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Essay on the Monopolies and Restrictive Trade Practices

ADVERTISEMENTS:

In this essay we will discuss about the Monopolies and Restrictive Trade Practices (MRTP) Act. After reading this essay you will learn about: 1. Introduction to the MRTP Act 2. Inter-Connected and Dominant Undertakings of MRTP Act 3. Workings 4. Monopolistic, Restrictive Unfair Trade Practices 5. Purview 6. The Process of Liberalisation 7. Industrial Policy, 1991 and MRTP Act.

Contents:

  1. Essay on the Introduction to the MRTP Act
  2. Essay on the Inter-Connected and Dominant Undertakings of MRTP Act
  3. Essay on the Working of MRTP Act
  4. Essay on the Monopolistic, Restrictive Unfair Trade Practices under MRTP Act
  5. Essay on the Purview of MRTP Act
  6. Essay on the Process of Liberalisation in MRTP Act
  7. Essay on the Industrial Policy, 1991 and MRTP Act 

1. Essay on the Introduction to the Monopolies and Restrictive Trade Practices (MRTP) Act:

The Government adopted the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969 and accordingly the MRTP Commission was set up in 1970. The Commission was set up to investigate the effects of such practices, case by case, on the public interest and to recommend suitable corrective measures.

ADVERTISEMENTS:

The preamble to the MRTP Act described it as “An Act to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and matters connected therewith or incidental thereto.”

The MRTP Act has made distention between monopolistic and restrictive trade practices. Accordingly, the monopolistic trade practices was described as “dominant firm practices”, i.e., a firm or a oligopolistic group of three firms, after attaining a dominant position has been “able to control the market by regulating prices or output or eliminating competition.”

Restrictive trade practices include concerted action undertaken by a group of two or more firms so as to avoid competition from the market irrespective of their market share. These types of practices are “deemed to be prejudicial to public interests.”

In order to make necessary review of the working of MRTP Act and to make necessary recommendation for streamlining its activity, the Government appointed a Sachar Committee in 1977. On the basis of the recommendations made by this committee, the Government made necessary amendments in Act in 1980 and also in 1984. In 1991, a significant amendment was made where chapter (III) on Monopolies was dropped.


2. Essay on the Inter-Connected and Dominant Undertakings of MRTP Act:

The MRTP Act analyses a business house in terms of inter-connected undertakings and dominant undertakings. Moreover, the MRTP Act broadly covered two types of undertakings, i.e., national companies or product monopolies. All the national monopolies were covered by section 20 (a) of the Act and they include “single large undertakings” or “groups of inter-connected undertakings” which had assets to the extent of Rs 100 crore (in the pre-1985 period, the limit was fixed at Rs 20 crore).

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Dominant undertakings, also known as product monopolies, were covered under section 20 (b) and they include those undertakings which controlled to the minimum of one-fourth of production or market of a product and had assets to the minimum of Rs 3 crore (previously this limit was Rs 1 crore).

Thus, the large industrial houses having inter-connections with a number of undertakings normally have countrywide concentration of economic power and industrial activity and thereby have substantial control on country’s resources. But the dominant undertakings are mostly dominant within a single industry.

Companies under MRTP Act are normally required to obtain the approval of the Government in respect of:

ADVERTISEMENTS:

(a) Substantial expansion of production capacity,

(b) Diversification of existing activities,

(c) Establishment of inter-connected undertakings,

(d) Amalgamation or merger with any other undertakings; and

(e) Takeover of the entire or part of other undertakings.

The MRTP Commission normally considers all these sorts of proposals to justify its public interest. Till the end of March 1990, 1,854 undertakings were registered under the MRTP Act. Out of these, 1,787 undertakings were belonging to large industrial houses and the remaining 67 undertakings were dominant undertakings.

Again, the Industrial Policy, 1991 has now totally scrapped the assets limit for MRTP companies.

