The New Competition Regime in India: Prospects and Challenges: Introduction

India is one of the major developing countries having a long history of competition regulation. The scope for the market competition was very limited under the highly rigid regulatory system that existed in India in the early years of development. The key principle behind the planned industrial development strategy in India was self-reliance and social justice for which the government followed a “control and command” regime in which the public sector was assigned a crucial role. Private investment in crucial sectors, entry, and expansion of the private sector was restricted through various regulations. ¹ Foreign investment, ² import of technology, and trade policy were also regulated. MRTP Act 1969 was dealing with the competition issues in India under this highly regulated scenario.

With the paradigm shift in India’s economic policies since the announcement of New Industrial Policy-1991, the country moved to the “market-oriented” scenario, and thereby the role of competition also increased in various economic activities, which necessitated a drastic revision in the then existing competition regulations too, which finally resulted in the adoption of the Competition Act 2002. The enforcement of the new Act started from May 2009 onward for the first two provisions of the Act, namely, (i) anticompetitive agreements and (ii) abuse of dominance. The third component, that is, combination regulations became effective from June 2011. It is to be noted that the provisions relating to the concentration of economic power under the MRTP Act 1969, which also governed mergers and acquisitions (M&As), were deleted following the onset of the new policy regime in 1991. Thus, for two decades, that is, till 2011, when the provisions relating to combinations under the Competition Act 2002 came into force, there were no effective restrictions on M&As.

During the last ten years of operation of the new regulator in India, that is, the Competition Commission of India (hereinafter “Commission”) has been focusing on internal capacity building, networking with competition regulators from other countries, and advocacy initiatives within India along with speedy processing of cases. So far, the Commission has received more than 740 combination cases ³ and more than 1,000 antitrust cases, ⁴ which consists of important cases under all the three major provisions in the Act, that is, abuse of dominance, anticompetitive agreements, and also combination regulations. While more than 95% of the cases have been approved, ⁵ modifications and penalties were imposed only in a few cases, which may be to give a positive message to the business world from the point of ease of doing business.

Initially, the anticompetitive practices were viewed mainly as an internal matter of countries, whereas now it has got important international dimensions too because the impact of anticompetitive activities spills across the border such as the deals involving high-tech network industries, major mergers that often needs simultaneous reviews from multiple jurisdictions. The interaction between competition and trade policy, intellectual property rights (IPRs), and the role of state-owned enterprises has been actively discussed by the World Trade Organization (WTO) working group from 1997 to 2003. From there on, the endeavor to arrive at a general consensus on framing competition regulations in accordance with the international trading system remained unsuccessful. When such discussions started, only fifty WTO member countries had competition legislation, which is now around 135 countries. ⁶ Although the prime idea behind modern competition regulation is that anticompetitive behavior deprives the efficient market outcomes, which are essential to attain the maximum consumer welfare, the developing countries have to consider their larger developmental goals more carefully than that of the balanced welfare approach since the efficient market outcomes may not be “always” Pareto optimal to them (e.g., issues while dealing with foreign acquisitions), given the status of their economic development.

The objective of this special issue is to compile the latest research on some of the important issues raised in this context. The following are the major issues discussed. Apprehensions expressed, especially by academia, regarding the foreign acquisition of domestically grown national champions in many sectors such as pharmaceuticals, which are ultimately shrinking the capabilities and competitiveness created in these sectors. Similarly, many domestically nurtured start-ups with huge growth potential have also been taken over by foreign firms. Hence, irrespective of the size and age of domestic firms, there has been a takeover threat, which is contrary to the “Make in India” initiative and the key role expected from the domestic entrepreneurs under the open economy regime. Already several studies on foreign investment cautioned that foreign investment, in reality, is crowding out the established domestic entrepreneurs from the Indian market through takeovers starting from the acquisition of Thums Up and other brands (from Parle Bisleri) by Coca Cola in 1993.

Although the Commission has been actively engaged in resolving the cases, this issue cannot be solved through the existing competition regulation as it is not distinguishing the foreign and domestic firms in the competition assessment. It is to be recalled that countries like the United States and China have foreign investment scrutiny for sensitive sectors. The assessment also gives importance to data privacy, economic espionage, and intellectual property with military applications. ⁷ Considering a large number of crucial takeovers of domestically grown companies, both established and start-ups, the regulators have to think of national security screening in India too. The article by Prof. Chalapati Rao and Prof. Biswajit Dhar is dealing with these issues.

The paper on economic reforms and market competition assesses the status of competition across various subsectors in the Indian manufacturing sector. The study intends to understand whether the changes in policy regimes could bring out the desired output in terms of increased competition in various spheres of the manufacturing sector. Using multiple indicators of concentration, the study found that despite the increase in competition across various subsectors, concentration levels remain high for many subsectors. High levels of concentration noticed in seven of the twenty-nine subsectors studied and in another three high-moderate concentration levels noticed. This study provides an indication of the subsectors which need to be focused for future in-depth micro-level analysis.

Competition issues linked to IPRs remain another major concern. IPRs provide temporary monopoly rights to the owners to recoup and proliferate the investment made for innovation creation. However, there are many instances in which the companies try to misuse the technology protection granted for developing it earlier. Often, in the pharmaceutical sector, the patent holder offers huge payments to the generic producers to delay the entry of generics, which helps the patent holder continue to reap the profits. This will deteriorate consumer welfare due to the continuing high prices of essential medicines. Such “pay for delay” cases have been viewed seriously by the U.S. and EU competition regulators. Papers by Dr. Reji K Joseph and Dr. PL Beena examined IPR-related issues.

The paper by Dr. Ramji Tamarappoo and Ms. Neha Malhotra Singh discusses the need for clarity in quantitative tools used for merger analysis in India from a legal perspective. The article tries to compare assessment practices in India with the existing practices in other jurisdictions such as the EU and U.S. Department of Justice and Federal Trade Commission. The article identifies the trends and the gaps that still persist in India, in terms of the adoption of analytical approaches in merger analysis.

Another issue is the involvement of big business groups in consolidation activities. Under the new competition regulation, the regulatory focus changed from “economic concentration” or “controlling monopolies” to “promoting competition,” and thereby the ownership of firms is not a concern in competition assessment. This may lead to the concentration of economic assets in the hands of big business groups due to the diversified nature of groups and a large number of affiliated firms. This in turn may affect product competition in the future. However, from a practical point of view, the business groups in India are also undergoing breakups. Compared with the early years of economic development, the role of many dominant groups is coming down in crucial sectors, whereas the role of some groups is increasing too. To what extent M&As strategy has been used by business groups is not yet explored by the existing literature. The study by Beena Saraswathy tries to fill this gap.