Citizen consumer and civic Action Group Chennai, India INDIA ‘S NEW COMPETITION REGIME: Competition in a large emerging economy Bharath Jairaj Citizen consumer and civic Action Group Chennai, India www.cag.org.in Warning: This presentation is voice-activated. If it hears a yawn from the audience, it automatically shifts to heavy metal music and throbbing disco lights!

7Up2 Meeting, June 27-28, 2006, Bangkok. Contents Where are we today? How did we get here? MRTP Act, 1969 New Economic Policy 1991 – Amendments to MRTP Act Competition Act 2002 Competition Policy 2006-07? 7Up2 Meeting, June 27-28, 2006, Bangkok.

India’s Competition Regime today: New Competition Law: The Competition Act , 2002 The Competition Commission of India (CCI); The Competition Appellate Tribunal (CAT) New Competition Policy: Advisory Committee to prepare draft National Competition Policy (December 2005) Working group on ‘Competition Policy’ at the Planning Commission (for 11th Five Year Plan) 7Up2 Meeting, June 27-28, 2006, Bangkok.

EVOLUTION- How We Got Here - 1 Constitution of India, Art. 39 (c) – “the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment” 1947- 1969: Regimented and strict system of government controls 1969: Monopolies and Restrictive Trade Practices Act (MRTP Act) legislated 7Up2 Meeting, June 27-28, 2006, Bangkok.

Monopolies and Restrictive Trade Practices Act , 1969 OBJECTIVES: Prevention of concentration of economic power in a few hands Control and regulation of monopolies in certain sectors Prevention of unfair trade practices Prevention of restrictive trade practices 7Up2 Meeting, June 27-28, 2006, Bangkok.

7Up2 Meeting, June 27-28, 2006, Bangkok. THE MRTP COMMISSION A Quasi-Judicial Authority (Chairman (SC/HC Judge) and 2-8 members) Assisted by Dir Gen of Investigation MRTPC vested with powers of a Civil Court: “cease and desist” orders; injunction; award compensation, etc. Can make recommendations to Central Government on functioning of enterprises, when such functioning was detrimental to public interest Suo Moto action possible, though not used 7Up2 Meeting, June 27-28, 2006, Bangkok.

EVOLUTION- How We Got Here - 2 1991: Widespread economic reforms in India – Aimed at Liberalisation, Privatisation and Globalisation Changes felt necessary in MRTP Act Concentration of economic power to the common detriment and control of monopolies – de-emphasised Pre-entry restrictions (prior approval of government), expanding existing undertaking, M&A’s, takeovers – deleted from Act 7Up2 Meeting, June 27-28, 2006, Bangkok.

EVOLUTION- How We Got Here - 3 1999: Expert Group on interaction between Trade and Competition Policy recommended new competition law to “promote fair competition and control (eliminate) anti-competitive practices” in the market 2000: GoI High Level Committee on Competition Law and Policy provided a draft Competition law. 2002:The Competition Act legislated 7Up2 Meeting, June 27-28, 2006, Bangkok.

THE COMPETITION ACT, 2002 What and how Main Focus areas of the Act : Prohibition of Anti Competitive Agreements Prohibition of Abuse of Dominance Regulation of Combinations Competition Advocacy HOW? Through establishment of a Competition Commission of India (CCI) and Competition Appellate Tribunal (CAT) 7Up2 Meeting, June 27-28, 2006, Bangkok.

7Up2 Meeting, June 27-28, 2006, Bangkok. FOCUS AREAS OF 2002 ACT - 1 A. PROHIBITION OF ANTI-COMPETITIVE AGREEMENTS All Anti-competitive agreements are void, i.e., agreements which could restrict competition, vertical or horizontal Rule of Reason to be applied for determining legality of an agreement Certain agreements between same or similar enterprises regarding prices or quantities, on bidding, or to share or divide markets are per se illegal Leniency provision – for whistleblowers in a cartel (if disclosure is before prosecution) 7Up2 Meeting, June 27-28, 2006, Bangkok.

