Sunday, July 31, 2011

National Competition Policy

Shri Dharmendra Kumar committee which was constituted by the MCA for framing the National Competition Policy (NCP) has submitted a draft policy. At first blush one may question the rationale for a National Competition Policy considering that we have a Competition Law (Competition Act, 2002) already in place. Perhaps the answer to this ticklish question lies in the Raghavan Committee Report which observed as follows:

An effective competition policy promotes the creation of a business environment which improves static and dynamic efficiencies and leads to efficient resource allocation, and in which the abuse of market power is prevented mainly through competition. Where this is not possible, it requires the creation of a suitable regulatory framework for achieving efficiency. In addition, competition law prevents artificial entry barriers and facilitates market access and complements other competition promoting activities. Trade liberalisation alone is not sufficient to promote competition and there is a need for a separate competition policy

In other words Competition Law is only a subset of an overarching Competition Policy. Be that as it may, the committee lays down the NCP as under:

-Rule bound, fair, transparent and non discriminatory market regulatory procedures.

-Independence of the regulatory body.

-Establishing a ‘level playing field’ for both the government enterprises and the private sector.

-Fair pricing of public utilities and third party access to ‘essential facilities’. In other words it requires the dominant infrastructure owners (electricity, communications etc.) to grant to third parties access to their infrastructure on reasonable and competitive terms and conditions.

-Promotion of competition through regional, national and international co-operation.

The draft policy also mandates the Central and the State Government to undertake a Competition Impact Assessment of the existing policies, statutes, regulation that prima facie undermines competition (an illustrative list of parameters for conducting Competition Impact Assessment has been provided). Further for the implementation of the policy the government is mandated to set up a National Competition Policy Council (NCPC). The role of the NCPC is primarily to provide technical assistance in conducting the Competition Impact Assessment.

The NCP is indeed a necessary and welcome move. However, one may question the legal relevance of such policies i.e. extent to which they are legally enforceable. 

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