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MRTP Act: Rise Fall and Need for Change: Eco Legal Analysis

1. INTRODUCTION 1.1 Title The title of the project is ‘MRTP Act: Rise, Fall and Need for Change: Eco-Legal Analysis’ and is part of the submissions to be made for the internal assessment for the course of Economics II.
1.2 Overview of Topic India, in its formative years of freedom, laid down the seeds of socialistic approach towards economic development. Five-year plans were designed with the aim of self-realance and self-sufficiency of the Indian industry and in this process of indigenuity, focus was laid on strong governmental regime to ensure equal and prosperous distribution of resources. One such attempt of the state resulted in the enactment of the MRTP Act, 1969 with the basic aim of comprehensive control over direction, pattern and quantum of investment to ensure that wealth is not concentrated in the hands of the few.
However, with the emergence of the new Industrial Policy statement of 1980, a need was felt for promoting competition in domestic market, technological upgradation and modernization which was then followed by the massive New Policy Reforms of 1991 which emphasized attainment of technological dynamism and international competitiveness, by opening up the Indian economy to foreign investment. This could not be met by the Indian industry since it was not in competitive terms with the rest of the world and operated in an over-regulated environment. Hence, as was concluded in the Raghavan Committee Report, 2000 [1] – changes were sought in the competition policies of India and thus, the MRTP Act was laid to rest.
This project will trace the performance of the MRTP and point out the faults that led to its failure and thus its repeal by the Competition Act.
1.3 Objective of Project This project is aimed at advocating and analysing the performance of the Monopolies and Restrictive Trade Practice Act, 1969 (henceforth, MRTP Act) in the Economic-Legal aspect. The project will primarily analyse the performance of the MRTP Act over the various Industrial development phases (From 1951 to post-1991 Reforms) and then try to establish how and why it paved the way for Competition Act, 2002.
Thus, the basic aim is to establish the reasons for the failure of the MRTP and the subsequent reasons for the establishment of the Competition Act.
1.4 Data Set Explanation In the course of this project, the following data-sets have been used:
1) MRTP Commission Data: Depicting the number of cases considered and disposed of by the MRTP Commission in its last years of existence, i.e. from 2002-2004. This data has been computed in the form of Bar-Graph for illustrative purpose.
This data has been sourced from the work of Sh. Pradeep S. Mehta, Gen. Sec., CUTS International in A Functional Competition Policy for India published by Academic Foundation, New Delhi, 2005. This data is available online and has been accessed through www.books.google.com [Link has been provided at the concerned graph]
2) Annual Growth Rate of Industrial Production Index: Depicting the trend in the growth of Industrial Production from the Year 1951 to the year 2007. This has been represented in the form of Data-Table, and the data divided into the various Industrial phases.
This data has been sourced primarily from the book of S. K. Misra and V. K. Puri titled Economic Environment of Businees, 5th ed, Himalaya Publishing House, 2008. This book is available at the Reference Section of the NALSAR Law Library.
This data is originally sourced in the above-mentioned book from:
(a) Government of India, Handbook of Industrial Statistics, 1992, Table 50, p.150;
(b) S. L. Shetty, Structural Retrogression in the Indian Economy since the Mid-1960s”, Economic and Political Weekly, Special Supplement, 1978, Table 4, p. 9;
(c) Government of India, Economic Survey, 2000-01, Box 7.1, p.130;
(d) RBI, Handbook of Statistics on Indian Economy, 2000, Table 199, p. 409;
(e) Government of India, Economic Survey, 2004-05, Table 7.2, p.142;
(f) RBI, Handbook of Statistics on Indian Economy, 2006-07, Table 237, p. 606 and Table 238, p. 607.
1.5 Research Methodology The methodology adopted in this project is descriptive. The research is based on findings and statistics provided in primary sources like Statistical data and Committee Reports and on secondary sources of books and articles published in journals, hence the methodology adopted is despcriptive in nature.
1.6 Limitations The research is limited to the resources available at the NALSAR Library and the data sets available online and at the NALSAR Library in the manner of Study Reports and Research findings.
2. MRTP: WHY IT WAS ENACTED 2.1 Post-Independence: Socialistic Industrial Regime Structure In the years preceding the enactment of the MRTP Act, 1969, India had only been a free nation for a little more than 15 years. Following independence, it had laid down the formative structure of its governance and organization on the touchstone of socialism. The socialist approach was inherent in the functioning of the government as it preached social and economic equality, which was later adopted in the Preamble to the Constitution of India [2] by the 42nd Amendment. In this process, the concept of planned economic development started since the early 1950s.
