Caught in between GRAIN GLUT & SCANT - ASHOK GULATI & TEJINDER NARANG

IT IS CRITICAL FOR POLICYMAKERS TO LOOK INTO CARRY-IN STOCKS AND CONSUMPTION FACTOR BEFORE THEY PUSH THE PANIC BUTTON

THE DROUGHT OF 2009 HAS BEEN one of the worst since 1987. Parts of India, especially northern Karnataka and Andhra, have also faced the fury of floods simultaneously. This increased intensity of droughts and floods makes one feel that the impact of climate change is coming on us faster than we thought. If this recurs in future, increased volatility in agriculture production would be a natural consequence . This warrants a re-thinking of our policies to cope up with this volatility, especially of grain that are vital for food security.

Of late, there are frequent reports of shortfall of 6 million hectares in kharif paddy sowing due to deficient monsoon. Some ministers are echoing deficit of 12-15 million tonnes (mt) of rice in public pronouncements to justify the possible rise in rice prices in the coming days. Exaggerated phobia of possible paucity by relying on a single parameter can cause excessive speculation in domestic and international trading community and that can push prices sky high, converting the fear into reality.

For policymakers, it is critical to also look into carry-in stocks and consumption factor before they push the panic button . The analysis below shows that there is an over-reaction to potential drop in production. India has no cause to worry.

A dispassionate analysis of the rainfall deficiency at regional and district level indicates that the paddy crop is very good in the Punjab and Haryana belt, where deficiency of rain has been the maximum. This is due to reliance on groundwater irrigation. It is in the eastern belt (eastern UP, Bihar, Orissa, West Bengal and Assam), which relies on rains despite floating on groundwater, where there is likely to be a shortfall of paddy production. The yields of rainfed rice is generally less than 2 tonnes per hectares. Also, there is possibility of catching up in the rabi season at least in some places of the eastern and southern belts due to late rains.

Taking into account all this, it wont be a surprise if India still manages to produce about 90 mt of rice this year, a shortfall of about 9 mt over last year. But India has carry-over stock of rice of 15 mt as of October 1, 2009 with FCI and other state agenciesthat is more than sufficient to take care of a consumption of about 92-93 mt, even if production drops to below 90 mt. On top of this, there is accumulated wheat stock of 30 mt as of October 1, 2009, against a buffer stock norm of only 11 mt of wheat. Total grain stocks with FCI are 45 mt as of October 1, 2009 against a buffer stock norm of 16 mt. So there is no need for pressing any panic button whatsoever.

The worst will be if the Cabinet decides to import x quantity of rice or wheat. This can set the global markets into tizzy. If at all India needs to import in this year of unusual rains, it should quietly lower the import tariffs on agricultural products by private traders across a wide spectrum, abolish the stocking limits on importers, and bring back key grain (wheat and rice) on future markets to study the behaviour of private trade. Let the private trade decide when and how much of which agricultural product they want to import. This will keep the domestic prices under check without creating any panic.

Also, there is another important policy lesson that India needs to learn from this years experience. It needs to urgently tap groundwater resources through shallow tubewells in the eastern region so that pressure on the Punjab-Haryana belt for common rice can be reduced. The NASA satellites have lately shown that northwest India has been experiencing a fall in its groundwater to the extent of 15 inches each year during 2002-08 . This year it could be even more. This strategy of taking the green revolution eastwards was talked and started after the drought of 1987, but fizzled out in 1990s as we crossed over the hump. It will have to be now put on high priority. And to make it successful, power supplies in the region will have to be improved, procurement mechanism in the region to be made proactive in giving an effective price support. Whenever the eastern region produces a good harvest, their market prices of grain (like wheat this year) drop below the minimum support price as there is no effective procurement mechanism in the eastern belt that is comparable to what exists in Punjab and Haryana.

