a competition culture and making India’s functional competition policy a reality within the government, the business community, the economy and Indian society more generally. Other policy and regulatory regimes that support and apply competition principles will, in turn, make the challenging tasks of the CCI – in educating people on promoting voluntary compliance with and enforcing India’s Competition Act – much less daunting and much more achievable. As noted above, this section offers the author’s thoughts on the potential role and contributions of the amended Competition Act of 2007 (once full implementation and enforcement begins starting on April 01, 2009) and of the Competition Commission – working with its competition partners in government, the business and academic communities, consumer groups and other non-government organisations – in making the NCP a reality for all citizens and consumers of India during the 11th Five-year Plan from 2007-2011. The section describes eleven possible components of such a functional competition policy that could be implemented (or in some cases at least started) over the Eleventh Five-year Plan period. These eleven components largely, but not totally, involve potential roles and contributions of India’s new competition law and agency. The many other components of the NCP to be delivered by other government ministries and agencies are summarised in the previous section and discussed in greater detail in the GoI’s 11th Five-year Plan and other documents. Even the eleven components described below represent an ambitious competition policy and law agenda and, therefore, their design and implementation should involve broad participation – with the Competition Commission working co-operatively with the CCI’s partners in and outside government. Given the size and scope of the eleven proposed components, work on many them will likely only begin during the 11th Plan period and will probably continue after 2011. The proposed cooperative approach with other ministries and agencies, which would include a mix of competition advocacy, information sharing and joint policy development and analysis, was employed by the Canadian Competition Bureau in (i) advancing regulatory reform with sectoral regulators over the past 25 years, (ii) working with the Department of International Trade on the trade-related aspects of competition policy and the competition challenges posed by the trade-related aspects of intellectual property rights and investment measures during the 1990s, and (iii) joint work with Industry Canada over the years to ensure that industrial, innovation, small business, consumer protection, regulatory reform and other economic policies and strategies are on balance pro-competitive. Competition agencies in other OECD countries – and in the transition economies in central and Eastern Europe – have adopted similar cooperative working relationships with sectoral regulators and trade and industry ministries (Fingleton et al. 1996).

This co-operative approach recognises the strengths of competition agencies, their knowledge of competition and markets and their weaknesses, their more limited understanding of industry sectors and of other government policies that influence competition and market outcomes. As emphasised earlier, the CCI cannot do it alone. If the required co-operation and contributions from the CCI’s government and non-government partners are not forthcoming, these eleven components will not be achieved, the CCI will need to greatly reduce its competition policy agenda and, in fact, the entire NCP project of the GoI would be placed at significant risk. In describing the eleven components, activities related more to competition law enforcement, voluntary compliance and competition policy and law education and advocacy are placed first in this listing, because of the priority the Commission is expected to place, and should place, on competition law enforcement in its early years. These first five activities would be given priority over the next two to three years while design and implementation of the other six would take place later in the 11th Plan period and would probably continue into the 12th Plan period after 2012. 1. From the outset, the Competition Commission should have in place transparent

and highly analytical processes for: (i) placing priorities on and carefully selecting the most egregious competition offences for possible investigation and enforcement, (ii) conducting rigorous economic and legal analyses of these alleged offences, and (iii) conducting strong, effective and timely enforcement and adjudication of the most serious anti-competitive agreements, proposed mergers and abuses of dominant position by the Commission and, when needed, by the Appellate Tribunalx. It is essential that the Commission establish visibility and credibility very early in its case selection, compliance and enforcement programmes. This is best done through: the careful selection of the most serious and visible competition cases that substantially lessen competition and cause serious consumer detriment; rigorous economic analysis of those cases; and strong enforcement of the law against those anti-competitive offences. This is best accomplished through selecting a relatively few high profile cases for investigation and enforcement in the early months after the amended Competition Act of 2007 starts to be fully enforced. These cases should be selected carefully to test and demonstrate the effectiveness of all three major sections of the Competition Act on anti-competitive agreements, merger reviewxi and abuse of dominance and to test and demonstrate the effectiveness of the new law for national as well as sub-national (regional, state and local level) cases, industries and markets. A strong, but highly targeted, compliance and enforcement programme from the outset will demonstrate to the business community, other government ministries and agencies, politicians and consumers/citizens that the Commission: (i) is ready for business, (ii) is applying an economics-based approach and a pro-active

