INDIAN ECONOMY

TOPIC- Concerntration Of Economic

Power

Submitted to :- DR. Jasbir Singh

Submitted by :- Amit Verma

04314901813
BBA(B&I)-IIIrd sem
morning

CONTENTS
.Definition of concentration
.definition of Economic power
.Meaning of concentration of economic
power
.Meaning of Different Terms and Concept
.Types of concentration
.Growth of concentration of economic
power
.Causes of concentration of economic power
.measures taken by government to regulate
concentration of economic power
-MRTP ACT 1969
-COMPETETION ACT 2002

Income inequality
Problem of inequality in distribution of income is a serious problem of
indian economy inequality of distribution of income implies that a small
number of people of the country gets a very large share of national
capital. On the contrary a very large number of peoplegets a very small
number of national income.

Concentration of Economic Power

According to DR. P.S. Loknathan concentration of ownership and
control in few hands has been on important characteristics of industrial
development in india. To some extent this tendency is the result of lack
of industrial leadership and to some extent it is the result of lack of
industrial leadership and to some extent it is the result of those
circumstances in which indian industrys developed in the early stage.

Market Concentration

In economics, market concentration is a function of the

number of firms and their respective shares of the
total production (alternatively, total capacity or total
reserves) in a market. Alternative terms are Industry
concentration and Seller concentration.[1]
Market
concentration
is
related
to industrial
concentration, which concerns the distribution of
production within an industry, as opposed to a market.
In industrial organization, market concentration may
used as a measure of competition, theorized to be
positively related to the rate of profit in the industry, for
example in the work of Joe S. Bain
As an economic tool market concentration is useful
because it reflects the degree of competition in the
market.
There are game theoretic models of market interaction
that predict that an increase in market concentration will
result in higher prices and lower consumer welfare even
when collusion in the sense of cartelization is absent.
Examples are Cournot oligopoly, and Bertrand oligopoly
for differentiated products.

The Concentration of Economic Power

The world is full of people who worry about the

"concentration of wealth" allegedly caused by free
markets. Some of this worry is simply envy masked as
a more socially acceptable sentiment. Mature and
economically literate people do not envy the success of
others; instead, they applaud it and understand that a
successful producers wealth is created rather than
being extracted from the hides of the less-financially
successful.
Some of this worry, though, is genuine and sincere if
still, in my judgment, unwarranted.
Regardless of ones reasons for wringing ones hands
about the inequality of wealth, its important to keep in
mind that financial wealth is not the only source or form
of inequality. Each Member of Congress arguably has
more financial influence than does Bill Gates or other
tycoons acting in the market.

Types of concentration of economic

power
1- Product wise concentration in case of product wise
concentration the product and distribution of a commodity or
service is controlled by a single person or a group of persons. The
commission has divided this type of concentration into four parts

(i)

High concentration in this case, 75 percent or more

total product of a commodity is produced by 3 or more
producer

(ii)

Medium concentration 60 to 70 percent is

controlled by 3 producer

(iii)

Low concentration 50 to 60 percent is controlled by

3 producer

(iv)

Zero concentration share of top 3 producer is less

then 10 percent

2- Country wise concentration in case of country wise

concentration the production and distribution of large number of
different commodities are controlled by single person or a group of
persons.

Causes of Concentration of economic power

The main causes of concentration of economic power are as followed:-

(i)

Expansion of scope of private sector- government of

india in its industrial policy of 1956 had exclusively
reserved for public sector

(ii)

Protected market on account of the import policy of

government, india industrialist are insulated from foreign
competition. Rather than have been provided an protective
market, in such a protected market, big industries dont let small
industries develop

(iii) Inter corporate investment one of the causes of

concentration of economic power is inter corporate investment.
Under this system one company purchases the shares of other
company as a result, directors of one company alsobecomes
director of others. Then the directors use the assets of bth the
company to capture the market.

(iv) Licensing policy government licensing policy is also

responsible for encouraging the concentration of economic
power

(v)

Credit policy of institutions of industrial finance

the banking industries liberaly grants loans to big corporate
companies easily because of huge profit and benefits of the
bank and dont promote the small companies

(vi) Taxation policy to encourage the investment in private

sector, government have given some concession. It is the big
companies that have been taking the advantage of these tax
exemptions and concession

(vii) Foreign collaboration in 1956 new industries were set

with the collaboration of foreign companies this help the large
industries houses to capture the market and the economy

(viii) Sale of foreign companies - In the post-independence

era, many British and other foreign companies had sold their
companies to big industrial houses of India like dalma, sahu
jain, birla, bangur, etc. as a result, letter got monopoly hold over
many industrial and in this way concentration of economic
power increased.

