RAMPANT CARTELISATION DISTORING MARKET, CHEATING CONSUMERS
By Nantoo Banerjee
Highways, Road Transport and MSME Minister Nitin Gadkari is absolutely right to slam cement manufacturers for raising cement prices at will. Input costs have not increased, yet cement prices are rising. “The cement manufacturers seem to be moving like a cartel,” the minister said, adding that “it is an exploitation of the poor.” Gadkari’s outburst in the open is understandable. Higher prices of cement is affecting not only the country’s highway construction projects, but also affordable homes for the poor. The cost of a 50-kg-bag cement has increased from Rs. 270 to Rs. 400 in the last two months.
The Builders’ Association of India and National Highway Builders’ Federation — both large consumer lobby groups — have sought the government’s intervention. Cement prices typically go up before monsoon and soften briefly in the rainy season when construction works slow down. Even the rating agency, ICRA, noted that in March, cement prices were increased by Rs.15-75 per bag in key markets, followed by an another hike by Rs. 60-70 in April and May. This is unbelievable. And, one wonders what the government watchdogs, including the Competition Commission of India (CCI), are doing to prevent the oligopolistic market behaviour of cement manufacturers to protect consumers?
India is the world’s second largest cement producer, after China. Other top global cement manufacturers include the USA and Russia. India’s total cement production capacity was 502 million tonnes per year (mtpa) as of last year. Almost all major cement companies are expanding their capacity. As a result, India’s cement capacity is expected to tough 550 million tonnes by the end of next year. Of the total capacity, 98 percent lies with the private sector and the rest with the public sector. Among the major manufacturers are: the Aditya Birla group’s UltraTech Cement, Shree Cements, Lafarge Holcim-controlled Ambuja Cements, ACC, Binani Cement, Ramco, OCL India, Birla Corp, JK Cement and India Cement. UltraTech Cement is the country’s largest and amongst the world’s top cement manufacturers. The company also has the presence in five countries. The total operation includes 11 integrated plants, one white cement plant, one clinkerisation plant, 15 grinding units, two rail and three coastal terminals, and 101 ready mix concrete (RMC) plants. UltraTech is the country’s largest clinker exporter.
However, it would be wrong to think that only cement manufacturers are freely indulging in cartel like operations in the country, distorting the market and hurting big as well as small consumers. The cartelisation trend among packaged and branded goods manufacturers — from biscuits to automotive tyre, telecom and even life saving drugs — has gripped the entire market, right under the eyes of the so-called government regulators. While small consumers suffer, the authorities seem to be the least concerned. In the United States, a total of 44 states got together last month to file a lawsuit against as many as 20 global pharmaceutical companies, including seven Indian firms, for engaging in illegal conspiracies to stifle competition for generic drugs and illegal profiteering in over 100 different drugs.
The Indian firms facing the law suit are: Wockhardt, Dr Reddy’s Laboratories, Aurobindo Pharma, Glenmark Pharmaceuticals, Lupin, Zydus Pharma (Cadila Healthcare), and Taro Pharmaceutical Industries – a subsidiary of Sun Pharma, the country’s largest drug firm by sales. Some executives from these firms have also been named in the case. The lawsuit accuses Teva Pharmaceuticals USA Inc of orchestrating a sweeping scheme with 19 other companies to inflate drug prices, by more than 1,000 percent in some cases. If these Indian firms have the guts to indulge in price cartels in the USA, they are probably practising the same in India with impunity for years. Consumers are yet to see the Indian authorities busting drug cartel in India or looking into the matter even after the US action.
India has all laws of the land to regulate and punish price cartels, which operate more informally than under formal agreements like OPEC does for oil. The Indian market is large. The bases of both producers and consumers are wide. The producers’ profiles differ as much as the quality of their products. Yet, prices of their products hardly differ. They make India among the world’s most complex markets. On paper, the Indian Competition Act 2002 (Competition Act) regulates anticompetitive conduct in the country. CCI is the statutory authority in charge of competition law enforcement. CCI is aided by its investigative arm, the Office of the Director General (DG), in achieving the objectives of the Competition Act, namely preventing practices causing an appreciable adverse effect on competition, promoting and sustaining competition in markets, protecting the interests of consumers and ensuring freedom of trade.
The Act is supposed to regulate three areas of conduct: anticompetitive agreements, including cartels; abuse of dominant position; and combinations (mergers, acquisitions and amalgamations).CCI is supposed to be a proactive regulator that undertakes various advocacy initiatives, adding to the discourse between the regulator and potential leniency applicants. Separately, there is a noticeable trend in the number of bid-rigging issues in public procurement. In the light of the impact of such illicit activities on the country’s sustainable economic development, CCI should have clear and keen eyes for such cases.
Unfortunately, the public is yet to see and appreciate CCI’s role in ensuring at least a near-perfect-competition like situation in the market. Union minister Nitin Gadkari’s latest remarks on the pricing practice of cement manufacturers are highly relevant and came at an appropriate time as the BJP-led NDA government prepares to implement major campaign promises following its sweeping election victory. The BJP had pledged a $1.44-trillion investment to build roads, railways and other infrastructure, a boost to manufacturing, and a doubling in exports. The role of regulatory authorities will hold key to the success of the Modi 2.0 agenda. Price cartels — informal or otherwise — must be broken. Consumers must get the value for their money. (IPA Service)