compliance and enforcement programme that is very different from the legalist approach of the previous MRTPC that emphasised case quantity over quality, and (iii) is prepared to take on the tough cases that involve some of the major business groups and other larger well-established companies in the Indian economy. Successful enforcement cases, in turn, will make more effective the Commission’s competition policy advocacy and education efforts and voluntary compliance with the Competition Act, including with the merger section and guidelines as described under point two belowxii. It is important that some of these early enforcement cases involve serious anti-competition cases at the sub-national level (Dayal and Agarwal 2006). The new Act must demonstrate its effectiveness in addressing state and local competition and consumer concerns. Because market structures and anti-competitive conduct at the sub-national level, but in the same industry, are often similar across different geographic marketsxiii, a successful case against a local cartel or other anti-competitive agreements in one sub-national market could have important demonstration effects that discipline firm behaviour in other sub-national markets in the same or similar industries. Successes at the state and local level could then be used by the Commission to argue for additional resources needed to establish regional offices in the future.

2. In the early months of enforcing the amended Competition Act 2007, the

Commission should begin work on India’s Merger Guidelines, through preparing a first draft, consulting on that draft with key stakeholders in and outside government and finalising and publishing the Guidelines. The Guidelines would describe the current merger law in India and the rights, obligations and roles of and potential benefits for businesses, consumers, civil society and other groups from complying with and enforcing the merger section of the Competition Act. The Merger Guidelines of OECD countries, such as the US, the EU and Canada, could be referenced in preparing the first draft. In fact, the international literature on merger review under competition law is quite extraordinarily large and diverse. However, very little of this literature is directed at merger review in developing countries and, except for recent work by Indian economists and lawyers (see, e.g., Agarwal 2006), none of this literature relates to the Indian Competition Act. Therefore, existing merger guidelines from other countries and the merger review literature must be reviewed critically through the prism of India’s economic conditions and the actual provisions of the merger section of the new competition law. Based on the analysis conducted for this article, the Indian Merger Guidelines would place important weight on the complex issues raised in an Indian context for: (i) market definition, (ii) the presence, height and persistence of entry barriers,

(iii) the current and future impacts of liberalisation and India’s ongoing integration into the global economy for market definition and entry barriers,

(iv) the implications of India’s incomplete liberalisation programme and future economic reforms (e.g., under 11th Five-year Plan) for the two merger tests of the substantial lessening of competition in the short-term and the prevention of competition in the longer-term,

(v) the treatment of mergers and acquisitions conducted within and between business groups, (vi) how dynamic efficiencies associated with IPRs and related factors and resulting, e.g., from pooling patents through a merger would be treated in an Indian context (where currently most patents are owned by foreigners – although this will likely change in the future),

(vii) how static and dynamic efficiencies are analysed in terms of their impacts, benefits and costs for producers, consumers and other market participants,

(viii) the importance to be placed on consumer benefit and detriment in efficiencies analysis, and

(ix) the operation of the merger thresholds and mandatory notification of all above-threshold mergers (regardless of their competition impact) and what these considerations imply for merger review and enforcement of the competition law more generally.

A major message that should be conveyed through the Merger Guidelines is that mergers below the size thresholds, which after completion of the transaction generate competition concerns in national, state or local markets, can still be addressed after merger completion under the other sections of the Competition Act. Given the business, economic and social costs and risks of unscrambling a merger once it is completed, the Guidelines should be written in a manner that encourages voluntary notification of mergers below the size thresholds that could raise competition issues now or in the futurexiv. The Guidelines as well should provide clear guidance on how the review of large above threshold international and domestic mergers that do not raise any significant competition issues would be expedited in order to minimise the compliance and related transaction costs of the merging parties and the investigation and administration costs of the CCI and GoI. This would include guidance on the kinds of information and analysis that merging parties should provide regarding: (i) the relevant competition law (antitrust) market, including the existence of

close product substitutes; (ii) current and post-merger market structure, business conduct and barriers to

entry; (iii) current and proposed future operations in India of each merging party – with

information on what the merging parties would do in the Indian market, if the transaction is not completedxv;

(iv) anticipated static and dynamic efficiencies and the extent to which consumers will benefit from these efficiencies (see Evans 2008); and

(v) anticipated changes in the trade, industrial and other policies and programmes of Indian governments that could significantly alter barriers to entry and market structure and “contestability” after the transaction is completedxvi.