(ix) Industrial Development during the period of planning

more opportunities were given to big industrial houses to set up
different industries in country in the interest of rapid industries
development. They were offered facility of diverse nature. They
were also given opportunity to change their black money into
white money. It also facilitated concentration of economic power

(x)

Managing agency system managing agency system

prevailed in India prior to and a few years after independence.
Under this system, some big industries houses controlled and
managed several companies. Even after the abolition of this
system, those companies remained under the control of these
industrial houses. It also laid the foundation of concentration of
economic power.

Effects of concentration of economic power

1- Beneficial effects of concentration in the initial stage of
industrialization of an underdeveloped country, as a result of
concentration of economic power, efficient and competent
entrepreneur get encouraged to develop industry. According to
Schumpeter, when concentration of economic power assumes the
form of monopoly, there is optimum use of capabilities of
entrepreneur and advantages of large scale production. Under
monopoly profits are inevitable much, an industrialist get
necessary stimulus for new development and research.
2- Harmful effects of concentration members of monopoly
enquiry commission, shri R.C. Dutt and other aconomist hold that
concentration of economic power is harmful. Its detrimental affects
are as under:
(i)

Ignore the quality of concentration- concentration of

economic power gives rise to tendency of monopoly. A
monopolist fear no competition. Hence, he supplies inferior
goods. He does not pay any attention on improving the
quality of his product. As a result, consumers stand to suffer

(ii)

Unnecessary increase in price- a monopolist fixes higher

price of commodity there is no competitor of his product,
hence he charges price according ti his will. It results in the
exploitation of the consumer.

(iii)

Increase in inequality on account of concentration of

economic power. Rich become richer and poor becomes
poorer. Small entrepreneur do not get any opportunities to
develop. They are unable to compete with big industrials.
Concentration of economic power wipes out small
occupations it has an adverse effect on economic
development and social welfare. Monopoly enquiry
commission was also of a view that small occupations are
good training centres for occupational and managerial ability.

wiping out of small units in the industry is harmful to the

interest of the entire industry. Decay these units gives rise to
the shortage of skilled entrepreneur and managers
(iv)

Obstacles in capital formation theoretically speaking,

concentration of economic power should result in mare
capital formation but in actual practice, due to several causes
it brings down the rate of capital formation

(i)

new entrepreneur have less opportunities to invest,

because they do not like to enter those industries
where they are to face competition from big industries.

(ii)

Big industries spend more of their income on luxury

goods such as rate of capital formation fall

(iii)

Big industries encourage speculative tendency which

adversely affect capital formation. Big entrepreneur
spend large part of their wealth on unproductive
activities and gold and silver ornaments. Consequently
capital formation slows down.

(V) Defective investment on account of concentration of

economic power, investment is not made adequate and
planned manner. Big entrepreneurs make huge investment on
capital goods industries or luxury goods in order to augment their
assets. Such an investment has an adverse effect the production
of consumer goods. Their production goes down, their prices go
up and consumer stand to suffer. In the word or DR. Loknathan
concentration of economic power leads to misdirection of
investment.
(vi) Increase in Corruption concentration of economic power
gives rise to corruption large enterprise bribe politicians and
bureaucrats and use the questionable means in order to get more
credit facilities from financial institutions.

What is Economic power?

Condition of having sufficient productive resources at
command
that
give
the capacity to
make
and enforce economic decisions, such as allocation of
resources and apportioning of goods and services.

Most economists define market power as the ability to

control price and exclude rivals.1 In turn,economic
power is often assumed to be essentially the same as
market power, but this equivalence raises serious
problems. Real world economic power encompasses
much more than market power, despite efforts by many
economists to ignore the distinction. For example, a
recent article in Forbesvoluminously reports on the
economic power of General Electric Corporation without
ever even mentioning the companys market power in jet
engines or television broadcasting. It states that during
the first six years of the 1980s GE changed dramatically,
reshuffling its ...corporate portfolio like a riverboat
gambler, acquiring 338 business and product lines for
$11.1 billion:
Nothing like this has been seen in corporate America
since the conglomerator days of LTVs Jimmy Ling and
Gulf & Westerns Charles Bluhdorn. With GE, its a case
of enormous financial might, coupled with the readiness
to acquireor to dump. Says one former GE official,