While this gets underway, the government has to work towards doubling the stocking capacity for grain in the country. It is also pathetic that in Punjab and Haryana grain are lying in the open with half a tarpaulin on it, with rodents having a good time. It leads to large wastages (almost of 10%). Total covered capacity to store in the country is less than 27 mt. Modern bulk handling facilities, preferably under the private sector, coupled with warehouse receipt system, need to be encouraged with capital subsidy schemes (as in cold storages ). Similar encouragement needs to be given for rural godowns that can be operated through panchayats or farmers grain companies. A grain saved is much more cost effective way to manage the fluctuations in grain economy than producing more grain that we cannot properly store.


(Gulati is director, Asia, International Food Policy Research Institute & Narang is a commodity specialist)

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What's holding back telecom growth? - Rekha Jain

Mobile services in India, much as in the rest of the world, have driven economic growth, made business more efficient and effective, led to emergence of large enterprises that generate tax revenues for the government, employment, and wealth for their shareholders.

However, India was a late starter in licensing out mobile services. While licences had been awarded in 1994, it was not until 1999 that several policy and regulatory issues were sorted out and mobile services took off. During this time, China had reached a teledensity several times higher than ours. Despite the claim of Indian policymakers regarding the “success” in the sector, it is a story that needs to be compared with other countries. A large number of Asian countries in the region have teledensities above 70%, compared to our nearly 30%, and have licensed out 3G, through auctions several years ago.

Everyone recognises that future of telecom is wireless. And competitiveness of countries, especially the service sector will be determined by developments in their telecom sector. Countries such as the US, UK and Malaysia, among others, explicitly recognise this and are publicly funding R&D in wireless technologies, deployment of broadband and roll out in rural areas. In India, while there is an overt recognition of this fact at the policy level, there is little effort in planning how we as a nation wish to achieve growth in the sector. While it can be argued that India needs to focus on physical infrastructure of roads, ports, power, etc, rather than on telecom, it is imperative that the focus is simultaneous, because without the latter, the benefits of the former can not be leveraged to the fullest extent.

The most critical resource for wireless services is spectrum. India needs to address the lack of strategic planning for spectrum urgently. That there is no national initiative to review the strategic aspects is a matter of great concern. What is worse is that even the operational aspects of managing spectrum are poorly handled. For example, for a variety of reasons, the government has not been able to auction 3G spectrum to date, despite nearly two years since the first announcement regarding its intention to make such spectrum available. 3G allocations had already occurred in both developed and developing countries (e.g., Philippines, Sri Lanka), so it was something that could have been undertaken easily by the government as so many precedents existed. At the strategic level, there is a need to develop a national spectrum policy that comprehensively examines and identifies the following:

Institutional mechanisms for managing spectrum:

For example, while spectrum management is a technical issue, it has long-term economic and commercial value. Therefore, it is not necessary that DoT is the only body that should be involved in strategising for future use. This requires considering a review of the organisational structure of wireless planning and coordination wing of DoT. For developing a strategic blueprint, besides DoT, we need to have institutional mechanisms to involve industry, broadcasting sector professionals, public safety agencies that use spectrum, maritime and aviation bodies, commerce ministry, defence agencies, technology institutes, public policy experts etc. Once there is a blueprint, DoT could manage the operational aspects of allocation and monitoring.

Approach to manage spectrum:

While it is true that rapid technological developments in this field make it very difficult to predict long-term uses and make appropriate allocations, it also points to the need for adoption of a flexible management approach. The new approaches to managing spectrum adopted by several leading countries indicate moving away from a “command and control” method to permit more market-based, flexible uses in terms of services that may be offered, sharing of spectrum, trading etc.

Review and audit of exiting spectrum usage:

Several developing and developed countries have moved from analog services that are extremely inefficient with regard to spectrum usage to digital usage (for example in broadcasting). This has made large amounts of spectrum available (“digital dividend”) that may be used to provide a host of wireless services. This band has extremely good propagation characteristics and is commercially valuable as the experience in the US has shown. In India, we have a golden opportunity to adopt this approach, as our TV penetration is only 55%. The new TV sets can be mandated to be digital, so that new users benefit from the digital switchover. The digital TV sets in the replacement market will ensure that complete switchover can be managed over time. Thus, proper planning for the switchover needs to be done as was also shown in the US case.

