Monopolies and Restrictive Trade Practices in India

8/2/2019 Monopolies and Restrictive Trade Practices in India

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MONOPOLIES AND RESTRICTIVE

TRADE PRACTICES IN INDIA

** In most capitalist economies as the economy

grows monopolies and concentration of wealth

occur & get stronger.

** In India also this has occurred²albeit moreseverely.

IN PRE-INDEPENDENT INDIA: thanks to the

Managing Agency System

POST INDEPENDENCE: it only continued and

even now continues«



What is Economic Concentration?

Economic position which enables a concernto command control over production, or market or employment in respect of anyproduct or service.

May be through: considerable share of totalproduction or

Control over raw materials and other inputs,or

Exclusive ownership of know-how(Patents)

Or Power to influence supply or price etc.



As per MRTP ACT :Concentration may manifest in the following forms:

a) Considerable share of productive capacity:

--if a concern (by itself or with interconnected) controls

25% (33% originally) of total installed capacity, and assets

not less than Rs3cr (Rs1cr earlier) = Dominant

Und er taking. b) Control over Market:

--controls not less than 25% of total supply or distribution =

Dominant Und er taking.( by itself or with interconnected)

c) Large Assets: Assets of Rs.20cr or more.(Large Houses)

d) Considerable share of employment:



MAHALANOBIS Committee: 1964

Found that concentration had increased

quite significantly between 1951 ± 1958.

1. the share of 20 large groups was as highas 38% in the total paid up capital of the

entire private sector.

2. big and medium industrial units were the

main beneficiaries of bank credit.



MONOPOLIES INQUIRY COMMISSION,

1965

A 5 member commission under the chairmanship of K.C. Das Gupta was appointed in April 1964 and their report came in October,1965. ( whole time agency toenquire into and keep constant watch on M&RTPs)

Findings:

2 main kinds of concentration: product-wise and country-wise.

So also a third type: product cum country-wiseconcentration



Product-wise (Industry-wise) Concentration

Production and distribution of a commodity or service is controlled by a comparatively limited

number of concerns, which are, in turn, controlled

by a single family or a few families.

High = if share of top 3 producers is 75% or

more

Medium = 60% to 75% Low = 50% to 60%

Nil = less than 50%.



Country-wise Concentration

Where a large number of concerns engaged

in production or distribution of diff erent

commoditi es are in the controlling hands of

one individual, or family, or business group.

How identified:

In terms of business groups and businesshouses accounting for 50% or more of total

production of an item.



COMMISSION FOUND There was substantial concentration both industry-wise

and country-wise --Pr oduct-wi se:

-- examined 1298 products and found that:

there was high concentration in 86.7% of the productsexamined.

- detailed study of 100 selected commodities:

in 65 products²high concentration( infant milk food,fluorescent lamps, soaps, matches, typewriters, footwears, talcum powder, )

10 products - medium(biscuits, fans, radio, cement)

8 ± low(Woollen fabrics, pencils)

17 - nil ( tea, coffee, sanitary-wares)



C ount ry -wi se conc ent r ation:

where 50% or more of equity was held by a

person or his relatives.

examined 2259 companies. Of this

1609 (71%) belonged to 83 groups

Of this, 75 business houses (8 being

excluded having assets below Rs 5 cr.)

accounted for 47% of total assets of non-govt.corporate sector and 44% of paid up capital

(during 1963-64).



CAUSES OF CONCENTRATION

1.Growth of joint stock companies and technologicaladvances: also economies of scale

2.Inter-connections:--intercorporate investments²

interlocking of directors ±also M&As

3. Managing Agency system:

4. Controls by Govt: IL system

5. Inherent opportunities: only the big houses had the

resources.

6. Assistance fromF

Is & banks:

preference to largehouses



CONSEQUENCES OF CONCENTRATION

MIC felt(majority) concentration had fostered economicdevelopment in India²especially managerial skill.

So also evil effects:

a. Exploitation of consumers

b.

Lack of competition

c. large firms block entry of new and small firms

d. economic disparities widen

e. tempt to corrupt the political & adm.system

f. misdirection of investment

g. destroy small units



Recommendations ( Remedies)

a) Non-Legislative measures:

1. permanent body for vigilance and taking action(MRTPC)

2. Streamlining Industrial Licensing

3. Import licensing

4. countervailing action by PSEs

5. consumer co-operatives: for distribution

6. restrain political parties

7. remove corruption



Legislative Measures

MIC prepared a model legislation: ³the monopolies andrestrictive trade practices bill

--keeping in mind the following 2 principles:

** ensure highest production possible ** ensure this with least damage to the public at large.

FOUND: on the basis of field studies made by it«

--m.and r.t.p.s were widely prevalent in India.



Especially horizontal fixation of prices,

exclusive dealing, resale price maintenance,

price discrimination, tie-up arrangements.

So also, blocking entry, full line forcing,

boycott, output restrictions, hoarding.

MRTP ACT,1969.



SUBSEQUENT TRENDS IN

CONCENTRATION

DESPITE THE MRTP ACT The liberalizations introduced in the 80s and 90s only further

increased expansion of large houses.

--the aggregate assets of 78 large industrial houses(as on 31-3-1990)

were as high as Rs.49,254 cr; of this the share of top 20 houses cameto 68.9%.

large house= co./ house with assets of Rs.100cr or more,

incl. all inter connected.

-- 4 Indian cos make it to Fortune 500 (July 13th, 2004):

IOC, BPC, HPC, and Reliance.



ALTERNATIVE VIEW OF LARGE HOUSES

--positive role

--the restriction on big houses had adverseeffects.

Retarded competition, decelerated industrial growth,affected exports

-- Birlas not allowed to expand in India: went to other countries in ASE AN. They set up a viscose staple

fibre plant in Thailand and exported fibre to India.



they are too small when compared to

international giants.

--turnover of largest pvt sector co in India was only

2% of our GNP, whereas some of the MNCs have

turnover > than the GNP of many countries.

-- the largest pvt sector units are small even in

comparison with some of our large public sector units

-- minimum economic capacities

--widespread shareholding pattern

-- public sector monopoly is also bad.

Monopolies and Restrictive Trade Practices in India

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