GREETINGS
TO
DELEGATES AT THE
TRAINING WORKSHOP ON
COMPETITION POLICY AND LAW
PHNOM PENH
10 MARCH 2006
1
ECONOMIC REFORMS AND
COMPETITION LAW IMPLEMENTATION
IN DEVELOPING COUNTRIES
Dr. S. CHAKRAVARTHY
(Profession : Civil Servant)
Formerly, Member, Monopolies and Restrictive Trade
Practices Commission, Member, High Level Committee on
Competition Policy and Law And Member of Committee for
Drafting the Law.
Presently, Adviser/Consultant
Competition Policy and Law
HYDERABAD, INDIA
Copyright - Dr. S. Chakravarthy
2
LPG PARADIGM
PRE - 1991
POST - 1991
• LICENSING
• LIBERALISATION
• PLANNING
• PRIVATISATION
• GOVERNMENT
• GLOBALISATION
Copyright - Dr. S. Chakravarthy
3
L P G PARADIGM
( POST - 1991 )
RECENT POLICY CHANGES FROM 1991 ONWARDS INCLUDE:
•
DEREGULATION AND SIMPLIFICATION OF LICENSING AND
APPROVAL PROCEDURES
• EXEMPTION OF A LARGE NUMBER OF INDUSTRIES FROM LICENSES,
APPROVALS AND QUOTAS
• NEW ECONOMIC ADJUSTMENT MEASURES
• DIVESTITURE AND SALE OF GOVERNMENT ASSETS
• GRADUAL DECLINE IN THE INTERVENTIONIST ROLE OF THE PUBLIC
SECTOR
• PRIVATISATION
• ENCOURAGING COMPETITION
Copyright - Dr. S. Chakravarthy
4
COMPETITION REGIME
• ONE OF THE ECONOMIC REFORMS
PACKAGE IS TO PUT IN PLACE A
COMPETITION REGIME
• THIS INVOLVES FORMULATION OF A
COMPETITION POLICY AND A COMPETITION
LAW
• COMPETITION POLICY ENVELOPS ALL
EXECUTIVE POLICIES OF THE
GOVERNMENT
• EXECUTIVE POLICIES NEED TO CONFORM
TO COMPETITION PRINCIPLES
Copyright - Dr. S. Chakravarthy
5
PRE - REQUISITES FOR
COMPETITION POLICY






INDUSTRIAL POLICY
SMALL SCALE INDUSTRIAL SECTOR
POLICY
PRIVATISATION AND REGULATORY
REFORMS
TRADE POLICY
STATE MONOPOLIES POLICY
LABOUR POLICY
Copyright - Dr. S. Chakravarthy
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INDUSTRIAL POLICY



INDUSTRIES DEVELOPMENT AND
REGULATION POLICY
DURING PRE-REFORMS LPG ERA
LICENSING PREDOMINATED
DURING POST-REFORMS LPG ERA
1. LICENSES REQUIRED ONLY FOR A FEW
SELECT INDUSTRIES (CORE INDUSTRIES AND
DEFENCE ENTERPRISES)
2. GREATER AUTONOMY FOR PEs
3. GREATER PRIVATE SECTOR OWNERSHIP
Copyright - Dr. S. Chakravarthy
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SMALL SECTOR PROTECTION
• POLICY - ENCOURAGE AND PROMOTE SMALL,
COTTAGE AND HANDLOOM SECTORS
• RESERVATIONS FOR THE SMALL SCALE SECTOR
• THEY SUFFER FROM OLD TECHNOLOGY, LACK OF
RESOURCES AND MANAGEMENT, HIGH COST OF
PRODUCTION AND SALE
• GLOBAL COMPETITION CAN EXTINGUISH THE SMALL
SCALE AND COTTAGE SECTORS
• COMPETITION LAW COULD EXEMPT SMALL SECTOR
FOR A SPECIFIC PERIOD OF TIME TO ENABLE IT TO
BRACE ITSELF TO MEET THE CHALLENGE OF
COMPETITION
Copyright - Dr. S. Chakravarthy
8
PRIVATISATION AND
REGULATORY REFORMS




IN MOST DEVELOPING COUNTRIES
FIRST GENERATION REFORMS UNDER
IMPLEMENTATION
SECOND GENERATION REFORMS
BEING FORMULATED AND
IMPLEMENTED
REFORMS POLICIES NEED TO INHERE
COMPETITION PRINCIPLES
NEED FOR FLEXIBILITY TO PROVIDE
FOR NEEDS, ASPIRATIONS AND GOALS
OF THE COUNTRY
Copyright - Dr. S. Chakravarthy
9
TRADE POLICY

