Role of state‑owned enterprises (other than state‑trading companies), and disinvestment
At end‑March 2010, 217 of India's 249 central public sector enterprises (CPSEs) were in operation (Table AIII.10), 32 were in the process of being established, and 59 were sick or loss making.258 CPSEs continue to play an active role in the economy, holding significant market‑share in several sectors/subsectors, e.g. petroleum and mining, power transmission and generation, nuclear energy, heavy engineering, aviation industry, storage and public distribution system, shipping, insurance, and telecommunications.259
Since India's last TPR, disinvestment of CPSEs has continued; a few CPSEs were recently approved for disinvestment (Table III.26). India's disinvestment policy is aimed at encouraging people‑ownership of CPSEs while ensuring that the Government's equity does not fall below 51%, hence maintaining control of the enterprise. The Government approved an action plan for disinvestment in profit‑making CPSEs in November 2009, which outlines two approaches to disinvestment.260 First, profit‑making CPSEs listed on stock exchanges with less than 10% mandatory public shareholding will be divested through a public offering. Second, unlisted profit‑making CPSEs will be listed on stock exchanges or will issue fresh equity or a combination of both.261 Listed profit‑making CPSEs may use capital markets to finance their capital expenditure and the Government may consider disinvesting part of its shareholding.262
Overview of disinvestment, 2007‑11
Government's share (%)
Maruti Udyog Ltd.a
Sale of the Government's residual 10.27% shareholding
Power Grid Corporation of India Ltd. (PGCIL)
Offer for sale of 5% Government's paid‑up capital and issue of 10% fresh equity by PGCIL
Rural Electrification Corporation Ltd. (REC)
Offer for sale of 10% Government's paid‑up capital and issue of 10% fresh equity by REC
Offer for sale of 5% Government's paid‑up capital and issue of 15% fresh equity by REC
National Hydro‑electric Power Corporation Ltd. (NHPC)
Offer for sale of 5% Government's paid‑up capital and issue of 15% fresh equity by NHPC
Oil India Ltd.
Issue of 11% fresh paid up capital by Oil India Ltd. through public offering;
Offer for sale of 10% Government's equity to Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd., and Bharat Petroleum Corporation Ltd.
Source: Ministry of Finance (2010), Annual Report 2009‑10. Viewed at: http://finmin.nic.in/reports/
AnnualReport2009‑10.pdf; Department of Disinvestment online information, "Road ahead". Viewed at: http://www.divest.nic.in/road.htm; and information provided by the Indian authorities.
Proceeds from disinvestment are placed in the National Investment Fund created in 2007; 75% of the proceeds are allocated to the funding of selected social programmes and the remainder is invested in the modernization or expansion of profitable or revivable CPSEs. However, due to the economic slowdown (over 2008‑09) and a recent drought, the Government decided that, over April 2009‑March 2012, proceeds would be fully used to finance social sector programmes.263
Since its last Trade Policy Review, India has made several amendments to its main competition policy legislation embodied in the Competition Act 2002. At present, legislation dealing with competition issues in India are the Competition Act 2002, the Competition (Amendment) Act 2007, the Competition (Amendment) Act 2009, and various regulations issued by the Competition Commission of India (CCI).264 Though the Act was passed in 2002, substantive provisions, in particular those relating to anti‑competitive agreements and abuse of dominant position, were brought into force only in May 2009265, and more recently (2011) those relating to mergers and acquisitions. In 2009, the Monopolies and Restrictive Trade Practices Act 1969 (MRTP Act), which had entered into force in 1970, was repealed. The MRTP Commission established under the MRTP Act was to continue dealing with the cases filed prior to 1 September 2009 until 2011 (i.e. two years from the date of repeal of the MRTP Act)266; thereafter, the Competition Commission of India (CCI) created under the 2002 Act would take on the MRTP Commission's tasks.
The MRTP Act did not meet the needs of India's new economic environment, with a steadily growing private sector and the dismantling of state‑owned monopolies. The MRTP Act covered restrictive practices but did not cover abuse of dominance. In addition, the MRTP Commission was restricted to dealing with cases referred to it, it did not have the power of inquiry and there was no provision for the Commission to play an active role in promoting competition.267
The Competition Commission of India (CCI) was established on 14 October 2003268, but started operating only in May 2009, when the provisions of the Competition Act relating to anti‑competitive agreements and abuse of dominant position were notified and entered into force.269 All cases pending under the MRTP Commission were moved to the CCI in 2009. As at December 2010, the CCI had received 130 requests for investigations, many inherited from the MRTPC, and issued 30 orders.270 The requests covered insurance, travel, automobile manufacturing, real estate, pharmaceuticals, the financial sector, and entertainment.
Unlike the MRTPC, the CCI has powers of inquiry and enforcement, and may impose penalties for non‑compliance with its procedures.271 The Commission may also take remedial actions to deal with anti‑competitive agreements and abuse of dominant position, and impose penalties of up to 10% of the average turnover of an enterprise for the three preceding financial years. In the case of a cartel, the Commission may impose on each member a penalty of up to three times the profit or up to 10% of turnover, whichever is higher, for each year of the continuation of the agreement.272 After the inquiry, the CCI may issue a cease‑and‑desist order directing a delinquent enterprise to discontinue and not to re‑enter an anti‑competitive agreement or abuse its dominant position.273 The CCI may self‑initiate investigations.
