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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 occurredalbeit more severely.  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 concern

to command control over production, or market or employment in respect of any product or service.  May be through: considerable share of total production 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 Undertaking. b) Control over Market: --controls not less than 25% of total supply or distribution = Dominant Undertaking.( 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 high as 38% in the total paid up capital of the entire private sector. big and medium industrial units were the main beneficiaries of bank credit.

 2.

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 to enquire into and keep constant watch on M&RTPs)

 Findings:  2 main kinds of concentration: productwise and country-wise.




So also a third type: product cum country-wise concentration

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 different commodities are in the controlling hands of one individual, or family, or business group.
 How identified:  In terms of business groups and business

houses accounting for 50% or more of total production of an item.

COMMISSION FOUND
 There was substantial concentration both industry-wise     

  

and country-wise --Product-wise: -- examined 1298 products and found that: there was high concentration in 86.7% of the products examined. detailed study of 100 selected commodities: in 65 productshigh concentration( infant milk food, fluorescent lamps, soaps, matches, typewriters, foot wears, talcum powder, ) 10 products - medium(biscuits, fans, radio, cement) 8 low(Woollen fabrics, pencils) 17 - nil ( tea, coffee, sanitary-wares)

 Country-wise concentration:  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 technological     

advances: also economies of scale 2.Inter-connections:--intercorporate investments 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 from FIs & banks: preference to large houses

CONSEQUENCES OF CONCENTRATION
 MIC felt(majority) concentration had fostered economic        

development in Indiaespecially managerial skill. So also evil effects: a. Exploitation of consumers Lack of competition b. large firms block entry of new and small firms c. economic disparities widen d. tempt to corrupt the political & adm.system e. misdirection of investment f. destroy small units g.

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: the monopolies and

restrictive 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 came to 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 adverse

effects.  Retarded competition, decelerated industrial growth, affected exports


 -- Birlas not allowed to expand in India: went to other

countries in ASEAN. 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.