THIS INCLUDES (ESSENTIALLY WTO –
RELATED)
TARIFFS
QUOTAS
SUBSIDIES
ANTI-DUMPING ACTION
DOMESTIC CONTENT REGULATIONS
EXPORT RESTRAINTS

TRADE POLICY NEEDS TO CONFORM TO
COMPETITION PRINCIPLES
Copyright - Dr. S. Chakravarthy
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STATE MONOPOLIES POLICY
 STATE MONOPOLIES AND PUBLIC ENTERPRISES AGENTS OF GOVERNMENT WITH SOCIO ECONOMIC
POLITICAL GOALS
 BUT SUCH ENTERPRISES SHOULD ALSO BE IN
COMPETITION TO SUBSERVE CONSUMER INTEREST
 APPROPRIATE BLEND OF COMPETITION PRINCIPLES
AND GOVERNMENT POLICIES TOWARDS STATE AND
OTHER MONOPOLIES
 COMPETITION LAW SHOULD APPLY TO ALL
UNDERTAKINGS INCLUDING PUBLIC ENTERPRISES AND
STATE MONOPOLIES AND THEREFORE CAN PREVENT RTPs,
UTPs & MTPs ON THEIR PART
Copyright - Dr. S. Chakravarthy
11
LABOUR POLICY





LABOUR LEGISLATION PROTECTS
LABOUR INTEREST
SOME LEGISLATIONS DO NOT PERMIT
ENTERPRISES DESIRING TO EXIT TO
DO SO EASILY
UNVIABLE UNITS IMPOSE HEAVY PRICE
ON THE SOCIETY
COMPETITION DEMANDS CONTESTABLE
MARKET (EASY ENTRY, EASY EXIT)
LEGISLATION NEEDS AMENDMENTS TO
PROVIDE FOR EASY EXIT SUBJECT TO
PROTECTION OF LEGAL OBLIGATIONS
AND LIABILITIES DUE TO THE LABOUR
Copyright - Dr. S. Chakravarthy
12
GOVERNMENTAL POLICIES ON FDI
(INDIA)

AFTER INDEPENDENCE (1947) – STRATEGY OF IMPORT
SUBSTITUTION AND LOCAL CAPABILITY IMPROVEMENT – FDI
WELCOMED

LATE 60s AND 70s – RESTRICTIONS ON FDI ON ROYALTY
PAYMENTS, DURATION AND CAP ON FOREIGN EQUITY

DURING 80s – FDI POLICY LIBERALISED – IMPORT OF CAPITAL
GOODS AND TECHNOLOGY EASED, TARIFFS REDUCED, EXPORT
ORIENTED UNITS EXEMPTED FROM FOREIGN EQUITY CAP

POST – 1991 LPG ERA – MAJOR TRACK CHANGES, LIBERAL TRADE
POLICY, CAPITAL MARKET REFORMS, FOREIGN EXCHANGE
CONTROL RELAXED AND CONSIDERABLE INCREASE IN FOREIGN
EQUITY CAP, MORE INDUSTRIES OPENED FOR FDI AND NATIONAL
TREATMENT TO FOREIGN COMPANIES
Copyright - Dr. S. Chakravarthy
13
FDI INFLOWS INTO INDIA
(1991-2002)
Copyright - Dr. S. Chakravarthy
14
INFERENCES FROM DATA ON FDI
(INDIA)
 INCREASE IN FDI INFLOWS PARTLY DUE TO POST – 1991






