Competition Policy Issues at Sub-National Level:

Local Problems Need Local Solutions

Pradeep S. MehtaCUTS International

Introduction

State Government policies/practices that lead to anti-competitive outcomes

Regulatory failures at local level Competition abuses at consumer level

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)

State Government Policies

Bid Rigging in Construction/Works: During the last 5 years, all state governments

have spent approx US$300bn 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)

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)

State Government Policies

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)

Regulatory Failure at Local Level

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

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

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

Good Practices

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

truck operators’ cartel

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

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.