The definition of ‘inter-connected companies’ as adopted under the MRTP Act, was having some loopholes, which have helped some industrial houses to escape from the purview of the Act. It is also found difficult to establish inter-connection in certain cases.

As, for example, TELCO claimed that it was not having any inter­connection with any of the Tata company and Gwalior Rayon claimed that it had no inter-connection with any of the Birla company.

ADVERTISEMENTS:

In this connection, Mr. N.K. Chandra observed that, “Under Indian conditions it is quite possible that two companies are not ‘legally’ inter-connected, but are in fact controlled by one business family. The widespread practice of benami shareholders whereby the de facto owner for a variety of reasons has the shares recorded in the name of a relative or a protege, helps to underscore this above lacuna.”

The Dutt Committee had estimated that as per 1966 data there were 48 large industrial houses in the country having assets more than Rs 21 crore each; they controlled together 1,500 companies with combined assets of Rs 4,000 crore. But, out of these, only 450 companies, having total assets worth Rs 1,000 crore registered themselves with the MRTP Commission.

Similarly, the Dutt Committee had also listed 280 companies under the Birla family out of which only 29 companies had registered themselves. Again the committee had listed 84 companies under the Tata’s (the top business houses) out of which only 14 concerns got them registered.


3. Essay on the Workings of the MRTP Act:

In order to study the effectiveness of MRTP Act, it would be better to assess the functioning of the MRTP commission. Whatever applications were received by the Government under Industrial Development and Regulation Act, only 10 per cent of it was referred to MRTP Commission. Out of these applications referred, only 87 per cent of the applications were approved.

ADVERTISEMENTS:

In respect of identifying the large business houses with inter-connected undertakings, the MRTP Act could not make much headway. Out of these inter-connected undertakings, only a few registered themselves with the MRTP Commission.

With the adoption of a liberal definition of the ‘Core Sector’ by the Government, even low-priority and highly profitable industries like man-made fibres and synthetic detergents have been included in the core sector. In this connection, A.N. Oza stated, “The objectives of curbing the growth of the large business houses and checking concentration of economic power must necessarily take a lowly place in the scheme of priorities.”

In 1995, a survey conducted by the Ministry of Industry and Civil Supplies revealed that there were about 203 items in which there prevailed complete single firm monopoly. Moreover, in respect of single firm monopolies, both Monopolies Commission and the powers of the Government under the MRTP Act were found to be ineffective.

In case of non-competing entrepreneurs, the question of intervening by the Commission becomes irrelevant. In respect of restrictive trade practices, the Commission works as a quasi-judicial tribunal which cannot impose any penalties and it has no authority to issue interim injunctions.

ADVERTISEMENTS:

H.K. Paranjape, one of the former members of MRTP Commission, observed that a close nexus between the political parties and their leadership (especially the ruling party) and the large business houses exists and as a result there arises half-heartedness and soft pedaling of several measures proposed by the MRTP Commission.

Paranjape also argued that Section 27 incorporated to break up large houses has hardly been applied since the inception of the Act. Under the present context, the working of the MRTP Act reveals lack of commitment on the part of the Government towards the Act. Under the present tempo of economic liberalisation, the Government puts much emphasis on the increase in the volume of industrial production.

The problem of controlling economic concentration and monopolies got the secondary considerations as this objective is subdued by the objective of attaining higher industrial growth. The Government now felt that this MRTP limit has become deleterious in its effect, on the industrial growth of the country.

Thus, the new Industrial Policy, 1991 states that the pre- entry scrutiny of investment decisions by the so-called MRTP companies will no longer be required. But the new policy stated that the provisions of the MRTP Act will be strengthened in order to enable the MRTP Commission to take appropriate action in respect of monopolistic, restrictive and unfair trade practices.


4. Essay on the Monopolistic, Restrictive Unfair Trade Practices under MRTP Act:

The MRTP Act has defined the monopolistic, restrictive and unfair trade practices.

