Competition Policy Issues at Sub-National Level: Local Problems Need Local Solutions

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Competition Policy Issues at Sub-National Level
Local Problems Need Local Solutions
Pradeep S. Mehta CUTS International
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Introduction

• State Government policies/practices that lead to
  anti-competitive outcomes
• Regulatory failures at local level
• Competition abuses at consumer level

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State Government Policies

• Government Procurement Policy
• Preference (price / purchase) given to local
  units
• Policy may be desirable in the context of, the
  overall development policy of the state
• BUT
• Undue protection breeds cartelisation (barbed
  wire association in Rajasthan)
• Incapacity of state government, results in
  anti-competitive outcomes (millers cartel in
  Orissa)

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State Government Policies

• Bid Rigging in Construction/Works
• During the last 5 years, all state governments
  have spent approx US300bn on civil works
• Works awarded through competitive bidding
• BUT
• Contracts awarded in bigger packages limiting
  competition
• Contractors collude to form a pool (flyover scam
  in Chennai concrete sleepers in Railways)

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State Government Policies

• State Excise Policy for Liquor
• Various systems adopted for distribution and
  marketing of liquor (auction or licensing)
• Policy largely revenue oriented
• States where liquor groups are auctioned, results
  in monopolies (liquor mafia)
• Bids are suppressed and state revenues decline
  (Rajasthan)

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Regulatory Failure at Local Level

• Truck Operations
• Truck operators at district level or around major
  production centres form a cartel
• Trucks that come in with goods are not allowed to
  carry freight from the production centre
• Political patronage or official backing (Angul
  Truck Owners Association, Orissa)
• Death knell for the business in the area (marble
  business in Makrana, Rajasthan)

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Competition Abuses at Consumer-level

• School Education
• Tied sales in books, uniform, and stationery
• Health Services
• Nexus between doctors, pharma companies,
  chemists, as well as diagnostic clinics
• Cable TV
• Monopoly at consumers end
• Subscribers do not have choice in selection of
  channels and face frequent hike in tariffs

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Competition Abuses at Consumer-level

• Service sectors e.g. barber shops, pan-biri shops
  etc. form unions and dictate selling prices
• No performance standards
• Catelisation among auto/taxi operators

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Basic Problem

• Lack of Political will
• Non-compliance costs lower than compliance costs
• Lack of awareness about the impact of various
  government policies/regulatory failure
• Need to grease the pocket of enforcement agencies
  at local level

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Good Practices

• e-Procurement, to check bid rigging
• Lucky draw system, to counter liquor mafia
• Involvement of local administration, to tackle
  truck operators cartel

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Recommendations

• Establish State-level Competition and Regulatory
  Agencies
• Use local administration for better enforcement
  of regulatory practices
• Create awareness among all stakeholders,
  including state government officials
• Strengthen the capacity of consumer organisations
• Systemic Competition audit of all government
  policies

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Recommendations

• State authorities to frame guidelines on selling
  of books, stationery, uniform by schools
• Establish a credible regulatory framework for
  diagnostic laboratories
• Carry out in-depth studies on other
  anti-competitive practices, and expand on the
  study of education, health, and cable TV sector.