There is a need to have a dialogue and debate at the national level regarding the issues identified above, that should involve senior decision-makers at the highest level. We are already running behind in a rapidly changing world, and if we do not take action now, we would have denied our citizens and industry early growth paths and a competitive edge.

(The author is executive chair, IIMA Idea Telecom Centre of Excellence, IIM, Ahmedabad)


http://economictimes.indiatimes.com/articleshow/5108002.cms

Horse Trading and Climate Change: Noreena Hertz

WHEN the panda smiles, the world applauds. Or so it seemed after Chinese President Hu Jintao’s recent speech at the United Nations. Judging by the way much of the media reported his words, it seemed as if China had actually made an important announcement on cutting greenhouse-gas emissions. It hadn’t. All President Hu really said was that China would now “endeavour” to curb its carbon emissions by a “notable” margin. But how does one measure “endeavour” or “notable”? As someone with close links to the Chinese administration told me when pressed: “What was said was actually pretty meaningless.”

Indeed, there were no specific targets and, as any China watcher knows, the “greening” of the government is old news. Official Chinese policy in recent years has been to make GDP growth greener. But not at the expense of growth itself — and China plans to grow pretty fast.

At least the panda smiled. Poor Barack Obama didn’t even have that to offer. He offered no pledge to cut emissions in the United States, and, with vote-sapping battles already underway over health-care reform, one wonders how much time and energy Obama will have for environmental imperatives.

If all the world got out of this UN General Assembly meeting of government leaders was insubstantial rhetoric, the worse news is that it got more of the same at the G-20 meeting in Pittsburgh. As one finance minister told me rather wistfully, when I asked him what had actually been delivered on climate change: “Words,” he said, “just words.”

Given that there are little more than two months until the Copenhagen summit on climate change, which is supposed to frame the successor agreement to the Kyoto Protocol, this is depressing. Perhaps the only people not suddenly depressed are those immersed in the negotiations. With more than a thousand points still to be agreed, all the policymakers I’ve spoken to recently say that they cannot see how a meaningful deal can be reached by December in Copenhagen.

In reality, everyone is gearing up behind the scenes for a “Copenhagen 2,” and what those involved in the negotiations are calling “an even greater slog.” Even if some sort of communiqué is cobbled together in December, it is hard to believe that it will contain sufficient detail or reflect the proper level of commitment to have the impact so desperately needed.

“Copenhagen 1” was always bound to fail, partly because — and this may sound strange at first — it is all about climate change. Although cuts in CO2 emissions and agreement on funding and finance are necessary goals, the geopolitical reality is that climate change cannot be decoupled from trade or discussions on exchange rates, the IMF, reform of the UN, and so on. There is a quid pro quo that no one explicitly talks about but which must be addressed: trade-offs between these negotiations, not just within them. Meaningful action on climate change will not be seen until it is agreed within this broader framework.

This means taking the issue out of its current compartment and being realistic enough to understand that Brazil’s position on cutting down rainforests, for example, will be affected by whether or not it is given a seat on the UN Security Council. It means being sophisticated enough to understand that as long as China feels under pressure to stop propping up the renmimbi, it is unlikely to deliver commitments on emissions cuts.

Widening the scope of the next round of negotiations so that much more can be used as bargaining chips would make the job of the negotiators considerably harder. But it would also give them considerably more to work with. In fact, there is no other way to prevent the process from remaining a zero-sum game.

Worryingly, “Copenhagen 2” will not only have to navigate this complicated terrain, but it must do so in less than five years. The climate bomb is ticking, and there is a palpable sense of urgency among policymakers. For, as the UN’s Intergovernmental Panel on Climate Change has explicitly warned, if emissions do not fall before 2015, and only fall from then onwards (and the overall trend is that they have been rising), we will reach the point of no return.

At that point, the Armageddon scenarios of droughts, rising sea levels, floods, energy and resource wars, and mass migration will become a reality. Just think of the images of recent storms and floods in the Philippines and Vietnam that displaced and killed thousands, and multiply those horrors manifold. That is what we are up against.