In this manner, the Commission would work in partnership with the business and legal communities to facilitate the completion of pro-competitive mergers, acquisitions and other combinations and to identify the competition issues that would need to be addressed by the merging parties and their legal counsel, with the assistance of the Commission, to allow an otherwise acceptable merger transaction to proceed, and to lower the risk of expensive “de-mergers” in the future. Two interrelated purposes of merger review in other countries are to provide an independent review process that reduces the business costs, risks and uncertainties of mergers and acquisitions and reduces political involvement and interference in business strategies to restructure and become more competitive. Merger review in India can achieve these goals as well, but the Merger Guidelines and merger review process must reflect the unique characteristics of India’s socioeconomic conditions and competition law. These initial Guidelines should be marked as preliminary, with the statement that the Guidelines will be reviewed, refined and updated once merger case law has been developed through the enforcement of the merger review section of the Competition Act. Competition agencies often delay the preparation and publication of Merger Guidelines until some merger enforcement decisions have been made by a merger branch and competition agency and/or until some case law has been developed through the decisions of Tribunals and Appellate and other courts. However, despite mandatory notification under the amended Competition Act of 2007, the high size thresholds suggest that merger case law may develop quite slowly in India. Merger Guidelines are needed at the outset to explain the new merger law and its interactions with other sections of the competition law, with the view of promoting voluntary notification and voluntary compliance by merging parties with all sections of the Competition Act.

3. As the Commission acquires new staff, visibility and momentum from the passage

of the amended Competition Act 2007, the competition policy advocacy, education and related research initiatives of the CCI and its GOI and other partners should be accelerated and become more targeted on the most important ministries, regulatory agencies, business associations and groups and civil society groups that could be important partners for the CCI in the future.

Major emphasis would continue to be placed on competition policy advocacy and building networks, alliances and a competition culture within the government.

This requires more than lobbying and lecturing on competition. This requires providing analytical assistance and policy support to other agencies as well in their efforts to develop regulatory and other policies that are pro-competition or have the least possible negative effect on competition and consumers. Competition policy advocacy as well should be directed at creating a “demand” for effective competition policy and competition law enforcement among businesses, consumers, civil society, voters and politicians. Advocacy at the political and bureaucracy level could emphasise that the new Indian competition policy, law and commission can be very helpful to politicians and the bureaucracy when they are under pressure from business and consumer groups and the media to address a competition or related market problem. They can simply note that the matter is under review by the Competition Commission and is not their responsibility. Advocacy to businesses and industry associations could emphasise that effective competition law enforcement, voluntary compliance programmes and the competition “code of conduct” provided by the competition statute will lower the intermediate input and other production and transactions costs of exporters and other companies competing with foreign rivals. These competition policy advocacy efforts of CCI and its GoI and other partners should be designed to build a competition culture that would, in turn, reduce the number of enforcement cases to be investigated and adjudicated by the Commission and the Appellate Tribunal.

4. With new staff arriving from the MRTPC, other parts of government and outside

government, institution and capacity building and training of new staff should be accelerated and made an integral part of the day-to-day operations of the Commission, with assistance from other relevant GoI agencies. Training of new staff should give particular attention to the economic aspects of the new law, the major differences from the legalistic approach under the previous MRTPA and the economic analysis, legal analysis, investigation and related tools and skills needed to promote compliance and conduct enforcement cases. Capacity building and training should include building bridges with the academic, economic consulting, research institute and legal communities to encourage these groups to build their own capacities in the economic and legal fields relevant to competition policy and competition law enforcement.

5. The Competition Commission should work closely with the sectoral regulators

in order to achieve mutual understandings, agreements and modes of co-operation for: (i) applying competition and consumer impact tests and analysis (what the OECD

calls the “competition lens” – see Crampton and Facey 2002) to new regulations and proposals for additional regulatory reform and deregulation; and

(ii) addressing anti-competitive abuses as these sectors move towards greater competition and market incentives and disciplines.

These understandings, agreements and modalities will vary, depending on the competition issues in each sector and the mandates (e.g., for promoting competition and the consumer interest) of each sectoral regulator. However, the general approach to each regulator should be the same – to work together to solve common competition, consumer and market problems, to decide on which agency is best equipped to address and take the lead role on a specific competition issue and case and to avoid fighting over mandates, responsibilities and turf. The approach for each sector regulator would, therefore, address the relative strengths and experience of each regulatory agency, compared with the Competition Commission and the extent to which the sector has been deregulated (partial deregulation is the norm in India, which means that the sector is subject to both regulatory and competition law scrutiny), with emphasis on where the Commission and each regulator complement each other in terms of the expertise, capabilities, experience and statutory authorities needed to promote competition and consumer welfare (see, e.g., Carlton and Picker 2006, p. 40).

6. New industrial organisation economics and competition analysis, more

generally, must be better tailored to the needs, special characteristics and the stage of development of India and other developing and transition economies. India’s special characteristics that are particularly important to competition policy and law analysis in this country would include: its fragmented markets; high information, transport and other transaction costs; the continuing importance of the government and the high costs of transacting with the government; India’s vulnerable consumers, particularly the rural and urban poor, with limited incomes, education, literacy and market experience; the remaining constraints to business exit; and the continuing importance of traditional business groups and other informal business institutions and arrangements.

