Competition: Unlocking India’s Economic Growth Potential

Competition :
Unlocking India’s Economic Growth Potential
Dhanendra Kumar
Former Chairman, Competition Commission of India,
Former Secretary, Roads & Transport, Government of India
and
Former Executive Director, The World Bank.
Prologue
The Author is at present Chairman of the
Committee to frame National Competition
Policy and related matters, set up by the
Ministry of Corporate Affairs. He has
earlier served as Chairman, Competition
Commission of India; Secretary, Roads
and Transport; Culture; and Defence
Production in the Government of India.
He has also served as Executive Director
in the World Bank Board at Washington
DC.
Dhanendra Kumar has vast experience
in different sectors of the economy like
industry, finance, competition, roads and
transport. In this in-depth Paper he
highlights how competition and
competition policy would play a key role
and act as a catalyst in unlocking the
growth potential in a number of critical
areas of the economy.
As the Author has brought out, this would
be facilitated, amongst others, through a
more efficient use of scarce resources and
enhanced productivity thereby adding to
the static and dynamic efficiency of the
economy.
An eminently readable article from
someone who has been in the midst of it
all.
- Editor
Indian economy, after a slew of measures taken post-1991, is on a high
growth path. In recent years, the Indian economy has been one of the strongest
performers in the world. Between 2005 and the onset of the global downturn, Indian
economic growth averaged around 9% a year, an unprecedented step-up from an
already increased growth in the early nineties and subsequently in the beginning of
The views expressed in this article are purely personal and do not in any way reflect the views of the
organisations to whom the Author belongs.
RITES Journal 9.1 July 2011

9.2 Competition : Unlocking India’s Economic Growth Potential
2000, and second only to China amongst the large emerging economies.1 However,
the full growth potential of the economy still remains to be realised. Infusion of greater
degree of competition can play a catalytic role in unlocking the fuller growth potential
in many critical areas of the economy, which hitherto has been held back by restriction
on competition in various forms.
Competition is regarded as the fourth corner-stone of the public policy
framework, along with the monetary, fiscal and trade policies. It is widely recognized
as a powerful tool to secure efficient use of scarce resources, enhance productive
efficiency, add to the static and dynamic efficiency of the economy, maximize
economic growth and contribute to the welfare of the common man.
India needs to pursue a balanced, sustainable and inclusive growth and can
choose a package of competition policy measures that embody these values.2 In
2006, the World Bank commissioned a Study on the requirements for sustained
growth in developing countries and in May 2008, the Commission on Growth and
Development chaired by Michael Spence, Nobel Laureate, issued its Report on Growth
and Development. The Growth Report emphasizes the role of the developmental
state.3 It has been argued that developing economies could take cues from developed
countries for a strong infrastructural set-up since lack of it may frustrate any measures
towards growth.4
A recent study of OECD (June 2011) has highlighted that the Indian economy
is now rapidly beginning to benefit from better infrastructure. However, more remains
to be done. ‘Competition Policy’ and ‘Principles’ can play a useful role in this regard.
Reforms have improved incentives for private infrastructure investment, now making
for good progress in several sectors. Parts of the economy where problems once
seemed intractable – such as telecommunications and airports – are being
transformed, while the highway system is in the throes of a major expansion and
upgrading. These improvements have been achieved in partnership with the private
1. OECD : OECD Economic Surveys: India 2011, OECD Publishing, 2011. http://
dx.doi.org/10.1787/eco_surveys-ind-2011-en.
2. Khemani, R. S. : “Competition Policy and Promotion of Investment, Economic Growth
and Poverty Alleviation in Least Developed Countries”, Occasional Paper 19, available
at www.fias.net (IBRD/World Bank 2007); E. Fox, What is Harm to Competition?
Exclusionary Practices and Anti-competitive Effect, 70 Antitrust L.J. 371 (2002); E.
Fox, Economic Development, Poverty and Antitrust: The Other Path, 13 Southwestern
J. of Law & Trade in Americas 211 (2007).
3. Spence, Michael : The Growth Report available at: http://www.growthcommission.01lJ
Martin Wolf, Useful dos and don’ts for fast economic growth, Financial Times, June
03,2008; Dani Rodrik, Spence Christens a New Washington Consensus, The
Economists’ Voice.
http://www.bepress.com/ev/voI5/iss3/July2008.
4. Fox, Eleanour : ‘Why developing Countries should march to their own drummers but
invite developed countries to join their band’, CIRC.

