Competition Policy and Competition Law

Competition policy is the whole body of government measures that determines how much competition there is in an economy. Competition law is one instrument within that policy, directed at the conduct of enterprises. The distinction matters in India more than in most places, because a large part of what restricts competition here is not private conduct but public policy: licensing, reservation, procurement rules, price control, the conduct of public enterprises and the terms on which sectors are regulated. A competition authority that can only punish firms addresses a fraction of the problem, which is why Section 49 makes advocacy a statutory function.

1. What Competition Policy Covers

Competition policy is not a single document but the cumulative effect of a range of decisions. The principal heads are these.

• Entry and exit. Industrial licensing, registration requirements, foreign investment caps, and the law of insolvency, which determines how quickly a failed firm leaves the market and its assets are redeployed.
• Trade policy. Tariffs, quantitative restrictions and anti-dumping duties. Imports are often the most effective constraint on domestic market power, and a protective tariff can create a market position that no amount of competition enforcement will dislodge.
• Public ownership and competitive neutrality. Whether a State enterprise competes on the same terms as a private one, or enjoys advantages in financing, land, regulatory treatment or access to government custom.
• Public procurement. Government is the largest buyer in India. Tender design, qualification criteria and the practice of splitting or reserving contracts affect both the intensity of competition for public contracts and the incentive to rig bids.
• Subsidy and reservation. Support directed at a class of producers changes relative costs and may entrench inefficiency.
• Sectoral regulation. Tariff setting, access terms, universal service obligations and licence conditions in network industries.
• Intellectual property and standards policy. The breadth of protection granted and the terms on which standard essential technology must be licensed.

2. The Difference Stated

Four differences are worth carrying away. Competition policy is addressed to the State and its instruments; competition law is addressed to enterprises. Policy is made by government and by the legislature; law is enforced by a regulator and by courts. Policy operates by changing the conditions of the market; law operates by prohibiting conduct within the market as it stands. And policy has no sanction, whereas the law has penalties, directions and, in the extreme, the division of an enterprise.

The two can also work against each other. A policy that reserves a sector for a public enterprise, or that prescribes a uniform price, removes the very rivalry that the law protects, and no enforcement action can restore it. Conversely a well-designed policy reduces the work the law has to do: open entry, competitive procurement and low barriers to imports prevent the market positions that abuse of dominance cases are brought to correct.

3. Advocacy: Section 49

Three features of the section should be noted. The reference is at the option of the government, so the Commission cannot require a policy to be sent to it. The opinion is expressly not binding, which is a deliberate choice: an unelected regulator does not overrule an elected government on a question of policy. And sub-section (4) imposes a duty that is not dependent on any reference, under which the Commission conducts market studies, publishes advisories on tender design and on trade association conduct, and works with regulators and with government departments.

4. The Indian Position

India has a competition law and no adopted competition policy. A draft National Competition Policy was prepared in 2011, which would have required government departments and public enterprises to observe the principles of competitive neutrality, non-discrimination and minimum restriction, and would have provided for the competition assessment of existing and proposed legislation. It was never adopted. What exists instead is a set of scattered measures: the advocacy function in Section 49, the Commission's market studies, the guidance issued to procurement authorities, and such sectoral reform as individual ministries and regulators have undertaken.

The Raghavan Committee had recommended the opposite sequence. Its report treated competition policy as the larger subject and competition law as its instrument, and recommended that policies restricting competition be reviewed alongside the enactment of the new law. That review did not happen, and the consequence is visible in the pattern of the Commission's work: a large part of its caseload concerns conduct in sectors whose structure was determined by policy decisions the Commission has no power to revisit.

5. The Limits of Enforcement against the State

The Act applies to a department of the Government engaged in commercial activity, since Section 2(h) so provides, and a public sector enterprise is an enterprise like any other. Three limits nevertheless confine what enforcement can do. Activities relating to the sovereign functions of the Government are excluded from the definition of enterprise. Section 54 permits the Central Government to exempt a class of enterprises in the interest of security of the State or public interest. And conduct that a statute requires cannot be a contravention, because an enterprise complying with a legal obligation is not exercising the autonomy that Section 3 or Section 4 presupposes; where the restriction comes from the statute rather than from the firm, the remedy lies in changing the statute, which is advocacy and not enforcement.

6. Related Topics and Provisions