T C A Srinivasa-Raghavan: Countering competition policies

OKONOMOS

Starting from a small consumer protection organisation about two decades ago, the Consumer Unity and Trust Society has become an important and large NGO with interests in trade policy and competition.

Over the past three years, especially, it has managed to collect some formidable talent "" T N Srinivasan, Alan Winters, Shanker Acharya, Subir Gokarn to name just a few "" and put it to work on these issues.

It has thus honed policy advocacy to a fine art. (I too have been associated with CUTS research).

Its latest offering* is on competition policy. It consists of 22 papers, covering sectors from transport (on which one of my colleagues from this newspaper, Sunil Jain, has written) to biotechnology; electricity and telecommunications to professional services like legal and accounting services and, of course, IT and financial services.

The papers are rich in both information and analysis and therefore well worth at least a leisurely browse.

Given that India is rapidly becoming to services what China is to manufacturing, the papers on the service sector are the most interesting.

They are written by Subhasis Gangopadhyay and Praveen Mohanty (financial services), and T C A Anant ( professional services).

Both papers argue that the existing framework for competition in these two vital sectors is grossly inadequate and call for changes.

Without more competition, they say, India will once again miss the boat, just as it did in manufacturing after having been well ahead of others for a long time from 1947.

Gangopadhyay argues for a single regulator for the financial services and a revamp of the bankruptcy laws so that risk can be relocated.

But he may be whistling in the wind because the government is no closer to thinking about it than it was when the idea was first mooted more than five years ago.

Anant, who three years ago had written a couple of papers on professional services for Indian Council for Research on International Economic Relations (ICRIER), points to the idiosyncratic nature of the market for professional services "" no two purchasers buy the same product "" which allows massive market failure to take place.

This by itself calls for better regulation. He is especially severe on lawyers and accountants, who have been blocking all attempts at reform.

Another interesting paper is by him and S Sundar, the former civil servant who is currently at The Energy Research Institute (Teri). It is on the interface between regulators and the competition authority.

They say that unless the activities of the two are properly co-ordinated by suitable amendments in the law, we are going to see a lot of problems.

Co-ordination, they say, must be made mandatory.

There are two papers on government policies and competition. One of them is on a subject no one has bothered about much despite its obvious importance "" state government policies and competition.

It is by Prabhat Dayal and Manish Agarwal. Both work for CUTS. They list the sort of anti-competitive practices that are rampant at the state level and it becomes clear that the problem at the state level is at once bigger and more intractable.

The portion on bid-rigging is especially revealing.

However, it would have been useful if the central issue here had been emphasised more strongly. This is that whereas in other countries it is firms that indulge in anti-competitive practices, in India it is most often the government that either does so or encourages such practices.

At the sectoral level energy, transport, steel, cement and pharmaceuticals and telecoms (by my old friend Mahesh Uppal) have been covered.

Their basic thrust is the same: introduce more competition by getting the government out.

The setting for all these papers is provided in a crisp overview by the man who knows all about competition, S Chakravarthy. Those who wonder what all the fuss is about would do well to read it.

Chakravarthy makes the key point that the emphasis has now shifted from structural to behavioural, that is, competition is no longer sought to be enforced solely by examining the ownership structure but by ensuring that firms behave properly whatever the ownership structure.

*Towards a Functional Competition Policy for India, CUTS International, Jaipur (forthcoming Academic Publishers)