Dhanendra Kumar 9.3
sector. Going forward, ensuring that the infrastructure needs of a rapidly developing
economy are met, requires further reforms in this area to encourage private investment
which the government expects to triple in the course of the new Five Year Plan.5 In
many countries, like Australia, Competition Policy has played a significant role in
consistently raising the GDP by about five percent6.
In this Paper, the role of competition as an effective instrument in accelerating
economic growth, with static and dynamic efficiencies in production of goods and
services, efficient resource allocation, an optimisation in productivity and outcomes,
has been examined. This paper also examines the role of competition in several
sectors of economy, including in infrastructure sector, as also in the areas of public
procurement. In the latter, this also has linkages with transparency, and optimisation
of resources with greater efficiency. It has been found that competition in these and
various other sectors has the potential to unleash the fuller growth potential of the
Indian economy, which may catapult India to the league of developed nations.
Role of Competition in Economy, Need of a Competition Policy and
Related Principles
Competition is regarded sine qua non to a liberalised economy. In economics,
competition is generally seen as rivalry among firms for a larger share of the market,
which leads to internal efficiency and lower prices for the consumers. Competition
brings in management efficiencies and investment in technology and thereby better
and competitive products. Both economic efficiency and consumer welfare are
enhanced. The New Economic Policy, 1991 triggered the dynamic forces of competition
in the Indian economy, and the widespread economic reforms programme, pursued
with consistence and calibration for nearly two decades now, have unleashed
tremendous growth momentum wherein competition has played a key and catalytic
role in unlocking the growth potential in many critical areas of the economy.
Competition Policy is recognised as a crucial component of a good business
environment, and is a priority area for reforms in many developing countries. As the
2001 Noble Prize winner Joseph Stiglitz said: “Strong competition policy is not just a
luxury to be enjoyed by rich countries, but a real necessity for those striving to
create democratic market economies”. As an outcome of such a policy, level playing
field is created with ease of entry and exit, reducing opportunities for corruption and
rent seeking, and creating more space for entrepreneurs and SMEs and in the process
contributing to good governance and creation of new jobs and optimal utilisation of
talent and human resources.
5. OECD : OECD Economic Surveys: India 2011, OECD Publishing, 2011.
http://dx.doi.org/10.1787/eco_surveys-ind-2011-en.
6. Productivity Council : “Review of National Competition Policy Reforms”, Productivity
Commission Inquiry Report, Report no. 33, Canberra, 2005.

Earlier, following the Raghavan Committee Report (2000) the Competition
Act 2002 was passed. The CCI was established in 2003 but key sections of the
Competition Act were notified in April 2009. As of June 2011, the Competition Act and
the CCI are fully operational. Recently, another Task Force on National Competition
Policy (NCP), as part of Business Regulatory Framework, has been constituted to
facilitate incorporation of broad principles of NCP in the 12th Five Year Plan (2012-
17). Similarly, Ministry of Corporate Affairs has also constituted a Committee to
frame NCP expeditiously, with representation from experts both from within and
outside the Government.
Across the globe many developing countries are migrating from a command
and control economy to a deregulated and market based economy, and there continue
be many reminiscent and legacy issues in several government legislations, policies
and procedures, both at the centre and state levels which may not necessarily be
aligned with competition principles and give birth to competition distortions, thus
affecting competitiveness. In a flexible, dynamic and market-based economy
competitiveness can be enhanced if enterprises, both public and private, have the
freedom to swiftly respond to changing market requirements. In this background, it
is understandable that the overhang and the backlog in both laws and their enforcement
are reviewed and distortions removed to facilitate healthy competition.
There could be various forms of distortions arising out of various policies,
both at centre and state levels. For example, there could be Trade policy-related
distortions where there could be anomalies in tariff regime, like higher import duty on
raw materials than on finished products; procurement related distortions and lack of
competitive neutrality between public and private sector enterprises, state monopolies
in several sectors wherein competition could be brought in many segments in activities,
pricing related distortions, distortions created by rules and regulations – which at
times lead to difficulties and delays in businesses (at times, commented upon in the
“Ease of doing business” in World Bank and other publications), procedures of PPP
in infrastructure projects, grant of concessions and mining rights, settlement of
disputes, balancing competition and IPRs, etc. All these issues are to be looked
into a Competition Policy perspective to bring in greater freedom and level playing
field.
There are numerous global examples of benefits to consumers and economy,
flowing from competition. Some of the examples, cited in the OECD papers, relate
to Railways in the German State of Baden-Wurttemberg where the frequency of
service and convenience for consumers increased with competition (Rafael Lalive
and Armin Schmutzler); Road transport in France, where competition resulted in
fall in prices and margins and increase in employment (Cahuc Pierre, and Francis
Kramarz); Shipping ports in Argentina where privatisation and competition induced
reforms resulted in surging Cargo handling and labour productivity (Lourdes Trujillo
and Tomas Serebrisky).