As per MRTP Act, a monopolistic trade practice (MTP) is a kind of trade practice which has the effect of:

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(a) Maintaining unreasonable level of prices,

(b) Preventing or reducing competition unreasonably,

(c) Limiting technical development detrimental to common interest, or

(d) Allowing quality deterioration, and

(e) As per 1984 amendment unreasonably increasing the cost of production and prices of goods and services.

Again as per MRTP Act, a restrictive trade practice (RTP) indicates a trade practice which has the effect of preventing, distorting or restricting competition in a manner obstructing the flow of capital into production stream and bringing manipulation of prices or conditions of delivery or affecting the flow of supplies in the market, leading to unjustified costs or restrictions on consumers.

ADVERTISEMENTS:

The 1984 amendment to the MRTP Act extended it to unfair trade practices, which include:

(a) The publication of an oral or in writing statement by visible demonstration;

(b) Publication of any advertisement matter for sale at bargain price;

(c) Allowing enticement by gift or contest;

(d) Sale or supply of sub-standard goods and

(e) Hoarding or causing destruction of goods and refusing to sell the product.


5. Essay on the Purview of the MRTP Act:

Under the purview of MRTP Act, a large number of different types of agreements were identified. Each of such agreements was required to be duly registered with the Registrar of Restrictive Trade Practices along with the names of the parties involved in the agreement.

ADVERTISEMENTS:

All these registered undertakings were subject to following types of control on their different industrial activities:

(a) while proposing to expand the activities of the undertakings substantially by issuing fresh capital or by installing new machineries, notice to the Central Government was required to be given for getting approval (Section 21);

(b) while proposing to establish a new undertaking, prior permission of the Central Government was required to be obtained (Section 22); and

(c) while proposing to acquire, merge or amalgamate with another undertaking, the sanction of the Central Government must be taken before the execution of such proposal (Section 23).

The entire responsibility to look after the occurrence of concentration of economic power to the common detriment was on the Government. If it so desires, it could refer the matter to the MRTP Commission for making an enquiry. But MRTP Commission has been given an advisory role as the ultimate orders, on any proposal have to be passed by the Government of the day.

ADVERTISEMENTS:

The MRTP Act was formulated with following objectives:

(a) To have a careful watch that the operation of the economic system does not create any concentration of economic power to the detriment of the common people of the country;

(b) To control monopolies prevailing in the country; and

(c) To have a check on monopolistic, restrictive and unfair trade practices in the country.

Thus, in order to achieve these objectives, the MRTP Act tries to control the activities of the big business houses and dominant undertakings of the country.


6. Essay on the Process of Liberalisation in the MRTP Act:

The Government has been liberalizing the MRTP Act during different periods. With the gradual liberalisation of the Act, the large business houses have been allowed to enter into a number of industrial fields which were previously closed for such houses, As a first step, the Government has reversed the policy by allowing the large industrial houses to set up industries in 90 “zero industry” districts of the country along with the benefits of transport subsidy and cost compensatory measures.

The Government introduced the first amendment to the MRTP Act in November 1981 and the subsequent second amendment in August 1982. The first amendment revised the definition of dominant undertakings along with the definition of the term production of an undertaking so as to mean goods produced by it for the domestic market.

The 1982 amendment classified the dominant undertakings covered under Industrial Development and Regulation Act into those having licensed capacity and others not having licensed capacity.

Another important change in the MRTP Act was related to the power given to the Government so as to grant outright exemption in respect of certain proposals for considerable expansion and also new units from the purview of MRTP Act.

These exemptions are mostly related to the proposals of

(a) Industry of high national priority,

(b) Raising production exclusively for export and

(c) Industry which is established or proposed to be established in a free trade zone.

The MRTP (Amendment) Act, 1984 has also introduced some changes in the MRTP Act on the basis of the experience gathered by the Government and as per recommendations made by the Sachar Committee. The amendment made an attempt to clarify certain definitions for including certain categories which were earlier left uncovered.