However, this approach did not yield the desired result of socio or economic equality. The initial industrial licensing policies had not borne the planned results- instead, the market and the industries were showing negative trends and wealth was getting concentrated in the hands of the few. This was observed by the Hazari Committee in its 1967 Report on Industrial Planning and Licensing Procedure, 1955 where it found that working of the licensing system had resulted in disproportionate growth of some big industrial house. [3]
Similarly, the Mahalanobis Committee Report (1964) on Distribution and Level of Income, reported that the top 10% of the population cornered 40% of the income while the 20 of the largest firms in India owned 38% of the total built up capital of the private sector. [4]
2.2 Emergence of MRTP The previous industrial policies had clearly not worked in the direction the state had hoped for since, post independence many new and big firms had entered the Indian market and they had little competition and thus, were trying to monopolize the market.
Hence the need for a stricter policy regime was realised to safeguard the welfare of the consumers by removing barriers to competition in the Indian economy, and this resulted in the enactment of the MRTP Act, 1969 which came into force in June 1970. The primary objectives of the Act were listed down in the Preamble as follows: [5]
i) Regulate the concentration of economic power to the common detriment,
ii) Control monopolies and monopolistic trade practices,
iii) Prohibit restrictive trade practices, and
iv) Regulate unfair trade practices.
2.3 Primary Concepts To understand the objectives of the MRTP and for the understanding of this project, we will first proceed to discuss the primary concepts related to the project topic:
1) Monopolistic Trade Practices
Section 2(i) of the MRTP Act, 1969 defines Monopolistic Trade Practice as trade practices that have the effect of preventing or lessening competition in the production, supply or distribution of any goods or in the supply of any services- by misusing one’s power to use the market conditions, in terms of production and sales of goods and services, and thus abuse its market position- are called monopolistic trade practices.
Firms involved in monopolistic trade practice try to eliminate competition from the market by taking advantage of their monopoly and charge unreasonably high prices. This in effect leads to deterioration in the product quality and limits technical development. Thus, such practices are anti-consumer-welfare.
2) Restrictive Trade Practices
Activities that firms indulge in that tend to block the flow of capital into production, in order to maximize their own profits and to gain control over the market- such activities are termed as Restrictive Trade Practices. [6] Such firms also control conditions of delivery to affect the flow of supplies leading to unjustified costs of production and distribution- while establishing their monopoly in the market.
3) Unfair Trade Practices
Section 36-A of the MRTP Act, 1969 which was inserted on the recommendation of the Sachar Committee Report, laid down as to what may be termed as Unfair Trade Practices: [7]
False representation and misleading advertisement of goods and services.
Misleading representation regarding utility, quality and standard of goods and services.
Giving false guarantee or warranty on goods and services without adequate tests.
False claims or representation regarding price of goods and services.
Giving false facts regarding sponsorship, affiliation etc. of goods and services.
Making false or misleading representations of facts.
2.4 Doctrine of the Act The MRTP Act, 1969 had its origin in the Directive Principles of State Policy embodied in the Constitution of India. Article 39[(b) and (c)] of the Constitution lay down that the State shall direct its policy towards ensuring: [8]
(i) that the ownership and control of material resources of the community are so distributed as to best serve the common good; and
(ii) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.
Thus, the doctrine behind the MRTP Act, 1969 was based on the concept of planned economic development that had started since early 1950s. The Public Sector Industrial (Development

A Focus On The Superments In Singapore Economics Essay

Economics is a social science, that studies the production, distribution and consumption of goods and services, and can be used to quantitatively and qualitatively analyze a given market. The question I selected for further investigation through economics is, “To what extent do supermarkets in Singapore resemble an oligopoly market structure?”
THEORY AND MARKET INFORMATION The supermarkets in Singapore are an indispensible part of society. Catering to the needs of all, Supermarkets are said to be “the building blocks of the society. The phrases “I’m going to NTUC” and “I’m at Cold Storage” have found a common place within the Singaporean society with over a million people or approximately 25% of the population regularly visiting a supermarket. Despite the numerous supermarkets in Singapore, the market is dominated by four large firms; NTUC FairPrice, Cold Storage, Sheng Siong and Giant.