Dhanendra Kumar 9.5
It is now widely recognised that a transparent, predictable and participatory
regulatory environment can lead to best outcomes for economy. Adoption of
Competition Policy Principles as “mantra” can lead to desirable outcomes for the
growth of the economy. It has already been seen in India, too. The various studies
conducted by the Competition Commission of India (available on its website7) have
highlighted some of the competition concerns in the related sectors. There is, however,
need of a closer study in collaboration with those concerned.
Having discussed the need for a National Competition Policy (NCP), the
Paper now looks into sources and effects of competition distortions in certain sectors,
the growth of which is critical for the Indian economy such as infrastructure – including
roads, railways, ports, public procurement. The next section looks at the public
private partnerships (PPPs) and competition issues, as the PPPs have emerged as
a principal method of infrastructure development.
Public Private Partnership and the Role of Competition in Infrastructure Sector
The infrastructure deficit presents perhaps the most critical constraint in
achieving ‘miracle growth rates’ in the Indian economy. Financial resources as well
as technical expertise in management and execution constitute the major gaps.
Besides, the comparative efficiencies of the government and private sector to manage
infrastructure services differ. This has led to greater recognition of the importance of
Public Private Partnership (PPP) in infrastructure development. In the past, most
infrastructure services were under government control and were operating without
significant competition; this led to the perception that competition is inherently
infeasible in these sectors. However, a number of infrastructure services previously
treated as natural monopolies are no longer so.
When competition is inherently infeasible, as in a natural monopoly, the
next best option available is to allocate the right to supply a specified market, known
as a concession, through a competitive process. A concession grants the
concessionaire party the right to operate a defined infrastructure service and to receive
revenues generated; the ownership of assets remains with the government.
Competition Issues
Competitive bidding is a preferable way of allocating concessions. The more
the bidders, in general, the more competitive the auction is likely to be. The auction
should aim at identifying the most efficient service provider. Governments (central
and state) endeavour to ensure a competitive PPP procurement process, so as to
encourage best value for money and quality outcomes in the delivery of public
7. www.cci.gov.in.

infrastructure, by maintaining competition amongst existing PPP players, and
encouraging potential new domestic participants and experienced international
participants into the Indian market. Sometimes, factors affecting new PPP market
entrants include lack of a clear and consistent policy and a perceived preference
during pre-qualification processes for both local experience and top tier contracting
parties. There may be a need for clear apportionment of risks and responsibilities,
as well as a mechanism for expeditious and efficacious resolution of disputes. These
require serious examination at all levels.
Prohibitive Bid Costs
The efficiency of the procurement process can significantly impact the level
of transaction costs to Government and bid costs incurred by market participants.
Excessive and unnecessary bid costs impact the value for money achieved by
Governments (Central and State), with the market loading these costs into the pricing.
Further, concessions create a private monopoly or extreme dominance, with
consequent market power, which is prone to be abused. This makes the design of
the concession agreement important so that it does not have an anticompetitive
effect. There is a view that rather than relying on ex-post law enforcement alone it is
better to reduce ex-ante the incentive for or ability to engage in anti-competitive
behavior.
Competition Issues in Road, Railways and Ports –Vital Links of economy
Road Transport (Goods)
Overview
Transport Sector is the lifeline of any developing economy. The growth and
development of any nation truly rests on the growth of its transport sector. Transport
provides access to people, supports economic activities, and facilitates social
interactions. A robust economy growing at a rate of about 8% has created a huge
demand and pressure on the road transport infrastructure in India. In many developed
countries, transportation accounts between 6% and 12% of GDP. In India, the sector
accounts for about 6.6% of GDP.8 As may be seen from the Table 1 below, road
transport has emerged as the dominant segment in India’s transportation sector with
a share of 4.8% in India’s GDP in comparison to railways that had a 1% share of
GDP in 2008-09. The major increase in percentage share of transport in GDP since
1999-2000 has been witnessed in road transport sector, with share of other modes
remaining nearly constant with a marginal increase in the share of railways. 9
8. Ministry of Road Transport and Highways, Transport Research Wing.
9. Singru, Narendra : “Profile of the Indian Transport Sector”, ‘Sector Assistance Program
Evaluation for the Transport Sector in India-Focusing on Results’, Operations
Evaluation Department, Asian Development Bank, August 2007.

