GS Paper 3
Syllabus: Effects of Liberalisation on the Economy
Source: TH
Context: The Supreme Court issued notices to five tyre companies and the industry body Automotive Tyre Manufacturers’ Association (ATMA).
Background:
- The All-India Tyre Dealers Federation (AITDF) in a reference to the Ministry of Corporate Affairs (MCA) alleged 5 tyre companies for coordination, price parallelism and cartelisation.
- These companies (control 90% of the tyre production in India) had raised tyre prices on the pretext of rising prices of raw materials (natural rubber).
- However, they did not correspondingly decrease prices when raw material prices fell – not in line with typical competitive market practices.
- The Competition Commission of India (CCI) – the competition regulator, imposed penalties on the five tyre companies (MRF, JK Tyre, Apollo, CEAT and Birla Tyres) alongside ATMA.
- The order was challenged at the National Company Law Appellate Tribunal (NCLAT) and was overturned.
- Now, CCI has approached the apex court challenging the tribunal’s order.
About Cartelisation:
| Meaning | According to CCI, cartelisation is a practice in which a group of competitors (manufacturers, sellers, distributors) come together (agreement) to restrict competition. |
| Ill-Effects | Reduces the output → increases the price → Forces consumers out of the market (if they opt not to pay a higher price) → transferring wealth unknowingly (if they opt to pay)
A cartel protects its members from full market exposure → decreasing cost control → hurting overall economic performance and innovation. |
| Cartels vs monopoly | A monopolist dominates the concerned market completely (as there is no competitor), while cartels are formed (with the intention to restrict competition) to dominate the market |
| Laws to stop cartelisation
|
The Competition Act, 2002 seeks to promote and sustain competition in markets, protect the interest of consumers, and ensure freedom of trade for market participants.
It established the CCI to eliminate practices having adverse effects on market competition. |
| The Competition (Amendment) Bill 2023 | The amendments proposed to codify the liability of cartel facilitators.
The CCI can now impose penalties of up to 10% of the total global turnover of enterprises. |
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