Economic Reforms and Market Competition in India: An Assessment

• DOI: 10.1177/0003603X21997019
• Author: Beena Saraswathy
• Published date: 01 June 2021
• Date: 01 June 2021

Article

Economic Reforms and Market

Competition in India:

An Assessment

Beena Saraswathy*

Abstract

The announcement of New Industrial Policy in July 1991 marked a paradigm shift in the overall mac-

roeconomic policies followed in India from greater control and regulations to the free rein of market

forces. Subsequently, there has been a paradigm shift in the competition regulation in India, with the

establishment of the Competition Commission of India. The underlying motive behind the regulatory

changes has been to increase competition in all spheres of economic activities. Given this background,

the present study intends to assess whether the changes in policy regimes could bring out the desired

output in terms of heightened competition in various spheres of the manufacturing sector, specifically

across various subsectors in the manufacturing sector. These are important not only from a consumer

point of view but also toidentify the areas of concern for vigilant policy implementation. Using multiple

indicators of concentration, we find that despite the increase in competition across various subsectors,

concentrationlevels remain high formany subsectors. We observedhigh levels of concentrationin seven

of the twenty-nine subsectors studied and in another three high-moderate concentration levels noticed.

Keywords

market structure and pricing, monopolization strategies, antitrust issues and policies, perfect

competition, monopoly

The New Economic Policies implemented in the 1990s and the consequent market orientation was

intended to augment market competition and economic efficiency in every sphere of economic activ-

ity. The liberalization of industrial and trade policies through increased access to the import of capital

goods, intermediary goods, and technology; lifting of curbs on growth and size of firms; and to expose

the domestic firms to the internal and external competition were the three major tools of reform, which

were ultimately intended to bring in better efficiency and welfare outcomes. Besides this, the increased

integration with the global market further pressurized the domestic firms to become more competitive

to withstand market competition within and outside the borders. Under this scenario, firms adopted

various strategies to build and strengthen competitiveness on the one hand and also to bypass the

* Institute for Studies in Industrial Development, New Delhi, India

Corresponding Author:

Beena Saraswathy, Institute for Studies in Industrial Development, Institutional Area II, Vasant Kunj, New Delhi 110070, India.

Emails: vsbeena@gmail.com; sbeena@isid.edu.in

The Antitrust Bulletin

2021, Vol. 66(2) 184–202

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DOI: 10.1177/0003603X21997019

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competitiveness requirement on the other hand. The unprecedented surge in consolidation strategies

such as mergers, acquisitions, joint ventures, and tie-ups occurred from the 1990s to be viewed in this

context. The enhancement of competition proposed through the abovementioned regulatory changes

might have been resisted to a great extent through consolidation strategy. This study investigates

whether the changes in policy regimes could bring out the desired output in terms of increased

competition in various spheres of the manufacturing sector.

I. Curbing Monopolies to Promoting Competition

The announcement of the New Industrial Policy in July 1991 marked a paradigm shift in the overall

macroeconomic policies followed in India from greater control and regulations to the free exercise of

market forces. Further, Finance Minister Sri. Yashwant Sinha, during his budget speech on February

27, 1999, has made it clear that

the MRTP Act has become obsolete in certain areas in the light of international economic developments

relating to competition laws. We need to shift our focus from curbing monopolies to promoting compe-

tition. The government has decided to appoint a Committee to examine this range of issues and propose a

modern competition Law suitable for our conditions.

With this, the government formally acknowledged the need for a drastic change in competition

regulation in India. Consequently, in October 1999, a High-Level Committee on Competition Policy

under the chairmanship of SVS. Raghavan was appointed to recommend appropriate policy changes in

the context of economic reforms of the 1990s. The committee recommended the need for setting up a

new competition law and a competition authority to prevent anticompetitive practices. This led to the

adoption of the Competition Act, 2002, replacing the three-decade-old Monopolies and Restrictive

Trade Practices (MRTP) Act, 1969. Further, the Competition Commission of India (CCI) has taken

over the functions of the MRTP Commission,

1

from 2009 onward, which marked a paradigm shift in

the competition regulation in India.

One of the major focuses of the MRTP Act was to limit the “concentration of economic power in the

hands of a few” which has been dismantled in the new competition regime implemented in India (i.e.,

the Competition Act, 2002). MRTP Act in its preamble defines

An Act to provide that operation of the economic system does not result in the concentration of economic

power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and

restrictive trade practices and for matters connected therewith or incidental thereto.

Whereas, the Competition Act is

An Act to provide, keeping in view of the economic development of the country, for the establishment of a

Commission to prevent practices having an adverse effect on competition, to promote, sustain competition

in markets, to protect the interests of consumers and to ensure freedom of t rade carried on by other

participants in markets, in India, and for matters connected therewith or incidental thereto.

From this, it is clear that there is an undeniable deviation of regulatory focus from “economic

concentration” or “controlling monopolies” to “promoting competition.” As mentioned in the begin-

ning, this is in addition to the changes in the overall macroeconomic policies from a regime of greater

control toward promoting competition. The functioning of the present regulator is mainly based on the

1. Enforcement authority of Monopoly Restrictive Trade Practices Act, 1969.

Saraswathy 185