Dhanendra Kumar 9.7
Table 1: Share of Transport in India’s GDP
Sector 1999-2000 2004-05 2005-06 2006-07 2007-08 2008-09
Transport of which: 5.9 6.8 6.7 6.7 6.7 6.6
Railways 1.3 1.0 1.0 1.0 1.0 1.0
Road Transport 3.7 4.9 4.8 4.8 4.8 4.8
Water Transport 0.2 0.2 0.2 0.2 0.2 0.2
Air Transport 0.2 0.2 0.2 0.2 0.2 0.2
Services * 0.5 0.5 0.5 0.5 0.5 0.4
Source: Central Statistical Organisation.
*Services incidental to transport. Since 2004-05, values are at 2004-05 prices; All shares in GDP
are inclusive of Financial Intermediation Services indirectly Measured (F.I.S.M.).
Expanding Road Network
Road Transport in India, having about 3.6 million kilometres of road network
now, is arguably the second largest in the world.10 Currently, the length of various
categories of roads is estimated to be as under:
Table 2: Length of Roads in India
National Highways 70,934 Km
State Highways 1,33,000 Km
Major District Road and other District Roads 34,17,000 Km
Source : Ministry of Road Transport and Highways.
The Share of road traffic in total traffic has grown from about 14/% of freight
traffic and 15% of passenger traffic in 1950-51 to an estimated 60% of freight traffic
and 87% of passenger traffic by the end of 2005-06.11 Although National Highways
constitute only about 2 per cent of the road network, they carry about 40 per cent of
the total road traffic. In order to give boost to economy and make it competitive,
measures like design of effective and transparent bidding procure, ease of entry
barriers, competition in procurement of road materials, performance based contracts
are important for Highways.
10. Basic Road Statistics of India 2001-02, 2002-03 and 2003-04 published by Transport
Research Wing, Ministry of Road Transport and Highways. (As per latest figures
from Ministry of Road Transport and Highways).
11. Ministry of Road Transport and Highways, Annual Report, 2008-09.

Railways
Indian Railways (IR) is one of the largest and busiest rail networks in the
world and is of vital importance to the economic development and social welfare of
the country. Competition concerns are in the following areas in this sector :
(i) Private Participation in Indian Railways and Competition Issues
In the past, Indian Railways has made several attempts to encourage
private participation in areas such as catering, wagon ownership and
leasing and joint ventures for rail infrastructure projects. These efforts
have, however, been limited in scale and scope. Under the ongoing 11th
Plan, the Railways12 intend to invest ` 2,50,000 crore in coming years in
various projects. Encouraging private participation and competition
therein may yield desired results in terms of maximization of revenues
as well as greater efficiencies for Railways.
(ii) Container Cargo Segment
Indian Railways opened the container movement sector to private sector
participation in the recent past. Prior to this, it was exclusively reserved
for Container Corporation of India (CONCOR). Indian Railways granted
licences to 15 private companies to handle container transport
operations (including CONCOR). More competition in this area may be
generated which may lead to innovative methods.
Ports
Ports are an extremely important infrastructure link for Indian trade as about
95% of India’s global merchandise trade is moved through maritime transport. The
12 major ports established by Central Government handle about 74% of the entire
maritime cargo. The ports, other than major ports, handle the remaining 26%. The
port sector was opened to private participation with the announcement of the ‘Policy
Guidelines for Private Sector Participation’ in major ports in 1996. This policy outlined
the areas within the major port sector where investment from private sector would be
sought.
The government adopted the concept of ‘landlord ports’ and sought private
participation through contractual agreements in the form of ‘Build-Operate-Transfer’
(B-O-T) scheme. Private players were allowed to bid for facilities and were asked to
take over development and management of port facilities (e.g. berth and cargo
terminals) for a period not more than 30 years. Various state governments have also
12. Indian Railways Budget (2008-09).

