Public goods cost may fall on anti-cartelisation drive

Centre cracking down on vendors colluding and indulging in cartelisation.

The government may be able to prune its massive public procurement expenditure soon, as a growing number of departments and public sector firms are cracking down on vendors indulging in cartelisation and collusive bidding for contracts to deliver public goods and services, Competition Commission of India (CCI) chief D.K. Sikri said.

Public procurement expenditure accounts for around 30 per cent of India’s gross domestic product and the competition watchdog said that over half of the budget allocated to the ministries of railways, defence and telecom are for the procurement of goods and services.

“In the health sector, 26 per cent of the budget is for procurements. If the government agencies become alert and ensure better competition in the bidding process, even a 2 per cent saving in costs could wipe out the fiscal deficit of the Budget,” Mr. Sikri said.

Cement industry

The CCI on September 2 imposed penalties on 10 cement companies and their trade association, the Cement Manufacturers Association (CMA), for cartelisation in the cement industry. The CCI said the cement companies and CMA went against the Competition Act 2002.

The cement companies, including ACC, India Cements and J.K. Cements, used the platform provided by CMA and shared details relating to prices, capacity utilisation, production and dispatch and thereby restricted production and supplies in the market. CCI also found the cement companies to be acting in concert in fixing prices of cement.

Collusive bidding and cartelisation in any form are prohibited under India’s competition law, and several departments of the central and state governments, as well as public sector firms are taking a close look at bidders’ behaviour during the tendering process.

Lowest bidder

“They are seeing if the bidders are independent and they are not under the same management. This was not the case earlier. Similarly, they are complaining if the prices are identical. In the past, the public sector entity would hold negotiations treating them all as L1 or the lowest bidder,” Mr. Sikri said at an Assocham event on competition law.

“Now that same behaviour is being questioned and government departments are genuinely looking for an L1 bidder who offers a competitive price. This change has the potential to bring about considerable savings in procurement by the government,” he said.

The Commission has disposed of over 80 per cent of the 750 anti-trust cases it has been entrusted with in its seven years of existence and is also examining if a mechanism can be devised to halt probes and proceedings where a violator accepts and corrects anti-competitive behaviour.

Levying penalties

“In some cases, a mid-course correction has been taken by parties and they are requesting us that the CCI should withdraw the complaint and close the matter because the correction has been done. Unfortunately, the law doesn’t permit but we are looking for an answer to this,” Mr Sikri said, adding that the competition watchdog is not in favour of levying penalties.

“Let me make it clear that the Commission is not in favour of imposing penalties.

“As has been pointed out by the Competition Appellate Tribunal member (Rajeev Kher), penalties should be rational and proportional. We don’t want them to be imposed but would like to see more compliance in the best interests of the economy,” he said, urging industry to conduct competition compliance audits across their business structures.

Wasteful exercise

Competition Appellate Tribunal member Rajeev Kher red-flagged a tendency to approach the jurisdiction of competition law even when matters don’t fall under its ambit.

“This takes away precious time of the regulator in wasteful exercise.

Could there be some prioritisation based on relative importance of sectors on the basis of some predetermined criteria that may include their role in the national economic development,” Mr Kher asked.

He suggested that timelines to investigate cases could be reviewed and resolution of cases through negotiations, settlements and reconciliation could be explored.

“These are of course issues to be addressed in a process of legal amendments,” tribunal member Mr. Kher said.