STREAMLINING THE OBJECTIVES OF COMPETITION LAW

This article has been authored by Harshitha Ulphas, a student at Christ (Deemed) University.

Introduction

The World Bank in 1999 defined competition as, a “Situation in a market in which firms or sellers independently strive for the buyers’ patronage in order to achieve a particular business objective for example, profits, sales or market share.” They have also recognized how competition is an essential for efficient trade.

Competition is also considered as a strong foundation for the effective functioning of the market system which has advantages in the form of pre- conditions which prohibit/ put a check on the freedom that is invested with the private individuals and leads to the creation of socially fair, optimal and desirable market results.

The competition laws are enacted with the intention to promote competition in markets

that are not necessarily stable at all times. The scope of failures in markets gives rise to the possibility of execution of anti- competitive activities that might lead to abuse of dominance, which also has the potential to tamper with consumer welfare and affect the smooth functioning of the markets. These laws ensure that no company or person has absolute power over the markets and also that the consumers have a choice in the product they would want to consume.

Competition Law in India

After India’s independence, an economic model was adopted which was neither a market economy, like one in the US, nor a socialist economy, like the USSR. The model adopted by India was a mixed model, and was named after the 1stPrime Minister of the country, and was therefore called the Nehruvian Model. This mixed model enable both the private and the public sector to co- exist. The intention behind the model was to promote social justice and inclusive growth.

Competition Act, 2002 wasn’t the first competition legislation in India, it was preceded by a 1969 legislation, which is the Monopolies and Restrictive Trade Practices Act (MRTP Act). The MRTP Act was applicable until it was repealed in 2009.

The MRTP Act was enacted with the aim to, prevent concentration of economic power, prohibit monopoly and monopolistic behavior, prohibit unfair and restrictive trade practices, and to protect the consumers.

While there are various similarities between MRTP Act, 2969 and the Competition Act, 2000, they differ in their objective. While the MRTP Act aimed at prevention of power concentration and prohibition of restrictive and unfair trade practice, the Competition Act aims at promoting competition.

The transition from the MRTP Act to the Competition Act took place in 1991 when the need for an economic reform was felt due to the changing economic conditions, and therefore, a change in approach in the form of promoting competition was required. In the same context, the Finance Minister of India in his budget speech in February, 1999 made the following statement in the context of to the then existing MRTP Act- “The MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions.”

Taking this into consideration, the Raghavan Committee was constituted to recommend a suitable legislative framework relating to competition law for the country. In the light of the same, the Raghavan Committee, put forth its contemporary competition legislation in October 1999, which was specially designed with the intent to be able to cope with international economic changes.

The MRTP Act was replaced with the new Competition Act, 2002, not only due to its incapability to adapt with the international economic scenario, but also due to its inadequacy in providing remedies to the complainants. Apart from the orders directing ‘cease and desist’ to the respondent, from the alleged monopolistic practice, the MRTP Commission wasn’t equipped to impose penalties or any other fines. Another disadvantage of the MRTP Act is its feature of not providing extra territorial jurisdiction, which the courts had reiterated again and again over a period of time.[i] Apart from these reasons, the MRTP Act did not define any key terms like cartels, unfair trade practices, etc, which gives space for loopholes to exist in the law. All these defects/ disadvantages of the MRTP Act led to the requirement of another, newer competition law legislation, that would be air tight in comparison to the 1969 legislation. This gave way to the Competition Act, 2002.

Need for Competition Law in India

Before delving into what the objectives of competition law in India should be, it is essential to understand why the aforementioned is required in the first place. The issue of whether competition law was going to be a reliable legislation or a mere premature legislative setting was first brought up in the High Level Committee on Competition Law and Policy. It was during these exchanges that the need for greater competition in the market was brought up, to be able to sketch out the counters of the competition policy at a later stage. Therefore, competition law at its outset was introduced to facilitate tackling of the factors that were roadblocks for competition in the market, with the aim to later provide counters for the same policies.[ii]

Post liberalization India, with the FDI influx, it became very important to prevent the foreign enterprises from using their lead as an advantage to limit competition in the domestic market, leading to losses to the domestic enterprises. When government barriers like tariffs are reduced or eliminated, the risk of private barriers replacing them persists, which in the future have the potential to nullify all trade benefits of liberalization. Therefore, to ensure that private barriers do not replace government barriers, private enterprises shall be controlled.

It is important to understand here, that competition law and policy’s primary aim is to restrict business practices and market structures that have the potential to restrict competition, as restriction of competition comes in the way of economic development which is also something competition law and policy aims at.

Competition law is not merely meant to encourage competition or ensure highly competitive markets, it is also a vital tool in ensuring economic development of not just the country that it is applicable to, but also development of the world economy through promotion of efficiency and maximizing welfare. In addition to this, it is also seen as a tool international trade relations as it has a strong standing in the WTO.

Lack of Clear Objectives in Competition Law

While competition law is different in different countries, the common objectives which can also be referred to as economic goals of the law have been found to be as follows:

1. Economic efficiency

2. Consumer welfare

It is important to understand that while the objectives of the law are mostly economic in nature, it also has non- economic effects that are beneficial for the enterprises which are a part of the market. Furthermore, the Raghavan Committee Reporthas also emphasized on how the competition law and policy shall be free of the conflict with other public policy objectives that laws usually seek to achieve.

The competition policy in India is definitelysuggestive of striking a balance between economic development, but not at the cost of consumer welfare. This responsibility is entrusted with the commission, which is supposed to implement the law with the correct interpretation of the statute, as a misinterpretation will lead to undesirable consequences.

With respect to the same, the Hon’ble Supreme Court in Competition Commission of India v. Steel Authority of India Ltd.observed that: “… the main objective of competition law is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preference. The advantages of perfect competition are threefold: allocative efficiency which ensures effective allocation of resources, productive efficiency which ensures that cost of production is kept at a minimum and dynamic efficiency which promotes innovative practices.” Whereas, according to the Raghavan Committee Report, the goal of competition law is the maximisation of aggregate welfare, therefore both economic welfare and total welfare.

Therefore, it can be understood that the objectives of competition legislation in India are broad and unclear which leads to improper implementation of the same, creating a lacuna in law.

Conclusion

From the above discussion, it can be understood that Competition Law in India while trying to strike a balance between economic welfare and consumer welfare, in the process is actually in a dilemma. There are polarized opinions on which is more important, and a way to achieve one, without sacrificing the other is still unknown. Therefore, what is needed is streamlining of the objectives of the law in question and adoption of a comprehensive national competition policy, which shall act as the basis for implementation of any competition law in the country.

While the Raghavan Committee clearly states that the two main objectives of competition law in India are economic efficiency and total welfare, what these two terms stand for has not been laid down clearly anywhere. This is primarily the gap that the National Competition Policy of the future needs to fill, in addition to being comprehensive with respect to how the laws have to be implemented. Therefore, laying down a policy that will clearly state what the economic and non- economic goals of the competition laws of the country are, is a way to free the present laws from the dilemma as mentioned before by streamlining the objectives and not keeping them open ended for the future.

[i]Aditya Bhattacharjea, India’s New Antitrust Regime: The First Two Years of Enforcement. [ii]T T Ram Mohan, Competition Policy Dilemmas, (2000) 35 EPW 2499.