Dhanendra Kumar 9.9
allowed private participation in the development of minor ports. Besides bringing in
the much needed investment, private sector participation was also expected to bring
in an element of competition and greater efficiency in the working of the port sector.
There are several competition issues in the sector some of which
could be considered for efficient operations of ports.
Inter-Port and Intra-Port Competition
In order to encourage inter-port and intra-port competition it is necessary to
keep in check any possible dominance by one player at a port or on a coastline. The
government should be careful while awarding projects such that a single player is not
granted too many concessions at the same port or on the same coastline. Inter-port
competition requires strengthening of rail and road connectivity as well as
infrastructure availability at the other ports, especially the minor ports.
Intra-port competition may be affected by the advantage that the landlord
port has over infrastructure, which it may use to the benefit of its own terminal rather
than that of the competing private player. It may be necessary to advocate that the
landlord port moves away altogether from terminal operations business.
Case for Competition in Public Procurement of Goods and Services
Public procurement of goods or services is a key economic activity of
governments accounting for 20-30% of GDP in India as per estimates available. As
per the findings of an OECD Survey, savings to public treasuries between 17% and
43% have been achieved in some developing countries through implementation of
competitive procurement processes. In view of the huge public expenditure on
procurement including in infrastructural sector, substantial savings can be achieved
in India by infusing greater competition, which in turn could release resources for the
much needed investment in social sector development in the country.
Most of the time, public procurement including in infrastructural sectors is
carried out through competitive bidding or tendering process with the intention of
achieving maximum economic efficiency through competitive process.13 Ensuring
effective functioning of public procurement markets is also a part of good governance,
and necessitates addressing two distinct but inter-related challenges: (i) ensuring
integrity in the procurement process and (ii) promoting effective competition among
suppliers, including preventing collusion among potential bidders.
13. Robert D. Anderson, William E. Kovacic and Anna Caroline Muller : ‘Ensuring Integrity
and Competition in Public Procurement Markets : A Dual Challenge for Good
Governance’; Arrowsmith and Anderson: ‘The WTO Regime on Government
Procurement: Challenge and Reform’.

Efforts need to be directed to ensure that they are getting good value for
money and those companies seeking public contracts are not conspiring to corrupt
or dilute the underlying philosophy and principles of competitive bidding especially
through bid rigging or collusive bidding. The bid rigging scheme often involves
conspiring firms agreeing to take turns in being the winning bidder or make it
complimentary bidding to the winning bidder. The firms make a collusive bid by
making agreement amongst themselves to divide the market, set prices, limit the
production or refrain from bidding.
Gains from Competition in Public Procurement: International Experience
There are substantial gains from the promotion of competition in procurement.
An independent external Study for the European Commission found that increased
competition and transparency resulting from implementation of the “Public Procurement
Directives” of the European Communities in the period between 1993 and 2002
generated cost savings of between • 5 billion to • 25 billion. On the other hand
collusion in public procurement markets has been conservatively estimated to raise
prices on the order of 20% or more above competitive levels. In Russia, as a result
of the reform in the field of public procurements, in 2008, an amount of $7 billion of
the Russian budget was saved. In Pakistan, a saving of more than US $3.1m for the
Karachi Water and Sewerage Board through the introduction of an open transparent
bidding process, and in Columbia through improvement in transparency and
procurement procedures, a saving of 47 percent in the procurement, was achieved.
The anti competitive practices such as bid rigging, collusive bidding are
specifically prohibited under Section 3(3) of the Competition Act, since such activities
are pernicious to any economy, and the CCI may act on these. However, the
competition distortions emanating from policies or statutes require a ‘pro-active’ or
‘ex-ante’ competition policy response, not an ex-post response due to the erosion of
welfare on account of such distortions. Here, the role of Competition Policy and
related advocacy with Ministries / Departments and PSUs, as well as with the private
sector, cannot be over emphasised.
Working Hand-in-Hand Approach
The CVC has issued guidelines and instructions to curb corruption in
procurement. Each Ministry or Department has its own vigilance machinery which
looks into the procurement related misdemeanours. Accordingly, many organizations
have issued “Standard Operating Procedure”, adopting Integrity Pact and appointing
Independent External Monitors in respect of major procurements. Similarly, the role
of C&AG is extremely important, and brings out the deficiencies in the system and
violations in procedures. However, as for the companies who indulge in such
malpractices, CCI is mandated to investigate and take action against them under