Meaning of Different Terms and Concept

. MONOPOLY
A monopoly is one which is big in the sense that it can influence the
market priceof its product. criteria of such a bigness, adopted in india till
recent, are: size off the assets which a firm controls. Under the
monopolies and restrictive trade practices act (MRTP), 1969 all firms
with assets above a certain size

. Dominant Undertaking
Adominant undertaking was that, which controlled at least one fourth
production or market of a product and had assets of at least 3 crore rs
Eearlieron this limit was 1 crore rs

. Monopolistic trade practice

A monopolistic trade practice is a trade practice which has, or is likely to
have, the effect of:
- Maintaining price at unreasonable level
- Unreasonable preventing or lessening competition

- Limiting technical development or capital, investment, or

- Allowing the quality to deteriorate

. Unfair trade practice

Unfair trade practice includes:

- Publication of a false statement, made orally or in written or by

visible representation,or
- Publication of any advertisement for sale at bargaining price, or

- Enticement by gift or contest

- Supply of substandard goods

- hoarding or destruction of goods or refusal to sell goods or

services

Growth of concentration of economic power

1- during 1960and 1970s there has been extreme concentration of
power at the top. The longest business in term of assets was tat
followed by birla. The third largest house was martin burn, which
was only one-fourth of the top two business houses (in termof
assets and turnover)
2- during 1980 and 1990 ther was again extreme concentration at the
top. As in dec 1991, the largest business house in term of asstes
was tata. Followed by birla and reliance

3- in the post liberalisation period 1991-2009, the private sector

corporate giants flourished. The largest private sector company in
term of assets and net sales was reliance industry followed by tata
steel and hindalco.

All these trends indicate increasing concentration of economy power in

the hands of largest industrial houses

The causes that have led for concentration of economic power are:-

In a study on monopoly and restrictive trade practices, the central

problem is the concentration of economic power since monopoly and
restrictive trade practices may be appropriately considered to be
functions of such concentration. Confining to industries, two main kinds
of concentration of economic power may be said to prevail in industries.
The first is, where production and distribution of any particular
commodity or service is controlled by a single family or a few families or
business houses, whether by reason of ownership of capital or
otherwise.
This concentration of economic power may be called as product wise
concentration. Where the industry is engaged in the production of one
product, it may sometimes be called industry wise concentration. The
second kind of concentration arises where a large number of concerns
engaged in the production and distribution of different commodities are
in the controlling hands of one individual or family or group of persons,
whether incorporated or not, connected closely by financial or other
business interests. This has been called the country-wise concentration.
Having thus defined concentration of economic power, the causes can
be identified for the same and the following are some of the important
causes:
The evolution of the corporation has made it possible for industrialists to
use these economies of scale to the greatest advantage by putting them
in control of large amounts of capital contributed by many. Since the
holding of shares is dispersed amongst a large number of shareholders,
they prefer to leave the decision and the management to a few who
show an active interest.
The very attributes of skill and enterprise which helped some
industrialists for the purpose of acquiring a commanding position in one
or two concerns induced them often to try to achieve greater and greater
control over the capital supplied by other people. This accelerated the
process of more and more industrial units coming under the control of a
limited number of successful businessmen.

The system of managing agency was also responsible for increasing the
concentration of economic power. Managing skill forms almost as
important a part in the successful running of a business as the supply of
capital. And for many years, it was even scarcer. As such, the supply of
managerial skill in different forms and diverse ways has proved a fruitful
source of concentration of economic power.
For many years, the main source of supply or managerial skill a
company is entrusted to another company or a firm or an individual, in
return for payment for the services. It is no exaggeration to say that for
all practical purposes, the board of directors abdicates the power of
control to the managing agents. It generally happened that one
corporation or firm becomes managing agent for not one but a number
of enterprises whether in the same line of production or not.

Government measures to regulate concentration

of economic power

In the wake of liberalization and privatization that was triggered in India

in early nineties, a realization gathered momentum that the existing
Monopolistic and Restrictive Trade Practices Act, 1969 ("MRTP Act")
was not equipped adequately enough to tackle the competition aspect of
the Indian economy. With starting of the globalization process, Indian
enterprises started facing the heat of competition from domestic players
as well as from global giants, which called for level playing field and
investor-friendly environment. Hence, need arose with regard to
competition laws to shift the focus from curbing monopolies to
encouraging companies to invest and grow, thereby promoting
competition while preventing any abuse of market power.
Competition: meaning and benefits
Competition is a situation in market, in which sellers independently strive
for buyers patronage to achieve business objectives. Competition and
liberalization, together unleash the entrepreneurial forces in the
economy. Competition offers wide array of choices to consumers at
reasonable prices, stimulates innovation and productivity, and leads to
optimum allocation of resources.
Abuse of market and need for new law
In an open market economy, some enterprises may undermine the
market by resorting to anti-competitive practices for short-term gains.
These practices can completely nullify the benefits of competition. It is
for this reason that, while countries across the globe are increasingly
embracing market economy, they are also re-inforcing their economies
through the enactment of competition law and setting up competition
regulatory authority.