An oligopoly is a market form, in which firms are ‘few and large’; the entire market is dominated by a small number of sellers, where the top 4 or 5 sellers control over 40 % of the market share. Based on the fact that the market under examination has the assumed scenario, where the four largest firms control over 40% of the total market share, the market under investigation has been hypothesized to be an oligopoly. There are several factors that are inherent in the structure of an oligopoly. These include assumptions and characteristics such as the following:
Barriers to Entry: Most oligopolies have distinct barriers to entry, usually the large-scale production or the strong branding of the dominant firms. Barriers to entry may also be legal restrictions such as patent rights, or collusion among the existing firms to keep new entrants out by cutting prices sharply to make it impossible for the new entrant to be competitive or produce at that price. In the case of the market for supermarkets, there are substantial barriers to entry, which include the size of the plants of the existing firms, import made from abroad and strong brand name of the firms. These act as a barrier to restrict the entry of potentially new firms into the market, further enhancing the position of existing firms in terms of market share
Interdependency of Firms and Price Stability: In an oligopoly, firms are said to be interdependent as the outcome of an action of one firm depends on the reaction of the rival firms. As there are just a few firms, each firm needs to take careful notice of each other’s actions. Interdependence tends to make firms want to collude and so avoid surprises and unexpected outcomes. If they can collude and act as a monopoly, they can maximize their profits. Thus the firms are very interdependent and this is shown by the concept of the kinked demand curve (Figure 1). The kinked demand curve applies the effect of interdependency in respect to the supply, demand and price fluctuations within an Oligopoly market. The kinked demand curve works on the assumption that, in reality, the firm knows only 1 point on the demand curve, the one that it holds at present (‘A’). If the firm were to raise its price, then it would be unlikely that the competitors would raise theirs and so, the firm would lose its demand to the other firms. Thus, demand would be elastic above point ‘A’, where the firm is currently operating at, as a small increase in price would lead to a large fall in quantity demanded. However, if the firm were to reduce its prices, it would be likely that the other firms would reduce theirs too. Also, instead of reducing it to the level of the firm, the other firms may lower it even further to make up for the lost sales, by gaining more. Hence, demand would be inelastic below point ‘A’, as a decrease in price would lead to a negligible increase in quantity demanded. Hence, it is said in an oligopoly that if a firm were to change its prices, it would be the only loser. This reduces the incentive of the firms to compete by lowering their prices. This helps in maintaining price stability in an oligopoly market. Thus it is unlikely that one supermarket would cut their prices to draw market share away from other competitors. However, firms may gain an advantage by lowering their production cost per unit (economies of scale) to cut costs to a more competitive level, while still making super-normal profit. Also, being profit-maximizers, the firms operate at MC=MR. But the shape of the MR curve is such that, even if the marginal costs were to increase, it would still equal their marginal revenue and the firms have a range for profit maximizing.
Benefits of economies of Scale: Large firms, in an oligopoly, have an advantage of benefits to scale. Larger firms enjoy discounts when buying raw materials in bulk, and borrow capital at lower interest rates. Thus in the Long Run, the firm would reap in the benefits of the economies of scale. An economy of scale is defined as an advantage of increased production where the cost of production or servicing one unit decreases with each additional unit produced or serviced [1] . These more efficient firms would be able to wipe out competitors in the Long Run and may become the lone producer, i.e. the monopolist. In diagram 2, it is clearly evident that a firm is able to sell a larger quantity Q2 at a lower price per unit than producing a lower quantity Q.
Non-Price Competition: As firms do not compete in price competition, they engage themselves in non-price competition. In contrast to the homogenous goods of a Perfectly Competitive Market, an oligopolistic producer relies heavily on differentiating its products. Although the products may be substitutes, they have minor differences. Product Differentiation can create a strong foothold for a company and increase their market share. Another way for a company to do this is through branding. This effect can be seen in Apple’s “itouch” which has help Apple gain a considerable share of the MP3 market. Advertising also also plays a critical role in the firm’s market share. In the context of this investigation the effect of product differentiation will be a key area for the collection of data. The factors that are taken into account are membership benefits, location, free samples, amount spent by each firm on advertising and operating hours.
These theories presented help structure the basis for testing how the market under investigation conforms to an Oligopoly.

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