Recent advances in industrial organisation economics and competition analysis, more generally, and their application to competition law investigations and enforcement in the OECD countries (see, e.g., Church and Ware 2000, Baker 1999 and 2002, and Carlton 2003 and 2007) are highly relevant to developing and transition economies, but more work is needed on identifying the more relevant advances, determining why they are relevant and then interpreting them from the perspective of the competition analysis needs of new competition laws and new and inexperienced competition agencies in India and other developing and transition countries. Tailoring the new IO to the competition analysis needs of India will require as well that new industrial organisation theories and models take greater account of recent

advances in related economic literatures, with emphasis on new institutional, evolutionary, behavioural, information and innovation economics, new (endogenous) growth theory, theories of institutional change and economic sociology. Greater attention should also be given to the industrial organisation and related economic theories, competition analysis and economic reasoning employed in competition case law and decisions in other developing and transition economies that are ahead of India in enforcing their new modern competition statutesxvii.

The CCI should contribute advice, experience and technical assistance to this work, but much greater contributions should be made by: (i) other relevant GoI ministries and agencies with competition responsibilities and greater resources, and (ii) India’s academic, research, business, legal and civil society communities – with financial and technical support from international agencies with competition policy mandates such as the International Competition Network, the OECD, the United Nations Conference on Trade and Development (UNCTAD), the Asia Pacific Economic Cooperation (APEC), the World Bank and the Asian Development Bank.

7. Given the importance of honest, accurate, reliable and trustworthy information in

the knowledge-based economy to both businesses and consumers, a growing number of competition cases will involve consumer protection issues and a growing number of consumer protection cases could as well involve unfair and restrictive trading practices that distort competition (Ireland 2004). The Competition Commission should work closely with the consumer forums under the COPRA in order to develop mutual understandings, agreements and modes of co-operation for sharing information and advice, for assisting each other on cases that cut across competition and consumer protection laws and for deciding on which agency should take the lead on specific cases (Sylvan 2004).

8. The Competition Commission should work closely with all government

ministries, agencies and authorities that are responsible for innovation and IPRs policies and the administration of intellectual property laws and regulations, in order to develop shared understandings, agreements and modes of co-operation and a common strategy for addressing the abuses of IPRs that hurt competition and consumers (as called for under the TRIPs Agreement of the WTO) – while ensuring that IPRs and IP rights holders play their full and appropriate role in creating, disseminating and commercialising new technology and product and process innovations. This could include a long-term work programme towards the preparation of Guidelines on the Treatment of Intellectual Property Rights under the Competition Act and the NCP of the GoI. These IP guidelines would be prepared and issued jointly by the Competition Commission and other interested ministries and agencies responsible for innovation policy and IPRs.

It is suggested that work on these Guidelines be delayed until the Commission has investigated a few abuse of dominance, vertical restraints and other enforcement cases that have IP-related implications and raise competition issues. Otherwise, the Commission and its partners would need to depend on guidelines, case law and the extensive research on the interactions between intellectual property and competition policy and law, developed for the most part in the major OECD economies, starting with the US (see, e.g., Anderson and Gallini 1998 and Ireland 2007). Depending solely on OECD experience and jurisprudence in preparing Indian IP guidelines would be a mistake, given India’s current stage of development and dependence on foreign technology.

9. While entry into Indian markets has improved greatly in the past 17 years, exit of sick firms from the market and company adjustment, down-sizing and divestiture strategies to make sick firms healthy again are still impeded by constraints posed by labour, bankruptcy/insolvency, corporate and other laws. Healthy competition requires exit, entry, as well as significant changes in market shares where one company enjoys an increase in market share at the expense of another. Markets can be reasonably competitive with few suppliers, as long as there is potential for and actual entry, exit and changes in market shares – what the IO literature often calls “churning”.

10. At the appropriate time, perhaps near the end of the 11th Plan period, the Competition Commission should be requested by the GoI to provide competition advocacy, education and competition research, through working closely with the relevant ministries and departments to ensure that reforms of labour, bankruptcy, insolvent/sick company and related laws and regulations are supportive of dynamic inter-firm rivalry in Indian markets and support the GoI’s NCP.