Dhanendra Kumar 9.11
the Act. While both, CVC and C&AG have ex-post and ex ante roles in terms of
primary responsibility to ensure integrity of procurement officials, providing guidelines
for procurement and enforcement of financial prudence, CCI has ex-post primary
responsibility to look into specific infringements of the Competition Act, 2002 (as
amended) and also to (ex-ante) undertake competition advocacy to promote
competition in public procurement and can impose severe monetary penalties on
delinquent vendors in the cases brought before it so as to exert ex-ante deterrent
effect. However, looking at the magnitude of laws, regulations, guidelines, sectors/
government departments and agencies involved in the procurement, it calls for a
more systemic ‘competition policy response’ wherein systemic research and reviews,
and advocacy is likely to elicit desired pro-competition approach on the part of
procurers.
Some of the measures which could be considered to ensure competition
and transparency in procurement in order to give a fillip to investment in infrastructural
sector are as under :
• Procurement being a specialised domain, requires specific skill sets
for design and implementation of efficient and competitive procurement
processes; suitable sensitization and training of the procuring authorities
and officials is desirable.
• In government organizations involving major purchases, there could be
in-house workshops and periodical reviews held on the latest trends in
the market. Also, there could be conscious efforts for development of
the market and bidder-base to have maximum competition.
• The dedicated cells can be created in the Ministries and State
Governments for imbibing competition as a culture not only in the
procurement process but also in all spheres of government and policy
formulation.
These measures, amongst others, may lead to savings of government
funds leading to additional infusion of capital in infrastructural sectors as
also better quality in goods and services procured.
Competition Policy and Disinvestment
It may be relevant to mention that during the disinvestment process, apart
from other considerations, analysis of pre and post disinvestment competitive scenario
is also kept in view for the best outcomes for the economy. Institutional linkages
may be created between Competition Policy Council and Department of Disinvestment;
wherein Competition Policy could bring out some experiences based on impact

assessment of any proposed disinvestment on market competition and the global
best practices on disinvestment processes, keeping in view the desired strategic
disinvestment objectives.
Competition Policy and Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) continues to be a driving force of the
globalization process that characterizes the modern world economy. The current
boom in FDI flows, which has been accompanied by increasing flows of foreign
portfolio equity investments, underscores the increasingly important role played by
transnational corporations (TNCs) in both developed and developing countries. The
increase in FDI may also be a great boost to investment in the infrastructure sector.
However, reaping the fuller benefits of FDI liberalization requires not only those barriers
to FDI are reduced and standards of treatment established – the focus of most FDI
liberalization to date – but also that competition in markets is maintained.
Ease of entry and exit, regulatory certainties, are some of the important
features which allows investors to enter any business in a country thus increasing
FDI.
Market efficiency is one of the important factors14 for assessing global
competitiveness. An effective anti-trust regime is one of the important ingredients of
market efficiency. The use of Competition Policy to preserve competitive market
may not only achieve economic efficiency but it may also uphold the foundation of
liberal democracy as competitive markets will generally preclude the creation of
excessive private power. Altogether, this helps in rejuvenating the business confidence
in the market and attracting FDI.
FDI15 is enhanced in an environment characterized by an open trade and
investment regime, an active competition policy, macroeconomic stability and
privatization and deregulation. In this environment, FDI can play a key role in improving
the capacity of the host country to respond to the opportunities offered by global
economic integration, a goal increasingly recognized as one of the key aims of any
development strategy.
Noting the benefits of FDI, the United Nations Conference on Trade and
Development (UNCTAD) added in its 1997 World Investment Report that a liberal FDI
regime must be complemented by support to rules on competition. In the globalized
economy, effective competition polices can guard against possible abuses of market
power by foreign investors.
14. The Competitiveness Indexes Report, The World Bank.
15. Kennedy, Kevin C : George Washington International Law Review, 2001.

