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Competition law to spur firms to grow bigger: Jaitley

The government on Tuesday said that it has consciously made pre-merger notice optional in the proposed competition law to encourage emergence of bigger Indian entities, but warned stern action against anti-competitive practices like cartelisation, under-pricing and bid rigging.

"We have consciously made it optional for the merging companies whether to give pre-merger notice to the Competition Commission or not to encourage Indian companies to gain in size," Union Law Minister Arun Jaitley said in the face of criticism by apex industry chambers of making pre-merger notice optional.

In the present scenario, competition has reached every nook and corner of the globe and Indian companies must be encouraged to gain in size to withstand the onslaught of MNCs, he said but cautioned that the proposed laws would have enough teeth to protect the consumers against anti-competitive practices.

Citing the example of telecom sector where tariff for cellular services have come down from a high of over Rs 16 a minute to about Rs 2 in a matter of 3-4 years, Jaitley said that competition alone could serve the interests of the consumers.

For this, the proposed law would detail all the anti-competitive practices, he said and cited five possibilities -- cartelisation, under-pricing, sharing of territories, restricting sources of supplies and collusive bidding by companies -- where stern action has been proposed.

However, Jaitley said it was open for the merging companies to seek the opinion of the proposed Competition Commission whether the merger would be a valid one as per the proposed law.

This was intended to give the corporates a chance to test the water before going ahead with their commercial deals that could be questioned and quashed by the commission.

Asked about the suggestions of Monopolies and Restrictive Trade Practices Commission, which is to be replaced by the commission under the proposed law, for mandatory pre-merger scrutiny, Jaitley said: "Under MRTPC size was evil but under the proposed law it is the abuse of dominance. We want to encourage size."

The new law is not against dominance, but against abuse of the dominant position enjoyed by the company in the market, he said.

For example, a dominant company could lower the prices of a product to make it impossible for the smaller players to stay in the market, he said and added once these small firms wind up their business, the big player could jack up the price of the product leaving the consumers with no option.

"But dominance is not determined by a fixed percentage of market size or asset. It will be measured by various relevant factors like size of market, number of players, the financial capacity, tariff barriers and competition from outside the country," he said and clarified that there could not be a thumb rule for determining this.

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