11. Working with other competition law jurisdictions in the International

Competition Network (ICN), the CCI and GoI should establish understandings, protocols and, over time, mutual co-operation and information-sharing agreements with the major competition law jurisdictions (e.g., US, EU, Japan, Australia, Canada and China), to ensure that India’s business, consumer and economic interests are addressed and the CCI is treated as a true partner, in multi-jurisdiction investigation and adjudication of cross-border merger transactions, cartels, abuses of dominant position and other anti-competitive agreements and conduct.

Over the longer term, the Commission could begin joint work with the trade and industry ministries in preparation for future WTO, United Nations Development Programme (UNDP), and/or regional trade negotiations that could and perhaps likely address the trade-related aspects of competition policy and law. This research and policy analysis is needed to ensure that Indian interests and

requirements are fully understood and addressed in any future international research, discussions, consultations and negotiations on this complex and contentious topic. This would include analysis and selection of the most appropriate forum for this issue (WTO, UNDP, ICN, etc.) from an Indian perspective. Work could be conducted over the longer term on the interactions between competition and environmental policies, laws and regulations as well – given the growing importance of environmental issues in both international and national debates.

12. Over the longer term as well, the Commission should contribute to the work of

the relevant ministries, departments and agencies at all geographic scales in replacing the long-standing small-scale firm policies of reservation, protection and preferences with positive and proactive policies based on competition principles that are designed to encourage and achieve growth, innovation, technological change, competitiveness and dynamism in the small firm sector, to make them stronger competitors in national and international markets and as well to protect them from the anti-competitive conduct of larger firms located in India and overseas.

In this context, the Commission may wish to give special attention to: (i) the current impacts of larger firm strategies and alleged anti-competitive conduct on the opportunities provided to smaller firms in investigating abuses of dominance, cartels and vertical restraints and related arrangements, including, e.g., the exclusionary and entry deterrence practices and other anti-competitive agreements and conduct of larger firms and the sub-contracting and outsourcing arrangements between smaller and larger firms where the two firms have unequal bargaining power, and (ii) the predicted and actual small firm impacts post-merger in merger cases that involve two or more larger firms in markets where small firms are present and could provide a “competitive fringe”. Small firm competition analysis may be particularly important in industries where the strategic behaviour of larger firms in such areas as advertising, promotion, research and development and other sunk cost expenditures is reducing competition and preventing entry by small firms and the establishment of a competitive fringe, even though the industry is experiencing major growth in production and market demand (Kwotka and White 2000 and Carleton 2003). In recognition of the importance of small firms to job creation, innovation, technological advancement, exports and consumer welfare in their countries, Germany and Chinese Taipei give special attention to small firm impacts and barriers to entry in investigating abuses of dominance and other anti-competitive conduct and arrangements under their competition statutes.

6. Concluding Comments and the Forward Competition Law Reform Agenda These are some initial ideas regarding a competition policy and law strategy for the GoI and the CCI, working with current and potential partners in and outside government. These views are offered at this time to facilitate discussion among all interested parties in anticipation of full enforcement of the Competition. As noted earlier, these views are developed from the perspective – based on the experience and successes of many other competition law jurisdictions – that effective competition policy advocacy and competition law compliance and enforcement programmes implemented by an independent, highly competent and trusted and well-resourced competition agency can play a major role in the design and implementation of India’s NCP, as proposed in the 11th Five-year Plan. These ideas, therefore, are based on the premise that the Commission should move forward with strong advocacy, compliance and enforcement programmes under the current law for an extended period. While the current law is not without controversy, critics, detractors and certain limitations (see, e.g., Bhattacharjea 2008), no competition law is perfect and any competition law needs to evolve over time through experience, learning-by-doing and development of the case law. Therefore, the Commission must begin very soon after the amendments are enacted to enforce the amended Competition Act in a carefully targeted but effective manner. Substantive competition law amendments in the future can then be based on actual experience with investigation, compliance, enforcement and adjudication under the amended Competition Act 2007. Successful enforcement will build credibility and visibility for competition law and the Commission, which, in turn, will facilitate future amendment processes to make the competition law even better and more effective, as both a voluntary compliance vehicle and as an enforcement instrument. Based on this timetable, further substantive amendments and modernisation of the Competition Act could be the subject of India’s 12th Five-year Plan, using the 11th Five-year planning period to fully test and demonstrate the effectiveness of competition policy and law in India’s new, dynamic and rapidly changing economic environment. Based on five years of enforcement experience, the Commission, the Competition Policy Council, the GoI, the business community, the civil society and the country’s consumers associations and individual consumers will have the information and knowledge needed to address some of the “unfinished business” regarding the design of the Competition Act. From the perspective of the current critics of the Act, this unfinished business could include five subjects for discussion. The first would be more explicit recognition within the Competition Act of the competitive harm that can be caused by abuses of intellectual property (IP) by rights