Climate change negotiations are arguably the most important of our lifetime, because their outcome will determine the fate of our planet. It is essential that they take place within structures and frameworks that encourage agreement by putting other major multilateral issues up for discussion. The world’s governments must be able to trade horses if pandas and presidents are to do more than smile.

(The author is Professor of Globalisation, Sustainability and Finance, Duisenberg School of Finance, Amsterdam and Fellow, Judge Business School, University of Cambridge.)


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Managing Rural Development Regionally: Surinder Singla (Former Finance Minister, Punjab)

India and China are acting as engines of growth in a world hit by slowdown. The Asian giants’ pace might have slackened, but they are still notching a decent 6-7 % growth. Some experts even feel that the two countries may pull the developed world out of the quagmire of recession. The two nations have charted different growth paths. Focus on exports of goods has helped China emerge as the manufacturing hub of the world. India’s growth, on the other hand, is driven by domestic demand. Which makes it all the more imperative that the government intensify its inclusive growth efforts to make rural India a more prosperous and, for that very reason, a greater driver of domestic demand and overall economic growth.

While a large part of the public spending by governments in developed economies has gone to shore up a broken banking system, in India and China, fiscal policies have targeted the real economy. This is all to the good. However, in India’s case, much more needs to be done.

The growing gap among states in terms of per capita income, poverty, availability of infrastructure and socio-economic development is a big blot on and challenge for the India growth story. The seven low-income states of Bihar, Chhatisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh are home to more than half of India’s population.

Between 1999 and 2008, the fast-growing states like Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) far outpaced Bihar (5.1%), Uttar Pradesh (4.4%) and Madhya Pradesh (3.5%). Poverty rates in rural Orissa (43%) and rural Bihar (40%) are among the worst in the world. Illiteracy, socio-economic backwardness and, inadequate and inefficient finance and marketing services for farm produce are hindering increase in productivity. Poor governance at state level has been a major factor.

Tackling this will need intervention by the central government. What kind is the real question? One good example can be found in how China has tackled economic backwardness in its interior regions. In recent months, following the global economic meltdown, Chinese state planners have shifted their focus to boosting industrial and infrastructure growth inwards from the coastal region where they allowed unrestricted capitalism in the past 30 years. As a result, eight of the 10 fastest growing regions of China in the second quarter of 2009 have been inland. According to The Economist, state directed improvements in transport infrastructure, especially railway networks, should encourage companies to move westwards from the coastal districts where they are concentrated at present.

In India, too, investment must be designed to link rural areas to urban centres and to create physical and market infrastructure in rural areas.

Finance minister Pranab Mukherjee has done the right thing in his budget by stepping up the allocation for rural development. But what all rightthinking Indians need to debate is whether it is sufficient to keep raising budget allocations without due thought to how the money is spent.

The late Rajiv Gandhi had said that just 15 paise out of every rupee the Centre sends to states reached the common man. Corruption and misuse of funds at state level have only worsened. State governments have money to spend on everything except the welfare of the poor and downtrodden. Just to give an example, the Bahujan Samaj Party government in Uttar Pradesh allocated a huge sum of Rs 553 crore of the total state budget for construction of parks and statues of chief minister Mayawati but a pittance of Rs 6.15 crore was given for development of Bundelkhand and Poorvanchal. Nearly 200 farmers have reportedly committed suicide in the Bundelkhand region alone during Mayawati’s tenure. Such mishaps could have been avoided if the UP government had utilised money given by the central government.

It’s here that the Centre can innovate. It can set up a public sector authority which is independent of the state government. This authority will not tread into the state government’s territory but will rather supplement and complement the developmental efforts of the state government. Such an authority will be specially effective in unwieldy states like UP and MP, or stragglers like Bihar, Orissa, Jharkhand and Chhatisgarh.

Finance minister Pranab Mukherjee can make history by grabbing the opportunity to bring Bharat and especially the agriculture sector, which still employs majority of our countrymen, on a par with India. This will need massive diversion of funds to countryside.

We have tried routing or funds through the state government, and direct transfers from the Centre to district administrations. Perhaps we should try setting up regional development authorities and transferring money to them, to find a balance between neglect of a poor region by the capital of a large state and the lack of region-wide coherence and coordination at the district level.


