Cheques & Balances

This column is not about debating the implications of Reliance’s market dominance, except to say that this could well be the first of many cases to expose the gross inadequacy of the MRTP Act (which is almost toothless) and the dangerous absence of an effective competition policy in India. In fact, the issue of Reliance’s market dominance will pale into insignificance when the provisions of the World Trade Agreement become operative in the near future. Multinational companies (MNCs) with no restrictions ontheir entry would swamp the market and wipe out several Indian businesses. Curiously, Indian business seems completely disinterested in seeking a strong regulatory regime and a competition policy for its own protection.

While the world brings competition policy on the WTO agenda at the Seattle Meeting in November-December this year, India will probably have nothing to say in the absence of a serious competition policy at the national level. Surprisingly, there is not even an awareness about the dangers of not having such a policy. About the only discussions on the issue have been organised by the Confederation of Indian Industry (CII) with Disinvestment Commission Chairman G V Ramakrishna. But that too has been unfocussed and without the participation of top industrialists — the Bombay club types, who are going to be the most affected by the entry of serious competition.

At his second CII talk a few weeks ago, Ramakrishna tried to light a little fire among the businessmen by highlighting future dangers.In fact, he said discussion on the issue is already five years too late. “For developing countries, it is dangerous to embark on liberalisation without putting in place a credible competition policy,” he said. The CII we are told, is already working on a draft Competition Policy which it plans to present to the government but for some strange reason, it is still a top secret even though the Seattle meeting is less than two months away.

Typically, Ramakrishna blasted the myth (among Indian administrators) that foreign companies are more ethically correct in their dealings because their countries have better laws, stronger regulatory agencies and stricter enforcement. The fact is that the laws still do not deter the best of companies from profiteering at the cost of the consumers, if they can get away with it.

Ramakrishna quoted a few examples: In April 1999, the US Justice Department fined two top MNCs — BASF and Hoffman La Roche a hefty $ 725 million in fines ($ 500 million to Hoffman La Roche and $225 mn to BASF) for overcharging on the bulk supply of vitamins. These were largely supplies to food and drug companies used by them as vitamin enrichments to their products. The fine is considered one of the largest instances of such serious abuse. The matter came up for investigation when a third multinational decided to force the issue rather than charge high vitamin prices.

The second case, more recent, was that of the large Metropolitan Insurance which was fined $ 300 million for taking customers for a ride. The company had been accused of luring customers to swap their existing securities for new ones with higher tax benefits which was found fictitious. With foreign insurance companies all set to enter the Indian market with a clutch of designer products, it is crucial that India has a regulatory regime in place which is up to date on foreign business practices.

In India, the low level of customer awareness, high illiteracy, complicated legal redressal systems and the absence of strong regulationmakes it a vast and ideal market for glib MNCs to pick. The MRTP Act is grossly inadequate and toothless to deal with the issue.

It is the same with issues related to mergers. The Securities and Exchange Board of India regulates substantial acquisition of shares but the implications of mergers are not even examined. Ramakrishna said the mega merger between Boeing and Macdonald Douglas which was cleared by the United States, was stalled when the European Union lodged a complaint on the grounds that since the merged company would market its products in Europe it had a right to intervene. The merger was cleared only after the imposition of a few tough conditions.

Indian businessmen, he said, also need to worry about India’s chosen route with regard to the Patents regime. India and Pakistan are the only two countries out of 130 signatories to the World Trade Agreement who have opted for the Exclusive Marketing Rights (EMR) and that itself ought to have caused serious alarm. The EMRs will legally create anunconditional claim for market access and monopoly to the holder unlike the patents route which provides some scope for intervention at the national level. By the time Indian business realises the implications and begins to bleat about unfairness of the regime, it will already have been far too late.

The urgent need today is for Indian industry to openly discuss the implications and consequences of EMR and also Trade Related Anti Competition Measures (TRAMS). Childish rivalries between industry associations and secret drafts will serve nobody’s purpose when the imperative is to start a movement to push for whatever can still be done to safeguard their business interests. Indian business needs to demand a strong and independent regulatory mechanism — even though the toothlessness of independent regulators set up so far hardly instills confidence — with powers to investigate issues and act on them quickly and strongly. Otherwise, they should be prepared to be wiped out of the markets by MNCs with theirwell-distributed network of subsidiaries and their ruthless fight to corner larger chunks of the vast third world markets.

Author’s email: suchetadalalyahoo.com