holders. Experience with abuse of dominance and other cases that have IP implications will be very instructive in reviewing and perhaps revising this aspect of the Competition Act. Second, experience with the merger provisions – and the significant risks to merging parties of a non-notified merger that are under the merger thresholds being contested later after the merger is completed – will likely be more apparent after five years of implementation. The business community and the GoI at that point in time may wish to revisit the merger section in order to give less emphasis to company and merger size (which appears to be a holdover from the MRTPA) and greater emphasis to market share, prior business conduct in the market where the merger is taking place, anticipated barriers to entry post-merger and the anticipated positive and negative (static and dynamic) efficiency effects of the proposed merger on current and future competition, inter-firm rivalry, efficiency and consumer welfare. This review may be precipitated, in part, by concerns that the current merger review law captures very few of the anti-competitive mergers that hurt competition and consumers at the state and local levels. Third, five years of experience in co-operating with the COPRA could point out areas where the most egregious kinds of misleading advertising, misrepresentations, consumer frauds and related unfair trading practices could be better addressed through a national competition law working closely with the COPRA. We may learn that a national competition law is better positioned to: (i) eliminate the most serious unfair trading practices that particularly distort competition at the national level and hurt consumers in many parts of the country; (ii) investigate and prosecute cross-border Internet and telephone marketing frauds and other unfair trading practices that hurt consumers in two or more countries; and (iii) address the unfair trading practices of large domestic and international firms that often are one component of a broader anti-competitive strategy by a larger company or business group. These kinds of cases could include cross-border misrepresentations and consumer frauds through mail, telephone and the Internet, which have grown exponentially between, e.g., Canada and the US, and are being addressed through cooperative enforcement agreements and other measures between the Canadian Competition Bureau and the Federal Trade Commission in the US (Ireland 1997). These cases may encompass as well the misleading advertising campaigns by national retail chains that hurt consumers and retail competition, including smaller retailers, in many parts of the country. As national and international retail chains enter and expand in the Indian market, these kinds of nationwide cases, which involve both unfair trading practices and possible competition law violations, may become more prominent in the future. Fourth, based on the EU model, the Competition Commission may wish to explore with the Planning Commission and other interested ministries a possible role for the Competition Act and Commission in reviewing, reporting on and perhaps

disciplining the subsidies of national and state governments that distort competition and hurt competitors as well as consumers. This could be one component of a broader GoI initiative to use competition policy and law and other instruments to eliminate national, state and local government barriers to trade that distort markets and competition and which prevent the establishment of a fully integrated Indian common market – as called for under the NCP. Fifth, as noted earlier, given the strong probability that the trade-related aspects of competition policy and law will be revisited at the WTO or a regional trade negotiation at some point in the future, the Commission will likely want to contribute to preparatory work of the responsible trade, industry and other ministries and commissions on a negotiating position that fully reflects India’s competition, trade, IP and related laws and that reflects India’s experience with promoting compliance with and enforcing the Competition Act. Based on recent Indian research on this topic, this preparatory work would likely give particular attention to: (i) the impacts and consumer harm of international cartels, mega-mergers and abuses of dominant position on Indian markets and competition, (ii) the implications of the export cartel exemptions, which are in most competition laws, including India’s, for competition and consumers in Indian markets, (iii) the distorting effects of anti-dumping, countervailing duties and other trade measures on India’s domestic markets and on the ability of Indian exporters to compete fairly and profitably in other country markets, and (iv) the anti-competitive abuses of intellectual property rights in Indian and other markets that are associated with the TRIPs agreement in the WTO, the treatment of IPRs in regional trade agreements and by national governments and the strengthening of IPRs by many WTO members pursuant to the TRIPs agreement (Bhattacharjea 2006). Through focusing on these issues, India, working closely with other developing countries, would help to return the trade and competition debate to the more balanced approach of the early 1990s that would be of interest and benefit to industries, consumers and governments in developing economies – not just to international corporations that want the same (OECD country) competition rules throughout the global economy. Sixth, once the current law has been enforced for a few years, this enforcement experience and the resulting decisions and case law should be used to select, place priorities on and analyse more specific amendments intended to address the possible limitations to the current statute that have been identified by other authors. These limitations in drafting, objectives and interpretation are related, e.g., to (i) merger thresholds, definitions and notification, (ii) the “development criterion” in the list of objectives that prefaces the Competition Act as well as in the merger and abuse of dominance provisions, (iii) whether so-called hard-core cartels are in fact per se offences, (iv) whether the economics-based rule of reason approach can be applied