If competition laws are in place and are regularly enforced, then potential
investors will have, at their disposal, the means of combating local cartels or
monopolies that abuse their position. Liberal trade, investment, and competition
policies can be mutually reinforcing. One can generalize that trade policy determines
the relevant market for competition policy, and investment policy determines the
relevant players in the market. Therefore, investment policy cannot attain its
competition objective unless the effect of trade policy in determining the relevant
market is carefully considered.
Way Forward
Implementation of a transparent and effective competition law and policy
can be an important factor in enhancing the attractiveness of the Indian economy as
a site for foreign investment and in maximizing the benefits of foreign investment.
Likewise, local firms will have the same ability to prevent abuses by foreign
investors through a transparent and effective competition law and policy. It will provide
predictability, certainty and transparency to the operating environment for the
businesses. Further, the effective implementation of competition regime requires
cooperation and coordination with other competition agencies. This may require
quick and well thought MOU/Agreement with other agencies. Some of these elements
may have a bearing on Competition Policy.
Competition and Sustainable Development
It is imperative that the development goals should be sustainable. This may,
however, lead to an argument towards a policy which would only advocate regulation
in sectors like energy and environment. Competition Policy has a very important role
to play in the context of the shift towards green growth strategies. To begin with,
conditions of effective competition can support substantially the achievement of
environmental targets in the framework of a well designed environmental strategy for
“Green Growth”. This is so given that under conditions (of effective competition) :
• Prices reflect accurately the social marginal cost of environmental
externalities and provide the right incentives for the reduction of
environmental pollution and for investments on “green technologies”.
• Effective competition, with low entry barriers, also ensures that there
are incentives for innovation and that environmental targets are achieved
in the most cost effective way.
An example of integration of environmental policy and competition policy
can be cited from the EU where implementation of Emission Trading Schemes is

regarded as one of the cornerstones of the EU climate policy. It is often advocated
that emission permits should be auctioned and that incumbents should have no
preferential treatment over incumbents. Here, auction design is very important for
promoting efficient pricing and avoiding collusion.
Various modes of environmental regulation may also have anti-competitive
effects. According to deliberations under the umbrella of OECD, a given environmental
regulation could affect one or more relevant markets. In particular, the product market
affected could be at the level of primary inputs, intermediate products, final products
or distribution. More than one level could also be involved.
National Competition Policy – A Need for India
Competition Policy involves putting in place a set of comprehensive policy
instruments and strategic interventions to effectively generate/promote a culture of
competition in the domestic markets; to enhance the role of competition and
competitive markets in Government policy making, and to suggest an institutional
mechanism for synergized relationship between sectoral regulators and the
Competition Commission of India (CCI). Thus, National Competition Policy is to
achieve harmonization in the government policies, laws and procedures regarding
the competition dimensions through three-pronged actions: (a) providing substantive
objectives/ principles common to all (b) research and advocacy, and (c) coordination
and synergising between agencies.
As demonstrated by international experience, competition can be a powerful
instrument to ensure that the fruits of growth percolate down to the bottom of the
pyramid through lower prices, wider choice and better quality of products and services.
For example, it has been reported that Pro-competition policy in New Zealand and
the UK added around 2.5% to their employment rate over 1978-1998. An Australian
Productivity Commission Study estimated that average Australian household annual
income was A$7,000 higher on account of Competition Policy. Australian GDP
increased by 5.5% or A$23 billion a year and average employment rose by 30,000.
Japan estimated that prices went up on an average by 16.5% by recent cartels.
Sweden and Finland competition authorities observed price declines of 20-25 percent
following enforcement action against asphalt cartels. US estimates suggest that
some hard core cartels can result in price increases of up to 60 or 70 percent. Based
on a review of a large number of cartels, it is estimated that the average overcharge
is somewhere in the 20–30 percent range, with higher overcharges for international
cartels than for domestic cartels. (Source - Hard Core Cartel: Third Report on the
implementation of the 1998 recommendation, © OECD 2006.)
Linking the relevance of competition in driving economic growth and prosperity,
William Lewis, in ‘The Power of Productivity’ and economist Paul London in ‘The