7Up2 Meeting, June 27-28, 2006, Bangkok. FOCUS AREAS OF 2002 ACT - 1 EXCEPTIONS: Export cartels (problem is somewhere else!) Agreements permitted in law Agreements under IPR (not unreasonable restrictions like patent pooling, price-fixing etc.) RULE OF REASON TO BE APPLIED (factors): Creation of entry barriers Driving existing competitors out of the market Accrual of benefits to consumers Improvements in goods and services Increase in Technical development 7Up2 Meeting, June 27-28, 2006, Bangkok.

7Up2 Meeting, June 27-28, 2006, Bangkok. FOCUS AREAS OF 2002 ACT - 2 B. PROHIBITION OF ABUSE OF DOMINANT POSITION: Mere dominance is not an offence, abuse of dominance is prohibited Important shift from ‘size’ / ‘structure’ to ‘behaviour’ / ‘conduct’ Instances of unfair, discriminatory or predatory pricing; restricting quantities, markets or technical development, etc. will qualify 7Up2 Meeting, June 27-28, 2006, Bangkok.

7Up2 Meeting, June 27-28, 2006, Bangkok. FOCUS AREAS OF 2002 ACT - 3 C. REGULATION OF COMBINATIONS: Includes M&A’s, Amalgamations, Acquisitions of control - all above a certain high level threshold (Rs.1000 crore aggregate value of assets or Rs.3000 crore turnover of combining parties) Thresholds deliberately high to allow small Indian companies to combine to become active international players Combinations that cause or are likely to cause an adverse effect on competition are under focus (e.g., horizontal mergers between competitors; vertical merger by dominant player with firm in adjacent market, etc.) Pre-notification voluntary 7Up2 Meeting, June 27-28, 2006, Bangkok.

7Up2 Meeting, June 27-28, 2006, Bangkok. FOCUS AREAS OF 2002 ACT - 4 D. COMPETITION ADVOCACY: CCI to create “culture of competition” Empowered to participate in formulation of country’s economic policies Create awareness and training on competition issues Establishment of “Competition Fund” for above Recently asked to develop Consultation Paper on National Competition Policy (to harmonise various government policies) 7Up2 Meeting, June 27-28, 2006, Bangkok.

COMPETITION COMMISSION OF INDIA (CCI) Adjudicative wing distinct from Investigative and Prosecution wing Allows appointment of economists, lawyers, other professionals as investigators (departure from practice of appointing retd. bureaucrats) UTPs removed from the purview of Act and all pending cases transferred to the Consumer Protection Act, 1986 (CPA) Phased introduction of Act – competition advocacy (Y1); Anti-Competitive Practices and Abuse of Dominance (Y2); Combinations (Y3) 7Up2 Meeting, June 27-28, 2006, Bangkok.

COMPETITION APPELLATE TRIBUNAL (CAT) Established after intervention by Supreme Court of India – to retain “judicial powers” within the judicial system CAT to hear and dispose appeals against any direction issued or decision made or order passed by CCI 7Up2 Meeting, June 27-28, 2006, Bangkok.

EVOLUTION- How We Got Here - 4 2004: UPA government elected despite “India Shining” belief NCMP commits to greater effort towards increasing competition and a competitive environment – broad basing development 2005: GoI asks CCI to develop consultation paper on National Competition Policy 2005: CCI establishes Advisory Committee to develop draft National Competition Policy 2006: Planning Commission establishes Working Group on Competition Policy (for 11th Plan – 2007-12) Showed the difference between “mass media” and “mass reality”. The “India Shining” image was limited to a very few cities of India and completely ignored massive portions of rural and semi-urban India 7Up2 Meeting, June 27-28, 2006, Bangkok.

Competition in India – the road map Shift from “size / structure” focus to “conduct” Shift from discouraging “dominance” to discouraging “abuse of dominance” Includes “combinations” (previously ignored) Includes strong component on “competition advocacy” Replaces “Rule of Law” approach with “Rule of Reason” approach New Competition law to deliver above Decision to locate Competition law within broader Competition Policy – that harmonises various policies 7Up2 Meeting, June 27-28, 2006, Bangkok.

7Up2 Meeting, June 27-28, 2006, Bangkok. Thank you! 7Up2 Meeting, June 27-28, 2006, Bangkok.