appropriately to vertical restrictions, non-merger horizontal arrangements, price predation and dominant market positions in a manner that protects competition, while allowing arrangements that increase economic efficiency and consumer welfare to proceed; and (v) the danger that the new act will be used to resolve contractual disputes that have no impact on competition and to protect competitors rather than competition – as took place under the previous competition law, the MRTPA (see Bhattacharjea 2008 pp. 18-26 for a fuller discussion of these and other concerns with the new competition statute). This forward agenda will of course be further developed as the Competition Commission, the Competition Policy Council, the GoI and the country’s business community, the civil society, the academic community and consumers gain vital first-hand experience regarding compliance with and enforcement of a modern competition law, the amended Competition Act of 2007, in the coming half-decade or so.

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Endnotes i To cite only two examples from the academic literature, Goldar and Aggarwal (2004) used panel data for 137 three-digit industries over the period from 1980-81 to 1997-98 to show that the lowering of tariff barriers and the removal of quantitative restrictions on manufactured goods exports, reinforced by domestic deregulation, had a significant pro-competitive effect on Indian manufacturing industries and thus tended to reduce markups and price-cost margins. At the same time, the price-cost margins in Indian manufacturing did not decline during the post-1991 reform period. This is because the dampening effects of trade liberalisation and domestic deregulation were offset by reduction in labour income’s share of value added that resulted from a weakening in industrial labor’s bargaining power. Sen and Chand (1999) explored the interactions between trade policy and market structure in Indian manufacturing. These authors found that the Indian manufacturing sector was imperfectly competitive at the start of their period of analysis which was from 1973 to 1988. Their empirical analysis indicated that, consistent with economic theory, greater exposure to foreign competition through the trade policy reforms slowly implemented since the early 1970s has had a pro-competitive effect on domestic pricing by Indian manufacturers. Therefore, price and quantity competition from foreign firms has decreased the market power of Indian manufacturers in more concentrated, imperfectly competitive Indian industries and markets. ii The author argues in his PhD dissertation that India may be approaching a “tipping point”

where the business culture that was essentially anti-competition for a period of over 200 years (the period from the start of British colonial rule to the present time) may return to the pro-competition orientation of the pre-colonial period. iii While five-year plans are less important today than before the 1991 liberalisation programme, they still play a useful role in signalling the government’s priorities and intentions to the business community, regional state and municipal governments, consumers/voters, civil society and other market participants; and provide important signals and guidance that can be used by civil society and other competition policy advocates in and outside government to promote the development and implementation of a more comprehensive and functional competition policy within India in the coming years and decades. iv The entry barriers of the pre-1991 period related to the licensing regime, import and foreign investment constraints, and the preferred access of business groups and other large companies to licenses, foreign technology, and investment financing, may continue to provide important advantages to large incumbent firms in accessing financing and government assistance and protection (e.g. subsidies and anti-dumping relief) and in discouraging entry. New barriers to entry related to post-1991 liberalisation could relate to: (i) incomplete reforms in financial services, labour markets, infrastructure services, and other key supporting industries, (ii) the high barriers to exit that remain in place, (iii) the dominant positions of merged companies that result from mergers and acquisitions that have not been subject to merger review under competition law for 17 years, (iv) new and often unanticipated barriers that emerge as the result of the reform of previously highly regulated sectors (Mehta 2006

particularly Uppal 2006), and (v) continuing high information and transaction costs, including the costs of transacting with government and high product search and switching costs for industrial customers and final consumers. In general, more academic work and policy analysis are needed on the implications of India’s incomplete liberalisation for barriers to entry and contestability in domestic markets. v Network effects are associated with demand side scale economies, where one firm, after exceeding some decisive market share threshold, can rapidly attain and maintain market dominance. See: Toshiaki Takigawa (2005). Canada’s IP Guidelines (2000) defines a network industry as follows. “A network industry is an industry that exhibits network effects. These effects exist when the value or benefit derived from using a product increases with the number of other users. For example, fax machines exhibit network effects because the value of owning a fax machine clearly depends on the number of compatible fax machines in use.” See: Competition Bureau of Canada, 2000, page 9. vi The Competition Commission of India, through its participation in the International Competition Network and attendance at competition and related meetings at the OECD and other international fora, also has better access to information on the competition issues, outcomes and problems that resulted from regulatory reform and deregulation in the OECD countries and other developing and transition economies. vii This competition and innovation analysis should include work on how recent research on the importance of consumer and user based innovation could be applied to rural India. This research would address for example how the participation of rural households, farmers and small rural businesses in technology and innovation creation and commercialisation (through a process called “co-invention” in the innovation economics literature) could promote the adoption of more advanced technology and better production methods in India’s rural economy (see e.g. Langlois and Robertson 1995, Robertson and Yu 1999, and NESTA 2008). viii This research could include analysis of the experience and relatively greater success that China has had in reducing rural poverty and raising rural incomes through rural industrialisation and small business development more generally (based in the past largely on township and village enterprises and improving commercial linkages between rural and more prosperous urban economies). ix For example, financial services, telecommunications, energy and transportation are all regulated industries in transition to greater competition, and all have aspects of a network industry. x This author is arguing that all three major sections need to be tested through a comparatively few economically important enforcement cases in the first few years after enforcement begins. Bhattacharjea (2008 p. 30) suggests that, because of the complexity and current uncertainty regarding merger review, the drafting problems in the abuse of dominance section, and the danger of inappropriate interpretations by the Commission, Competition Appellate Tribunal, and the courts, the government may wish to enact only the provisions on cartels and other anti-competitive agreements at this time.

