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BW Businessworld

"They Will Have To Comply"

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On 21 June, the Competition Commission of India (CCI), the country's anti-competitive practices watchdog, slapped a fine of Rs 6,304 crore on 11 leading cement manufacturers on cartelisation charges. It also imposed a fine on the Cement Manufacturers Association for collecting price information and using it to help members act in a coordinated manner on price, dispatch and supply. The decision came as a shock to cement makers such as Jaypee, ACC, Ambuja, Ultratech and others. The companies are firming up legal defence and are expected to approach the appellate authority soon. Ashok Chawla, chairman, CCI, speaks to BW's Joe C. Mathew on the reasons behind the decision and what it means for the established trade practices in the country.  Excerpts:

Cement manufacturers and their association refute all charges levelled by CCI. They say they have only been doing what any other industry or trade body would do to promote genuine business interests.
Trade associations have a very important role to play. They provide a platform to the members to get together, and to know what is happening, in terms of technical and other economic matters that affect their industry. It helps them learn good practices. In the process of providing that platform, there is absolutely no harm if they get together and take up matters of individual benefit. But when associations cross that thin dividing line, and get into areas where they actively encourage the coordination of prices, production capacities, or in terms of dividing the market, that is something which is violative of the Competition Act. 

Collection and dissemination of information has always been part of associations' role. Even government departments seek sectoral data. What is your view on this?
The very innocent function of collecting data is one thing. Where it is collected with an ulterior motive, it cannot be acceptable. These days the companies have their own data in the public domain; there are third-party agencies for this. Associations can put data into the public domain. So it is not per se the act of putting data in the public domain that is violative; the problem comes when that information is used to the collective advantage of the members and with the intention of causing volatility in the market and, therefore, cutting on consumer welfare. That is not acceptable.

In the case of cement companies at least, there seems to be a historic reason for the Cement Manufacturers Association (CMA) to collect this data and provide it to the government agencies?
Well, the Commission has passed an order on what they are supposed to do and what they are not. So they will have to comply unless they get some relief from the appellate forum.

The CCI has found fault with associations in the film trade, medicine, and several others. Is there a need for more awareness of laws?
It could be. The law is of somewhat recent origin. It is possible that associations may have been doing these things earlier too, and are continuing either because of lack of awareness of the Act or because of reasons slightly different. In any case, we have a fairly robust advocacy programme in place. We could step that up. But at the end of the day, it is for the associations to act with restraint and act as bonafide self-regulating organisations, and not overstep the parameters of the law.

In cement, normally the leaders fix the price and others follow. Can we really say that there are issues in such price patterns?
It depends on what the market structure is. One cannot draw any specific or generalised conclusion. There are industries like cement where the market concentration is reasonably high — 10 cement producers account for 70–75 per cent of the market. The rest of the producers, whose number may be large, have only 30 per cent share. Conceptually, if there is an industry where the market is very fragmented and the top 10 or 20 do not account for a substantial percentage of the market share, the dynamics of that market are very different. The probability of producers of a product where there is high market concentration coming together is more likely. This is purely from a conceptual point of view. This is the way it works, and not just in India.

So one has to look at the structure of the industry, market concentration, and then certain other parameters of the level of concentration. There are various tools that one can use to check for potential likelihood of violation. That, of course, has to be buttressed with a lot of information and details to come to a conclusion that is in the nature of a judicial decision.

Isn't under-capacity utilisation the prero-gative of an organisation? Won't commercial considerations drive such decisions?
Let us not talk about any particular industry. Conceptually, what you are saying is that if the marginal cost is more than the marginal revenue, then that activity at that margin will not take place. Absolutely correct. That is what economics says. But if the capacity is not being operated even though the marginal revenue is more than the marginal cost, then it lends itself to other issues.

You mean to say the case of the cement sector should be taken in isolation?
Absolutely. Market behaviour and dynamics cannot apply across sectors. Every industry will have its own peculiar set of circumstances. And one judgement cannot apply to other sectors.

What will be the impact of this verdict on the cement pricing mechanism?
That is very difficult for us to say. That is not really the intention of our order, in this particular case, or in any other case. It is for the enterprises that operate in the market to take this decision.

We hear that associations related to jute mills, sugar and several others are facing similar charges?
Associations' relationship is only incidental; we do not start with associations. We look at the basis of information that comes to us from public or suo moto to see if there is a prima facie likelihood of competition being distorted. If so, we order a detailed investigation through the director-general. The commission then examines the report and hears the parties. At any point, there would be sectors and activities that we would be looking at. But what will be the final decision is very difficult to say. 

When you took charge about eight months ago, CCI had a lot of backlog of cases. What is the situation now?
Broadly speaking, we started work as a commission in 2009, and in three years, we have about 265-odd matters or cases; 200 have been decided. So, 65-plus matters are currently with CCI and the DG (investi-gations). Most of the backlog has been cleared.

"The problem comes when information is used to cause volatility in the market"
(BW Pic By Ashok Chawla)

What will be the impact of the proposed Banking Law Amendment Bill on CCI? Will its M&A approval jurisdiction get reduced?
The government is proposing to amend the Banking Regulation Act. Once that happens, banking M&As will go out of the purview of CCI. Till then, they will remain with us. But we will have the power before and after the merger to intervene if there is any anti-competitive practice. Formation of cartels, abuse of dominance — these will remain with us. To look at a financial institution before or even after a merger in relation to how they are behaving, whether they are up to the benchmark set under the Competition Act or not, will continue to be our responsibility. For example, if three or four banks are forming a cartel and carrying on something that is punishable under the Act, we can investigate. If the facts are proved true, we can take action.

For insurance, there is no proposal for such an exemption. For telecom also some view has been expressed, but there is nothing formal at this stage. The Cabinet has decided that a Group of Ministers will look at issues related to the proposed amendment to the Competition Act and the matter of CCI versus sectoral regulators. But that is still at a very preliminary stage.

The government may soon approve a new Competition Policy. What could be its impact on the functioning of CCI?
It will help build the culture of competition. Once that policy is approved by the Cabinet, what it implies is that all government policies and economic policies will have to go through the prism of competition assessment. And they will have to be competition law-compliant. To that extent, CCI's job as the regulator or enforcer of the Competition Law becomes relatively simpler; because entities that are not compliant will begin to do so. But in any case, we will continue to do our job as that is the mandate given to us by Parliament.

Among the major verdicts, only in a few cases has the decision been unanimous. Why are there frequent split verdicts?
When you have a judicial body pronouncing on sensitive economic matters, and you have a bench of seven people, it is neither necessary nor completely desirable that there should be a unanimous verdict. What is really important is that the decisions — whether of the majority or minority — are clearly articulated and put in the public domain. This helps the stakeholders and helps build the jurisprudence in competition law. 

(This story was published in Businessworld Issue Dated 09-07-2012)