Competing exemptions

Competing exemptions

How far should Competition Commission's powers extend?

• India’s laws governing competition are being overhauled currently, with the ministry of corporate affairs spearheading proposed amendments to the Competition Act. 
• At present with a group of ministers (GoM), the amendments reportedly seek to extend the scope of the Competition Commission of India (CCI) across all sectors. 
• This is in spite of calls from various industries and government divisions associated with sector regulators – telecommunications, banking and insurance, among others – that their particular sector be exempted from the CCI’s ambit. 
• The ministry of corporate affairs, this newspaper has reported, is standing firm, insisting that the CCI be given overall responsibility, but that coordination between it and sector regulators be imposed by a Cabinet-level committee on competition. The argument runs that, while specific sector regulators act pre-emptively to encourage competition, the CCI will have powers to take action after the event, once the economic effects of a particular action have had time to play out. 
• This, it is claimed, is the global best practice on the subject. Others, including the telecom ministry, have said that sector regulators such as the Telecom Regulatory Authority of India have specialised knowledge that will allow them to take more informed decisions.
• There are arguments on both sides. In particular, there is the general rule that special case laws, such as those empowering sector regulators, should not be overshadowed by overall laws. 
• This suggests that wherever a statutory regulator is already functioning effectively, the CCI should have its jurisdiction correspondingly reduced. There are, however, instances to show that sectoral regulators are not always exempt from capture by existing players in the industry that they are regulating. Moreover, the law and economics of competition is a very specialised field. In the United States, for example, the most celebrated act of the federal “antitrust” division was to break up the monopoly over long-distance telephony held by AT&T; this was in spite of the presence of an active sector regulator, the Federal Communications Commission (FCC). The FCC only changed its long-distance regulatory paradigm after the federal competition body stepped in. 
• Yet the argument that an effective statutory regulatory body should be allowed to decide on competition-related issues in a sector under its purview remains largely valid.
• Even more questionable is the move to extend the CCI’s ambit to cover mergers and acquisitions in banks. The Reserve Bank of India and the Department of Financial Services of the central government have correctly argued that banking mergers should be kept out of the CCI’s purview. This makes more sense than for other sectors; the uniqueness of the banking sector is a well-understood economic notion.
•  In particular, mergers have to be evaluated not just from the point of view of competition, but from whether they make macro-prudential sense: do they add to the riskiness and fragility of the banking system, or do they make it more stable? In a post-financial crisis world, the importance of this criterion is generally appreciated. The GoM must not reopen the issue and seek to further expand the CCI’s ambit.
• The finance ministry is working on a new policy framework for the country's banking sector that will provide a clear roadmap for regional rural banks,cooperative banks and other regional banks to grow to the next level. 

• The North Block has already begun discussion with the central bank on the framework that will prescribe profit, capital adequacy, size and any other condition it deems fit for such banks to graduate into full-fledged banks. "We have written to the RBI asking for a clear roadmap for the smaller banks that want to expand," a senior finance minister official told ET.  
• Experts say such a policy can ensure that these entities have clear performance benchmarks fitted well into their own growth plan and hope to grow. "A clear policy will help incentiwise better players.. It would improve access to banking in states and regional centres that have low credit penetration now," said Vibha Batra senior vice president, co-head, financial sector ratings, ICRA. The government had in its 2010-11 Budget announced its intention to allow more bank licences, but progress has been slow because government has been unable to amend the banking regulation act.
• The Reserve Bank of India is ready with the new bank licensing rules but is waiting for the changes in the banking law to be approved by parliament that will and empowers to supersede a bank boards.  In such a situation, the finance ministry feels a well laid out growth map for the smaller banks can help the cause of financial inclusion just as well. 
• The finance ministry is already begun work on Regional Rural Banks (RRBs) attaining some traction in size in their geographic region. The ministry has said that geographically contiguous RRBs sponsored by different banks within a state could be amalgamated with single sponsor bank to help optimizie use of modern technology and give adequate muscle to expand coverage in the region. RRBs, are jointly owned by the centre, the state government and the sponsor bank. Out of the 82 RRBs,81 have already switched to core banking solutions and national electronic fund transfer system. The cabinet last Thursday cleared 632 crore worth capital infusion into RRBs.