1. Competition Issues in Manufacturing Sector Based on: - Ch 12, State of Competition in the Indian Manufacturing Industry (K.V. Ramaswamy) - Ch 13, Competition Issues in the Indian Cement Industry (Pradeep S Mehta & Nitya Nanda) - Ch 14, Competition Scenario in Indian Steel Industry (A.S. Firoz)

2. Contents Assessment of the extent of Competition in Markets in the 1990s Case Study of Cement Industry Case Study of Steel Industry

3. Economic Reforms during 1990s What has happened to concentration levels in different industries, in the post-reform period? Concentration examined for selected industry groups: consumer non-durables, consumer durables, intermediate goods, and capital goods HHI Index Caveats (adjustment for imports, unorganised sector)

4. Consumer Non-Durables Market concentration increased in certain key consumer goods: Biscuits (Britannia Industries: 32%) Synthetic Detergents (Hindustan Lever: 42%) Lamps & Tubes (Philips India: 29%) Each of these industries have one or two dominant firms Many of these industries, dominated by MNCs (M&A route)

5. Consumer Durables Concentration level shows a marked increase in: Automobile tyres (MRF: 24%) Motorcycles (Hero Honda: 50%) Bicyles (Hero Cycles: 40%) Three-wheelers (Bajaj Auto: 75%) Each of these industries have one major firm with a high market share

6. Intermediate Goods Concentration level shows a marked increase in : Polyester Staple Fibre (Reliance: 54%, worlds 5 th largest producer of PSF) Viscose Staple Fibre (Grasim: 91%, worlds largest plant for producing VSF) Paints & Varnishes (dominated by three firms) Storage Batteries (Exide Batteries: 62%)

7. Capital Goods Concentration level shows a marked increase in : Boilers (dominated by the PSU, BHEL) Chemical Machinery (L&T) Portable Power Generation Sets (Honda Siel Power Products and Birla Power Solutions, 100%)

8. Summary of Findings One or Two large firms dominate industries, which experienced increase in concentration level Both domestic and foreign owned firms have taken dominant positions Required an impact analysis, in terms of their market behaviour

9. Case Study of the Indian Cement Industry

10. Introduction From 1914 till 1924, nascent stage Signs of growth during 1924-41, severe competition, depressing prices and profitability; and Associated Cement Company (ACC) Production and distribution under direct control in 1942 The Essential Commodities Act, 1955 Cement Control Order, 1956 Partial decontrol in 1982 and spurt in growth Total decontrol of cement in 1989

11. Nature of the Industry Worlds second largest cement producing country Factories clustered in a few locations depending on raw material availability Regional in nature Southern region (largest market, insulated from competition) Eastern region (isolated, monopoly in serving north-eastern states) Western region (most open to competition) Emergence of a few big players through M&As Market is fragmented; few players dominate each of the fragmented market (e.g. Lafarge)

12. Cartels and Price Rigging Consolidation leading to reduction of players, and emergence of major players with an ability to influence the market process Collusive price fixing, since the beginning of decontrol Cement industry is known to be prone to cartelisation worldwide Accused of price rigging in 1991. The MRTPC was asked to adjudicate Allegation of collusive practices resurfaced in 2000. Builders Association of India demanded government intervention The MRTPC initiated a suo moto enquiry Boycotting, targeted two major companies, Grasim and GACL Southern region (huge excess capacity, yet average price prevailing is higher compared to other regions) Government (major consumer with 30% consumption) – Bid Rigging?

13. Observations Risks of collusive practices and uncompetitive behaviour CCI to take close look at M&As, especially among bigger players (recent acquisition) On the issue of cartelisation, no credible action has been taken Bid offers can give important clues if there have been patterns of systematic rotation of winning bids, stable shares of companies in overall procurement etc

14. Case Study of the Indian Steel Industry

15. Introduction Highly heterogeneous and fragmented industry, with widely differentiated products Controlled sector till 1992 Strong public sector presence Complete abolition of price and distribution controls during early nineties

16. Nature of the Industry: Representative Case Hot Rolled Coils: Single largest steel product traded, and requires large investment Five producers dominate the market Vertical integration: example, SAIL and TISCO also manufacture downstream products, though much of it is merchandised

17. Competition Concerns Differential Pricing Downstream producers compete with integrated producers for the same end-product Allegations of differential pricing between the intermediate and the end product Cartelisation? Threat of imports, public perception, users of HRC constitute a large lobby Suspicions of concerted action by steel majors (PSUs operation) Cartelisation, when the market is strong, but not when it is weak

18. Observations Intra-industry competition is complex due to merchant operations, where users of intermediate face competition with the same finished product also produced by the producers of intermediates Government intervention has played a major role in determining the competition scenario Regulatory Authority? Instead required enabling government policies and active role by the competition agency

19. Thank You