The true significance of the Competition Commission of India (CCI)’s recent order penalising 11 major cement companies for violating competition law is to be seen not just in the quantum of penalty, even though at more than Rs.6300 crore it is by far the largest such penalty and one that is sure to dent the profitability of the companies for years to come. By demonstrating its assertiveness in this path breaking order, the CCI hopes firmly to delineate the contours of competition law, which is relatively new to this country. Setting valuable precedents and accumulating case law are important, essential tasks before any regulator. The Competition Act (2002), amended in 2007, prohibits anti-competition agreements and the abuse of dominant position by enterprises, and regulates mergers and acquisitions as well as other forms of combinations in the corporate sector that have, or can have, an adverse impact on competition in India. The CCI has accused the major cement companies of adopting collusive practices, akin to forming cartels to prop up prices. While imposing a stiff penalty, the Commission says it has considered “the parallel and coordinated behaviour of cement companies on price, dispatch and supplies in the market.” Further, that even when capacity was available they did not increase supply to meet the rising demand. Apart from the fine, the companies were told to “cease and desist” from indulging in any anti-competition activity.
The cement companies are sure to go on appeal but even in these early days it is clear that they will cite the lack of direct evidence pointing to collusion. Their supporting arguments are likely to be equally familiar: that input costs covering raw materials, freight fuel and power have been going up across the country. Besides, the industry is very large and forming cartels when there are so many players is neither easy nor sustainable. All of these arguments can be rebutted but it is for the courts to pronounce a final verdict. The order against cement companies is the fourth major order by the CCI. Earlier, two entities, the real estate major DLF and the National Stock Exchange of India Ltd. (NSE) were found to have abused their dominant position and slapped with hefty fines. In the third case, three suppliers of aluminum phosphide, used in storing cereals, were fined Rs.318 crore for colluding with one another in a practice very similar to that of the cement firms. Although located in different parts of the country and having varying cost structures, these firms charged their major buyer, the Food Corporation of India, a uniformly high rate. The battle for an effective competition law has begun in earnest. The CCI’s assertiveness is a welcome sign.
Keywords: Competition Commission of India, Competition Act, cement companies, DLF, NSE
Even granting that the company broke some laws, the prescribed medicine will kill the patient - Consumer Protection - instead of curing him. What is a logical scenario that might follow? The cost of Rs. 6300 Crore cannot come from a vacuum – it must be generated by the company from the sale of its cement, or the sale of its assets. The company must raise its prices – passing the fine on to the customers. If it cannot sell its products at the higher price it must resort to one of the following ways. It declares a loss, damaging its credit rating with the banks, raising financing costs; it suffers a drop in share prices and becomes a less efficient producer, weaker competitor. In addition, it lays off workers, reducing production further. These steps reduce overall supply to the market and raises prices for the consumer. In the extreme case, the company cannot absorb the loss, goes out of business, which reduces competition – hurting the consumer.
The hefty penalty by CCI on cement companies is going to set strong precedent and will act as deterrent for others involved, directly or indirectly, in promoting unhealthy competition in corporate world. Well, this kind of assertive action is both desire and need of the time and all the regulatory bodies should take a lesson from it. The bottom line is that till now mature corporate has not emerged and any believe for self-regulation from corporate to create an environment of fair competition is grossly unfair. CCI must maintain strict attitude for the shake of future as well as for making its own image distinguished.
An assertiveness of this degree is the need of the hour and I hope CCI will set a trend for the other regulatory bodies ae well(Particularly in the Telecom sector). Besides, The Hindu must be appreciated to bring out such a finding which otherwise would remain a distant abstraction.
(1) Informed citizens would certainly welcome the tough stand taken by the Competition Commission of India (CCI) and decision regarding hefty penalty to be collected from 11 cement companies. (2) Citizens also feel that suitable penal action should be initiated against the big real estate developers and construction companies. These construction companies are working in a seller’s market and make huge profits even without forming cartels.(3)There are essential services (primary education and heath care, for example) where the government role is diminishing; private service providers invariably dictate the price in these fields. Here the citizens often receive poor quality of service as well. (4) If competition has to be really healthy, we have to insist on creating an atmosphere for easy entry of service providers in all fields of socio-economic activities.
Thats a Commendable Job CCI!! Sue this Greedy Corporates who Backed by
our Admirable Politicians!!
I would Appreciate "The Hindu" in bringing the good deeds of some of the
Government organisations. "ImPartial" is the Word that Comes to my mind.
sir, As has been rightly asserted by the hindu,the unscrupulus activities of some the vested industrialists, in various fields, squeezing the public without any rhyme or reason is to be thoroughly checked, controlled, and penalties levied for their damaging acts, to save the country.Taking advantage of globalization, this dangerous trend is assuming alarming proportions with the connivance of some of the selfish and greedy politicians.such plain and incisive writings ferreting out the truth by THE HINDU is to be gratefully acknoldged
by all concerned..
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