Competition Solution’ in their books have concluded that the competitive pressures
have helped suppress inflation, raise living standards, and pushed manufacturing
productivity up by 4% a year. The benefits of competition work through the economy
by enhancing allocative, productive and dynamic efficiency, and thereby benefit the
consumers, businesses and the government.
To derive fuller benefits of economic reforms and liberalization, there is indeed
a need for a separate competition policy. What may be considered worthwhile is to
put in place a range of governmental policies to enable the economy to conform to
basic market principles. Trade policy, industrial policy, privatization, de-regulation,
regional policy and labour and social policy all may have to conform in symphony in
a manner compatible with the market mechanism for an economy to function as
efficiently as possible. An institutional mechanism may be required to ensure
competition in regulated as well as deregulated sectors, to establish and to strive for
a single national market. There may also be a need of a National Co-ordination
Council for an oversight of proper implementation of these principles
Conclusions
The Indian economy stands at a historic crossroad. While opportunities
abound, there are areas of concern too which, unless addressed with suitable policy
intervention, may pose a credible threat to the sustenance and further enhancement
of our achievements. There is a pressing need to bridge the infrastructure deficit,
ensure transparency in procurement and thereby enhance competitiveness in all
sectors of the economy. These challenges have been duly recognised by the
Government and focussed efforts are being made to overcome them through well
planned policy measures. The Secretariat for Infrastructure in the Planning
Commission is involved in initiating policies that would ensure time-bound creation
of world class infrastructure delivering services matching international standards,
developing structures that maximize the role of public-private partnerships (PPPs)
and monitoring the progress of key infrastructure projects to ensure that established
targets are realized. The Cabinet Committee on Infrastructure (CCI), under the
Chairmanship of the Prime Minister, was constituted on July 6, 2009 substituting
the Committee on Infrastructure which was set up on 31st August, 2004 under the
Chairmanship of the Prime Minister, to approve and review policies and to monitor
implementation of programmes and projects across infrastructure sectors.16
Government is also considering a national procurement law to make the process for
all organisations, including PSEs, transparent and competitive to minimise collusion.17
With its demographic advantages and more room to realign resources towards more
16. http://infrastructure.gov.in, Secretariat of Infrastructure, Planning Commission.
17. http://articles.economictimes.indiatimes.com/2010-12-09/news/27582382_1_
procurement-pses-frauds.

productive areas of the economy, with an effective National Competition Policy, India
could potentially unleash the competitive spirits and outperform many other
economies.
However, much is still required to be done in several endeavours of Central
and State Government where a well-designed Competition Policy reflecting a broad
consensus of major stakeholders, can play very useful and effective role. It would be
desirable to undertake competition assessment of existing and proposed public
policies that unduly restrict competition and develop specific and transparent criteria
for performing competition assessment, including the preparation of screening and
monitoring mechanism. In performing competition assessment, the concerned
authorities should give particular attention to various ‘competition principles’, which
is so necessary to unlock the fuller growth potential of the Indian economy. A
non-exhaustive list of such principles can include: (a) fostering competitive neutrality
(b) ensuring free and fair market process (c) promoting institutional separation between
policy making, operations and regulation (d) seeking sectoral regulator adherence to
the principles of competition as far as possible (e) using the Competition Act 2002
effectively to control anti-competitive conducts (f) ensuring third party access to
essential facilities (g) making procedures rule bound, transparent, fair and non
discriminatory (h) facilitating easy movement of goods, services and capital (i) notifying
deviations from principles of Competition Policy whenever required.
The first generation economic reforms have already rewarded the country.
Greater transparency and adherence to competition principles in different sectors
and activities could further boost India’s growth and help our country to attain a
double digit growth on an inclusive and sustainable platform.
References
1. “OECD Economic Surveys: India 2011”, OECD Publishing, 2011.
2. Singru, Narendra : “Profile of the Indian Transport Sector”, ‘Sector Assistance
Program Evaluation for the Transport Sector in India-Focusing on Results’,
Operations Evaluation Department, Asian Development Bank, August 2007.
3. Robert D. Anderson, William E. Kovacic and Anna Caroline Muller : ‘Ensuring
Integrity and Competition in Public Procurement Markets : A Dual Challenge for
Good Governance’; Arrowsmith and Anderson: ‘The WTO Regime on
Government Procurement: Challenge and Reform’.
4. Kennedy, Kevin C : George Washington International Law Review, 2001.
*****

Competition: Unlocking India’s Economic Growth Potential

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