While this author agrees with many of the concerns raised in his excellent article, the author’s experience is that these other two sections must also be enacted and tested to provide the information, case law and consensus needed to support amendments in the future. Otherwise, analysis and debates on the merger and AOD amendments will be based on abstract economic and legal arguments, not on real-world evidence. In addition, delaying enactment and enforcement of two of the Act’s three major sections for a number of years would further undermine business, political and public confidence in India’s new competition act and regime. xi This assumes of course that the merger review section will be enacted and ready to be enforced starting in April 2009 and therefore at the same time as the other two main enforcement sections. xii Some commentators on India’s Competition Act have suggested that the first 3-5 years of implementation should be confined to competition advocacy and education. The Canadian experience after passage of the Canadian Competition Act of 1986 was that competition policy and advocacy and voluntary compliance significantly benefited from successful abuse of dominance and merger cases in the first few years after the Act was passed by Parliament. Successful case enforcement builds visibility, credibility and political and business recognition and support for the competition law – which can no longer be seen as a “paper tiger” once the Commission has a few successful cases under its belt. xiii For example, it is alleged that similar cartel behavior is evident in the cement and other non-metallic mineral products markets in sub-national markets within India and within many other OECD and developing economies. xiv In this context, it should be noted that, while the Competition Act 2002 required both CCI and government decisions to force a divestiture, the amended statute passed in 2007 allows the division of a dominant enterprise to be ordered by the CCI itself, without recommendation to and approval by the government (CUTS International 2006). Regardless, whether political economy factors would allow a CCI ordered divestiture to go so far as to force a demerger remains an open question. In this regard, in its submission, the Bombay Chamber (2000, page 14) argued that the power to divide undertakings is not appropriate to India’s current stage of development and thus should not be included in the new competition law. In fact, this power was included in but not used under the MRTPA. Most of the research participants and other sources indicate that, regardless of the 2007 amendments on divestiture, the Government of India is unlikely to use the new Competition Act to divide up companies and force a demerger. Therefore, the best that the Commission will likely do is to use non-structural remedies that would hopefully ensure that the merging parties do not enjoy the monopoly profits that they expected from the merger. The loss of monopoly profits and the high cost, uncertainty and embarrassment of facing a long abuse or anti-competitive agreement case before the Commission may in some cases lead to decisions not to proceed or (less likely) voluntary demergers by the merging parties. However, whether this occurs with some frequency or at all will depend on future developments, in particular the Commission’s success in investigating and prosecuting cases under the sections on anti-competitive agreements and abuse of dominance.

xv The Merger Guidelines in Canada, the United States and other OECD countries address the proposed transaction’s impact on current competition as well as on the prevention of future competition. An international merger -- where only one of the parties has a major Indian operation at the time of the merger but where the second party was planning on making a major Indian investment in the near future -- is an example of a merger that would prevent future competition through preventing entry by the second party. From the perspective of the first company, the purpose of the merger is to pre-empt entry by the second company. The Commission should have information and conduct analysis on the merger’s impacts on both current competition and preventing future competition (see e.g. Agarwal and Bhattacharjea 2008). xvi One example from Canadian experience is that merging parties could argue that import tariffs and/or FDI restrictions would be reduced or eliminated in the future. Based on this information, the CCI and merging parties could make a joint request to the responsible GOI authority to ensure that the removal of these barriers will in fact take place as planned or even earlier in order to prevent a substantial lessening of competition after the merger transaction is completed, and to thus allow the transaction to proceed with the approval of the Commission. xvii These countries would include South Africa, Brazil, Mexico, South Korea, China Taiwan, and the central and eastern European countries that are now EU members.

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