These changes in the definition were mostly related to:

(a) Definition of goods as per sale of Goods Act, 1930;

(b) Change in the concept of group to include those enterprises under the same management;

(c) Redefine inter-connected undertakings by reducing the control of voting power from l/3rd control over voting power to 25 per cent;

(d) Exemption of restrictions on capacity expansion to the extent of 25 per cent of licensed capacity;

(e) Giving power to the Central Government for severance of inter­connection; and

(f) Including unfair trade practices like misleading advertisements; bargain selling etc. within the purview of MRTP Act.

Moreover, as per the recommendation of the Sachar Committee, the monopolies in the public sector have been included by the Government within the purview of the MRTP Act.

Besides, a number of relaxations have been announced by the Government to liberalise the companies from the purview of MRTP Act.

These relaxations include:

(i) Opening up of a good number of industries to large houses as per the 1973 industrial policy statement;

(ii) To introduce section 22-A in the MRTP Act for providing fillip to production in industries of high national priority and also for export;

(iii) Allowing 5 per cent automatic growth per annum in export-oriented industries,

(iv) Permitting use of existing capacities without MRTP clearance for other related items produced by machine tools industry, electrical equipment industry, steel forging and steel ingot industry;

(v) Liberalizing industrial licensing policy in 1985 by the Government; permitting the unrestricted entry of large industrial houses and FERA Companies into another 21 high technology items of manufacture;

(vi) Removing the sick industrial companies from the purview of MRTP Act under the provision of the Sick Industrial Companies (Special Provision) Bill, 1985;

(vii) Extending the scheme of de-licensing in March 1986 to MRTP/FERA Companies in respect of 20 industries of Appendix I (later on extended to 47 industries) for promoting the development of backward areas;

(viii) Automatic re- endorsement of capacity at the highest level of production achieved during 1988 and 1990;

(ix) Freeing dominant undertakings from industrial licensing policy restrictions applicable under the MRTP Act; and

(ix) Raising the limit of assets for the purpose of MRTP Act from Rs 20 crore to Rs 100 crore and finally; the New Industrial Policy, 1991 scrapped the asset limit for MRTP Companies altogether.


7. Essay on the Industrial Policy, 1991 and the MRTP Act:

As per the MRTP Act, any firm with assets over a certain size (Rs 100 crore since 1985) was classified as MRTP firms and such firm was allowed to start only selected industries on a case by case approval.

The Industrial Policy, 1991 observed the following regarding the MRTP Act, “The interference of the Government through MRTP Act in investment decisions of large companies has become deleterious in its effects on Indian industrial growth. Thus the pre-entry scrutiny of investment decision by so-called MRTP companies will no longer be required. Instead emphasis will be on controlling and regulating monopolistic; restrictive and unfair trade practices rather than making it necessary for the monopoly houses to obtain prior approval of the centre for expansion, establishment of new undertakings, merger, amalgamation and take-over and appointment of certain directors. The thrust of the policy will be more on controlling unfair or restrictive business practices.”

Moreover, the newly empowered MRTP Commission will be authorised to initiate investigation suomoto or any complaints received from any individual consumers or classes of consumers regarding monopolistic, restrictive and unfair trade practices.

Simultaneously, provisions of the MRTP Act will be strengthened by the Government through amendments in order to enable the MRTP Commission to take appropriate action in respect of monopolistic, restrictive and unfair trade practices.

In respect of the policy on MRTP, the Government is mostly guided by the considerations for encouraging investment by big business houses rather than to impose a curb or ceiling on their assets. Under the present circumstances, whether the Government will be in a position to control such monopolistic, restrictive and unfair trade practices seems to be doubtful.

The past experience in this regard cast a doubtful picture about the ability of the Government to control such practices of the large houses.

The large business houses try to control the supply and also maintain an upward trend in the prices of their products by creating artificial scarcity in its supply through the formation of powerful organisation and by entering into collusive arrangements.

The very success of the Government policy in this regard depends on the infusion of competitive elements in the production system and also on the control of monopolistic tendencies noticed thereof. 


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