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Celebrating an Economic Turnaround - Story of Chinese Ecnonomy

China observed the 60th anniversary of the founding of the People's Republic on 1 October. The celebrations, which have been under preparation for more than a year, rival those of the Beijing Olympics.

The expense may seem lavish at a time when the rest of the world is just recovering from a financial crisis, but the fact is that China has a great deal to celebrate. Despite major challenges, China has evolved into the world's third most powerful economy. It is now the world's premier source for manufacturing and it is increasingly making its influence felt in shaping international affairs. Equally important, there is no longer any question of China turning back.

In 1949, Mao Zedong stood before First Plenary Session of the Chinese People's Political Consultative Conference and declared victory, announcing that: "The Chinese people have now stood up."

This gave many Chinese people a sense of national pride following two decades of civil war and a succession of corrupt and ineffective regimes. An even more critical factor was the fact that in 1949, China was largely agricultural, mired in poverty and lacked roads, bridges, railways, electric power and a communications infrastructure.

Mao's first task was to move China's population (approximately 544 million) to a modern industrial-based economy. Despite a number of political and economic catastrophes, the plan ultimately worked, albeit at a cost. By 1979, China's industrial output, which had been only 12.6% of GDP in 1949, had increased 13 times to 46.8% of GDP. The size of China's rail network had more than doubled and the proportion of irrigated land had risen from 20% in 1952 to 50% in 1978.

Despite these advances, China still suffered from serious inaccuracies in its price structure, inflexible central planning, power shortages and inadequate transportation and communications networks. The next three decades changed that situation dramatically. China went from being the 19th largest economy in 1979 to the third largest today.

Thirty years ago foreign currency reserves were practically non-existent. Today it stands at almost $2 trillion. How China reached this point is critical to understanding how China thinks today and where it plans to go in the future.

When Deng Xiaoping launched his Open Door policy to modernise China in 1979, the country was still suffering from serious imbalances, including shortages of technicians and other highly trained personnel, insufficient foreign exchange for procurement of advanced technology and inadequate legal and administrative provisions for both foreign and domestic investment, among other problems.

Its economic policies had until then favoured state collectivism over private entrepreneurship. The ideology that had unified the leadership during the revolution had become a hindrance to modernisation. To modernise China a change was needed.

The turning point came during the third plenary session of the 11th CPC Central Committee meeting in Beijing in December 1978. A collective leadership of the CPC Central Committee with Deng Xiaoping at its core emerged from the meeting and a critical decision was made to turn away from chaotic class struggle and to focus instead on reconstructing China's economy. From that point on, economic pragmatism would trump ideology.

Deng publicly explained China's new direction by observing: "It doesn't matter if a cat is black or white, as long as it catches the mouse."

The transition to a somewhat decentralised and entrepreneurial economy began in 1979 with the creation of four Special Economic Zones in Shenzhen, Zhuhai, Shantou and Xiamen. These would eventually provide sceptics with tangible proof of the effectiveness of a market economy. Deng called the idea "Crossing the river by feeling the stones."

A number of innovative approaches came from provincial leaders — often in contradiction with the rules laid down by the central government. Deng's contribution was to open the door to make experimentation possible. Reforms that succeeded spread quickly.

Deng followed up with agricultural reform in January 1982, which authorised farmers to sell surplus crops in the open market, resulting in a surge in agricultural production. A companion reform in 1984 authorised town and village enterprises to do the same. Price reform was carried out by establishing a dual track system with state subsidies reduced over an extended period of time.

The second stage of Deng's reform began in December 1986, with the phasing out of state-owned industry, a policy that popularly referred to as "Breaking the iron rice bowl". It was a difficult process. According to Chinese statistics, China's state-owned enterprises eliminated 15 million jobs by 1998, and then laid off another 30 million workers between 1998 and 2005. Sixty percent of China's workforce was forced to find alternative employment.

