May 5, 2011-According to Ram Tamara, Managing Director of Nathan India, and Manas Kumar Chaudhuri, head of the competition law practice of Khaitan and Co., the new Competition Commission of India (CCI) is like any other regulatory agency: it must send clear signals to businesses in order to diminish the uncertainty that regulations introduce into markets.
The CCI, however, may be making some missteps. In most developed countries, for example, merger control regulations are finalized years after merger control provisions are implemented so regulations reflect experience. CCI, however, seems to be finalizing a new merger regulation then implementing the law on the basis of the regulation.
The draft regulation being circulated among stakeholders for comment has raised concerns, as well. Businesses wonder whether other agencies will be able to claim jurisdiction over some transactions, and question the practicality of certain provisions.
To instill confidence in firms subject to regulation and gain credibility, CCI must reduce uncertainty surrounding these issues. Making informal assurances and cautioning business to not read too much into provisions merely heightens uncertainty. Instead, CCI must articulate its intent, signaling how it plans to enforce competition law, and demonstrate its ability to handle matters of great consequence to companies.
First steps include committing to a decision making “rule,“ signaling through the regulations such technical matters as the tolerance levels it will bring to bear when scrutinizing mergers and acquisitions, resolving jurisdictional issues, and marshalling expertise in accordance with its intent. If, for example, CCI has low tolerance for Type II errors--maintains a high threshold for allowing mergers and acquisitions--then it should ensure it has the staff and infrastructure to handle the large number of notifications that may have to be scrutinized.
Taking these steps will build the confidence necessary for CCI to be effective.
Tamara and Chauduri shared their opinion in Mint, a partner publication of the Wall Street Journal in India. The full article is at http://www.livemint.com/2011/05/04211524/CCI-must-show-its-effectivenes.html?h=B