The Hindu Business Line : Calibrating competition

THE Viewpoint column on October 9 titled `Compete or perish' had logically examined the regulatory check contained in Press Note 18, giving an indication that PN 18 is against "free competition" or that domestic investors should either freely compete or perish.

The article ended suggesting two solutions — either to amend the Press Note to make it applicable after certain time frame when the domestic partner would be capable of being independent or scrap it altogether. But the following alternatives can also be considered:

"Free market" cannot be "free-for-all" economy. The Government has abolished the Monopolies and Restrictive Trade Practices Act, 1969, as controlling enterprises based only on their size are no longer relevant in this era of privatisation, liberalisation and globalisation.

However, it would be too dangerous to leave the market to the dictates of a few large multinational corporations which have bargaining power better that sovereign governments.

Rightly, the Government has retained the restrictive and unfair trade practices within the ambit of the consumer protection law and has further enacted law in regulating competition policy — in line with number of other countries — whereby even in the free market economy, the concentration of economic power of dominant entities should not be detrimental to the public at large.

Most countries have varied regulations protecting domestic interests. Thus, Dubai protects its agency, whereby if the agency with the foreign partner is terminated, the foreign party is precluded from forming its own agency in the country.

Singapore imposes minimum proportion of employment of local Chinese workforce in any company operating in its soil.

In this direction, Press Note 18, which only operates in a limited sphere, protecting the legitimate interests of inherently weak domestic stakeholders, only calibrates competition instead of confronting it.

"Conflict of interest" in joint venture enterprises (JV) is not a fragile argument, but a potential threat to the very survival of stakeholders of JVs. One can scan any JV agreement transacting transfer of technology to see the pains taken by the overseas lawyers to ensure that `conflict of interest' of their clients are protected adequately, sweating out various clauses in delicious detail, and in intimidating language too.

Such clauses, often involve restriction on transfer of shares of local partners, possible changes in its corporate structure, nomination, appointment and continued office of Directors to the Board, management, the confidentiality and non-compete clauses of sorts and so on, which are both used and abused by them!

If this is the reality accepted in favour of foreign partners, there is nothing unusual or wrong in getting the similar rights of domestic investors protected through regulatory framework, considering the David and Goliath role-play of JV partners.

The argument made out for scrapping the Press Note is fragile and ignores the current foreign direct investment (FDI) policy itself.

In terms of the present dispensation, FDI (barring a few core sectors such as postal services, print media, agriculture, Defence and strategic industries) is permitted 100 per cent, and, as such should the foreign investor so desire, can set up its own wholly-owned subsidiary in India.

In spite of this regulatory freedom 100 per cent foreign ownership, and knowing the restriction contained under Press Note 18, if an overseas investor desires to partner with domestic investor, for what ever perceived strengths of the latter, why then blame the Press Note itself as the villain to FDI?

The first of the solutions given by the author — to make Press Note 18 applicable after a certain date — would be to generalise that all technologies, irrespective of their nature, shall necessarily be absorbed within the time-frame prescribed by the government. This is unworkable in reality.

``The other remedy — of scrapping the Press Note — would be a "self-inflicted injury" on the nation, in failing to understand, both the predicament of domestic stakeholders or the potential of nation's domestic capital on the imagined restriction on foreign investors and FDI, which is a marginal contributor to the overall economy.

K. Ramesh

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