By the time that the 10-year transition had ended, China's industrial base had been fundamentally changed. Some form of state ownership still exists in sectors such as financial services, energy, commodities and infrastructure. While the transition meant enormous pain for workers losing their jobs, it dramatically increased revenues, created a surge in productivity and unleashed China's entrepreneurial spirit.

The Tiananmen crackdown on June 4, 1989 frightened and alienated the international community. It raised questions about China's ultimate intentions. Growth dropped under 5% in 1989 and 1990, but Deng soon made it clear that he had no intention of deviating from the transition to a market economy.

In early 1992, he travelled to southern China and declared: "To get rich is glorious." The statement signalled that more than ever China was open for business. Foreign investment began pouring in again.

China's next major step was to join the World Trade Organisation in 2001. This forced China's newly privatised economy to meet international standards.

Instead of holding China back, the WTO accession made Chinese companies more attractive to international markets and far more competitive, while foreign companies could better access the Chinese market. China's growth has soared since then, helping it further become a world power that will play a major role in defining the 21st century.

Add all these major historical events together and what do you get? China's National Bureau of Statistics notes that the Chinese economy in 2008 is nearly 67 times larger than it was in 1979. According to the 2009 IMD World Competitiveness Yearbook, per capita GDP has gone from $578.11 in 1995 to $3,295.92 in 2008. Surely China has its many challenges ahead. But there is indeed a good reason to pause and celebrate these remarkable economic achievements.

(Nie is professor of Operations and Service Management and Lu, Research Associate at IMD, Lausanne, Switzerland.)

http://economictimes.indiatimes.com/Comments-Analysis/Celebrating-an-economic-turnaround/articleshow/5082410.cms

'Opportunities do not wait for strategies and strategists' - Azim Premji

I am not an entrepreneur by choice. In 1966, at the age of 21, I was practically overnight thrust into the role of the CEO of a company about $4 million in sales then, and not in the best of shape. I was trying to take charge of a role for which I had no training, no experience, no preparation and no demonstrated strength. We used to make vegetable oil. The journey from there on over the last four decades has not been easy. I learnt more from difficulties and failures than from successes.

The first lesson is that to be successful you have to be challenged by something, and then have the resolve to deal with it. This is the surest way forward. I learnt that challenges, determination and passion is what propel a person. I also learnt that often you have to go out seeking challenges because challenges may not come seeking you.

Rarely have I come across a successful entrepreneur, who became an entrepreneur only to make money. In practically all the cases, people became entrepreneurs because there is a challenge that excites them: A challenge to change the world, a challenge to invent, a challenge to create, etc—some deeply captivating challenge that appeals to them personally, but rarely is the desire to make money the prime driver.

The second learning is if you want something very much, you can actually make it happen, irrespective of the odds. As a living example, despite my age and the ageing grey cells, I did complete my Electrical Engineering degree
at Stanford, 33 years later in 1999. Let us also know that there is no substitute to action. That to me is the starting and the ending point of being an entrepreneur. The most important thing is to deal with the here and now. And I learnt that, that can happen only through personal action. It has stayed with me forever.

The fourth learning, and it may seem very elementary, is that hard work and passion pays. With the passing years, I am even more convinced that, all the thinking, the best of strategy and greatest of intelligence, can achieve little in the absence of hard work and passion. Also, one has to go against the grain of common wisdom. I have learnt to respect wisdom more than strategy and intelligence. However, I have also learnt that to build something, to create something different one has to inevitably go against the grain of common wisdom. However daunting it may seem, there are times when one has to trust one’s instincts and act, ignoring all the wisdom around. Opportunities don’t wait for any one, certainly not for strategies or strategists.

Opportunities are here today and gone tomorrow. Also, while we may have our role in creating opportunities, the big opportunities are driven by changes in the world that we live in. We have to seize these opportunities. The sixth and most important learning is a deep unflinching commitment to values. I started off with this notion that I would not compromise on Integrity. The fact is that I did not face a conducive environment to practice Integrity, in those days. My notion was that values come first and business success follows.

I can candidly admit that my belief was deeply tested through many years of painful learning process that I went through. This ‘unflinching’ commitment that I talk about is not something that happens just because of overnight resolve. At least it did not happen with me.

