Competition Policy Issues at Sub-National Level: Local Problems Need Local Solutions

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

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

3. State Government Policies 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)

4. 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)

5. 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)

6. Regulatory Failure at Local Level 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)

7. 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

8. 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

9. 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

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

11. 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

12. 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.