ECONOMIC REFORMS
THIS IS ALSO ATTRIBUTABLE TO SHARP EXPANSION IN THE
GLOBAL FDI OUT FLOWS
MACRO – ECONOMIC FUNDAMENTALS OF INDIA ARE
RESPONSIBLE PARTLY
INDUSTRIAL GROWTH RATE AND FDI INFLOWS HAVE A
CORRESPONDENCE
SERVICES SECTOR IS RECEIVING MORE FDI NOW THAN A
DECADE AGO
GOVERNMENTAL POLICY INFLUENCED THE EFFECT OF FDI
ON DOMESTIC INVESTMENTS (MARUTI CAR)
40 % OF THE FDI INFLOWS ARE IN THE FORM OF MERGERS
AND ACQUISITIONS - GREEN FIELD INVESTMENTS ARE
LESS NOW
Copyright - Dr. S. Chakravarthy
15
IMPLEMENTATION BLUES
A
• DESIGNING COMPETITION LAW IS A
CHALLENGE FOR MANY DEVELOPING
COUNTRIES
• NO ONE SIZE FITS ALL COMPETITION LAW
• UNIVERSAL COMPETITION LAW IS NEITHER
PRACTICAL NOR DESIRABLE
• COUNTRY’S STRENGTHS, WEAKNESSES,
SYSTEMS, GOALS, ASPIRATIONS ETC NEED
TO BE FACTORED IN
• WIDE
CONSULTATIONS
WITH
ALL
STAKEHOLDERS
Copyright - Dr. S. Chakravarthy
16
IMPLEMENTATION BLUES
B
• COMPETITION CULTURE LACKING IN
GOVT,BUSINESS AND GENERAL
PUBLIC
• LEVEL
OF
AWARENESS
OF
POTENTIAL
BENEFIT
OF
COMPETITION IS INADEQUATE IN
MOST DEVELOPING COUNTRIES
Copyright - Dr. S. Chakravarthy
17
IMPLEMENTATION BLUES
C
• COMPETITION AUTHORITIES IN
DEVELOPING COUNTRIES FOCUS MORE ON
STRUCTURE THAN BEHAVIOUR OF
ENTERPRISES
• STRUCTURE ANALYSES ARE IMPORTANT
BUT BEHAVIOUR ANALYSES ARE MORE
IMPORTANT
• BEHAVIOUR ANALYSES REQUIRE BETTER
EXPERTISE AND MORE RESOURCES
Copyright - Dr. S. Chakravarthy
18
IMPLEMENTATION BLUES
D
• COMPETITION LAW ENFORCEMENT IS
HARDLY A PRIORITY ITEM FOR GOVTS
• BUDGETARY ALLOCATION IS POOR, IF
NOT DISMAL
• COMPETITION CULTURE AND
BUDGETARY ALLOCATION GO HAND
IN HAND
Copyright - Dr. S. Chakravarthy
19
IMPLEMENTATION BLUES
E
• PERSONNEL CONSTRAINTS HINDER
ENFORCEMENT
• COMPETENT AND QUALIFIED STAFF
ARE NEITHER AVAILABLE OR ARE
DIFFICULT TO RETAIN
• MULTI-DISCIPLINARY APPROACH IS
REQUIRED BUT IS LACKING
• TRAINING FACILITIES ARE
INADEQUATE
Copyright - Dr. S. Chakravarthy
20
IMPLEMENTATION BLUES
F
• COMPETITION AUTHORITY NEEDS TO BE
MANNED BY PERSONS WITH EXPERTISE
AND
KNOWLEDGE
IN
COMPETITION,
ADJUDICATION.
• DEVELOPING COUNTRIES DO NOT FIND
SUCH PERSONS IN ADEQUATE NUMBERS.
• QUALITY
OF
ADJUDICATION
AND
ENFORCEMENT
SUFFERS
FROM
INADEQUATE BUDGETARY ALLOCATION.
• INDEPENDENCE
OF
COMPETITION
AUTHORITY
IS
UNDERMINED
BY
EXCESSIVE GOVERNMENTAL CONTROL
Copyright - Dr. S. Chakravarthy
21
IMPLEMENTATION BLUES
G
• CONSUMER MOVEMENT IS WEAK IN
DEVELOPING COUNTRIES
• CONSUMER ORGANISATIONS AND
NGOs ARE NEEDED FOR
CONDUCTING RESEARCH AND
BRINGING FORWARD COMPLAINTS
BEFORE THE COMPETITION
AUTHORITY
• CONSUMER EDUCATION IS LACKING
Copyright - Dr. S. Chakravarthy
22
COMPETITION ADVOCACY
• TO OVER COME THE IMPLEMENTATION
BLUES, DEVELOPING COUNTRIES WOULD
DO WELL IN TAKING UP STRONG
ADVOCACY MEASURES
• THEY SHOULD HAVE A STRONG POLITICAL
WILL TO ENFORCE COMPETITION POLICY
AND LAW
• COMPETITION AUTHORITY SHOULD BE A
COMPETITION ADVOCATE
Copyright - Dr. S. Chakravarthy
23
THANK YOU
FOR YOUR
KIND ATTENTION
Copyright - Dr. S. Chakravarthy
24