The orders, directions or decisions made by the CCI may be appealed before the Competition Appellate Tribunal (CAT), established in October 2009.274 Appeals must be filed within 60 days from the date on which a copy of the direction or decision or order made by the CCI is received, unless the CAT is satisfied that there was sufficient cause for not filing the appeal within that period. Orders issued by the CAT are enforced in the same manner as a decree made by a court; contravention (without any reasonable ground) of any order of the Appellate Tribunal, may be subject to a fine not exceeding Rs 10 million or imprisonment for a term up to three years, or both, as the Chief Metropolitan Magistrate (Delhi) may deem fit.275 During 2010, some 25 appeals were filed before the CAT and 14 appeals have been disposed of. A number of appeals filed under the MRTPA were also being dealt with by the CAT.276
The CCI has a role in competition advocacy, which the MRTPC did not have. The Commission must take the necessary measures for promoting competition, creating awareness, and imparting training on competition issues.277 As part of its advocacy role, the Commission has designed the Suggested Framework for Compliance of the Competition Act 2002 by Enterprises.278
The Commission also has powers to inquire into an anti‑competitive agreement or abuse of dominant position taking place outside India, if it has, or is likely to have, an appreciable adverse effect on competition in India. No such cases have been taken to the Commission.279
The CCI must issue an annual report280; its 2009‑10 report was sent to Parliament as required.
Sector‑specific regulators exist in many sectors, such as capital markets, insurance, telecommunications, electricity, petroleum and natural gas, and civil aviation. According to the Competition (Amendment) Act 2007, when any competition issue is raised before a sector‑specific regulator, the CCI should give its opinion. When giving their views, both the CCI, and the sector‑specific regulators, should aim to ensure efficiency and consumer welfare. Their roles are intended to be complementary; however, there appear to be conflicts because of the differences in interpretation of laws.281
The Competition Act 2002 contains provisions dealing with anti‑competitive agreements, abuse of dominant position, and "combinations" (mergers and acquisitions). The Act prohibits anti‑competitive agreements related to production, storage, purchase or control of goods, and provision of services. These agreements include cartels, price fixing, limiting production, and sharing markets or agreements between manufacturers and distributors.282 However, an exception to this prohibition applies when these agreements increase efficiency. There have been no such cases during the period under Review.283 The law also recognizes intellectual property rights and in order to facilitate their protection, allows reasonable restrictions imposed by their owners. While agreements related to production, supply, distribution, and control of goods and services for export may have appreciable adverse effects on competition, they are exempt from prohibition.284
Abuse of dominant position has been prohibited under the 2002 Act, since the notification of the relevant section in May 2009. Enterprises are prohibited from imposing unfair or discriminatory conditions when purchasing or selling goods or services; or when pricing goods and services. The Act also prohibits other practices including: restricting the production of goods and the provision of services; denying market access; concluding contracts subject to the acceptance of conditions not related to the contract; and using dominant position to enter a market or protect other markets.285 These practices are not prohibited per se but are dealt with by "rule of reason" when they cause adverse effects.
The Act also regulates combinations of large enterprises. Combinations covered by the Competition Act 2002 include mergers and acquisitions involving large enterprises, defined in the Act as those above certain thresholds.286 If any enterprises involved in the combination belong to a group, the threshold is four times higher.287 Also covered is the category of combinations involving the acquisition of control over an enterprise by a person who already has direct or indirect control over another enterprise producing, distributing or trading similar or substitutable goods or services, also subject to similar thresholds. These thresholds are to be revised every two years to reflect movement in the wholesale price index (WPI) or exchange rate fluctuations. In general, mergers or acquisitions that are likely to have an adverse effect on competition are illegal in India. The CCI has not dealt with any cases of mergers and acquisitions because the Central Government had not notified Section 5 of the 2002 Act dealing with mergers and acquisitions until March 2011, and hence the provisions related to them were not in force until 1 June 2011. In addition, the Central Government has made some exemptions to the application of Section 5 of the Competition Act 2002 on grounds of public interest. Exemptions apply when the enterprises to be acquired have assets of less than Rs 2.5 billion or its turnover is below Rs 7.5 billion or when a "group" exercises less than 50% of voting rights in the other enterprise.
According to the law, any person/enterprise, who/which proposes to enter into a combination, as defined in Section 5 of the Act, must give notice to the Commission.288 However, according to a CCI booklet, only combinations that exceed the prescribed threshold must be pre‑notified.289 If the combination is not notified, the Commission may inquire into it within one year of merger taking effect. If the inquiry finds appreciable adverse effects on competition, the CCI may order the dissolution of the merger. The beneficial and adverse effects of the proposed combination on competition in the relevant market in India must be evaluated by the CCI with reference to specific factors as stated in the law (Box III.3). The Commission is also authorized to impose a fine of up to 1% of the total turnover or the assets of the combination, whichever is higher, for failure to notify the merger.
The share subscription or financing facility or any acquisition, inter alia, by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement, is exempt from the notification requirement. However, the institution concerned is required to file details of such transactions to the Commission within seven days.290
Box III.3: Factors to be considered by the Commission while evaluating appreciable adverse effect of combinations on competition in the relevant market
Actual and potential level of competition through imports in the market;
The Competition Act 2002 covers all commercial activities of government‑related bodies. However, specific exemptions may be granted on grounds of security or public interest; international treaty, agreement or convention obligations; or if an enterprise is performing a sovereign function on behalf of the Central Government or a state government.291 No antitrust exemptions are applicable to central public sector undertakings including price or purchase preferences.292 The absence of explicit antitrust exemptions is a positive element of the Competition Act, as are the references to the Commission's role to foster competition. However, the OECD notes that the Act does not impose any obligation on any government body to make reference to the Commission (for competition fostering issues), and the Commission's opinions are non‑binding.293