Competition Policy Issues at Sub National Level Local

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

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

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

State Government Policies Bid Rigging in Construction/Works: n During the last 5 years, all state governments have spent approx US$300 bn on civil works n Works awarded through competitive bidding BUT n Contracts awarded in bigger packages; limiting competition n Contractors collude to form a pool (flyover scam in Chennai; concrete sleepers in Railways)

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

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

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

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

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

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

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

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