We have seen the most severe economic meltdown the world has ever seen, unmatched both in its geographic spread as well as severity. I believe that however long it is, the core characteristic of the entrepreneur will prevail. And the core characteristic of the entrepreneur is hope.


http://economictimes.indiatimes.com/articleshow/5079318.cms

A Competition Policy for Growth : Pradeep S Mehta

The Planning Commission will soon be conducting a mid-term review of the 11th five year plan (2007-2012). It will also take a look at the issue of a national competition policy, one of its recommendations in its policy document "Inclusive Growth" that was adopted by the National Development Council in December 2007.

The new government should revisit the same to ensure that inclusive growth is promoted and poverty reduced. Promoting competition is not only important as a principle for providing a just environment for all businesses, the fair race that it initiates among rival firms, including small producers, drives sustained growth.

It also keeps prices low by curbing collusive as well as monopoly pricing, as firms compete for consumers by minimising costs through efficient production.

India adopted the new competition law in 2002. Implemented after much delay, it replaced the vastly ineffective Monopolies and Restrictive Trade Practices Act of 1969. The older law was more of a licensing law. To curb anti-competitive practices, it had a mechanical approach: firms came under the scanner only if they acquired market dominance. And, it was the magnitude of market shares that was important, not how such market shares had been secured.

It is important to realise that a competition law by itself cannot ensure that the competitive spirit and culture permeates deep into the economy. It should be complemented by a national competition policy (NCP) to push structural and legislative reforms to promote competition in markets where it is restricted.

The competition law only focuses on the conduct of firms and ensures that such conduct is consistent with the spirit of fair play. However, distortions could arise due to either another law or policy. There are many such incongruities.

For instance, the mineral policy restrict quantitative extraction of minerals as well as sale of the minerals by the licensee. Unless there are valid social or environmental reasons, such policy conditions may go against the spirit of competition.

Use of trade policy instruments such as anti-dumping — without examining their deleterious effects on downstream industries — on the basis of complaints from domestic lobbies is another such recurring phenomenon. Some sector specific regulators would also implement laws that may vitiate the competitive spirit.

The NCP attempts to ensure congruity between all or most national and state laws with the principles of competition. That helps further the objectives of a competition law — to foster competition in all sectors of the economy and thereby induce efficiency, innovation and growth.

For a successful NCP, extensive advocacy and consultation are needed. This requires the cooperation and coordination of institutions such as the competition commission, civil society organisations, sector regulators and the government. The primary motivating factor behind the NCP is political will and priority accorded to growth as a political objective.

Ensuring competitive neutrality is another crucial aspect of the NCP — government businesses should not enjoy any undue advantage over private businesses. The requirement that government officials fly only Air India goes against this principle. Competitive neutrality is necessary to ensure competition within and across public and private enterprises.

The Planning Commission had established a working group on the NCP in 2007 to examine its various facets. This working group has already raised concerns over some policies, statutes and regulations at the levels of the central and state government that limit competition and has recommended review of such policies through the tool of competition impact assessment.

The Australian approach towards competition policy can be useful in the Indian context. There too, the competition policy followed the
competition law. But, the competition policy was preceded by an extensive review of all legislation from the competition perspective, and all laws and measures that had provisions (over 2,000 in number) violating the spirit of competition were repealed or amended.

The envisaged NCP approach would ensure equitable application of competition rules to all economic agents in the economy. It works on the principle that social welfare is best served by promoting competition.

Once adopted, the central government in coordination with the state governments should ensure that NCP is implemented uniformly across the country, particularly in respect of structural reform of public monopolies, review of anti-competitive legislation and regulation and the elimination of undue advantages enjoyed by government businesses where they compete with the private sector.

The NCP is an important step forward in establishing a consistent national economic framework to promote and maintain competition in all sectors of the economy. This, however, is clearly only an initial step in initiating wide ranging reforms to generate a culture and spirit of competition in the economy.

(The writer is secretary general, CUTS International)


http://economictimes.indiatimes.com/Opinion/A-competition-policy-for-growth/articleshow/5066465.cms