In line with the international trend and to cope up with the changing
realities India, consequently, enacted the Competition Act,
2002 (hereinafter referred to as "the Act"). Designed as an omnibus
code to deal with matters relating to the existence and regulation of
competition and monopolies, the Act is intended to supersede and
replace the MRTP Act. It is procedure intensive and is structured in an
uncomplicated manner that renders it more flexible and complianceoriented. Though the Act is not exclusivist and operates in tandem with
other laws, the provisions shall have effect notwithstanding anything
inconsistent therewith contained in any other law.
Objectives of MRTP Act
In a significant departure from the letter and spirit of the MRTP Act, the
Act hinges on the "Effect Theory" and does not categorically decry or
condemn the existence of a monopoly in the relevant market, rather the
use of the monopoly status such that it operates to the detriment of the
potential and actual competitors is sought to be curbed.

The earlier legislation, considered draconian in the changed

scenario, was based on size as a factor, while the new law is
based on structure as a factor, aimed at bringing relief to the
players in the market.

The Act empowers CCI to impose penalty on delinquent

enterprises, whereas in the MRTP Act there were no provisions
regarding such enterprises

MRTP Act could only pass "cease and desist" orders and did not
have any other powers to prevent or punish while the new law
contains punitive provisions.

MRTP Act was applicable to Private and Public sector

undertakings only, whereas, the new Act extends its reach to
governmental departments engaged in business activities.

As regards agreements, compulsory registration has been done

away with.

The most path-breaking chapter in the Act has been the emphasis
on Competition Advocacy that was not at all contemplated by the
MRTP Act.

OBJECTS TO BE ACHIEVED

I. To check anti-competitive practices

II. To prohibit abuse of dominance
III. Regulation of combinations.
IV. To provide for the establishment of CCI, a quasi-judicial body to
perform below mentioned duties:

Prevent practices having adverse impact on competition

Promote and sustain competition in the market

Protect consumer interests at large

Ensure freedom of trade carried on by other participants in the

market

Look into matters connected therewith or incidental thereto.

1. ANTI-COMPETITIVE AGREEMENTS
The departure is reflected in section 3 of the Act, which states that
enterprises, persons or associations of enterprises or persons, including
cartels, shall not enter into agreements in respect of production, supply,
distribution, storage, acquisition or control of goods or provision of
services, which cause or are likely to cause an "appreciable adverse
impact" on competition in India. Such agreements would consequently
be considered void.
The species of agreement which would be considered to have an
appreciable adverse impact" would be those agreements which:

Directly or indirectly determine sale or purchase prices;

Limit or control production, supply, markets,

development, investment or provision of services;

Share the market or source of production or provision of services

by allocation of inter alia geographical area of market, nature of
goods or number of customers or any other similar way

Directly or indirectly result in bid rigging or collusive bidding.

technical

Further, the agreements, which are entered into in respect of various

intellectual property rights and which recognize the proprietary rights of
one party over the other in respect of trademarks, patents, copyrights,
geographical indicators, industrial designs and semi conductors have
been withdrawn from the purview of "anti competitive agreements". The
inherently monopolistic rights created in favour of bona fide holders of
various forms of intellectual property have been treated as sacrosanct.
2. ABUSE OF DOMINANT POSITION
Section 4 of the Act enjoins, "no enterprise shall abuse its dominant
position". Dominant position is the position of strength enjoyed by an
enterprise in the relevant market, which enables it to operate
independently of competitive forces prevailing market, or affect its
competitors or consumers or the relevant market in its favour. There
shall be an abuse of dominant position if an enterprise indulges into the
below mentioned activities:

Directly or indirectly imposing discriminatory conditions in the

purchase or sale of goods or service, or setting prices in the
purchase or sale (including predatory pricing) of goods or services;

Limiting or restricting the production of goods or provision of

services or market therefore; or limiting technical or scientific
development relating to goods or services to the prejudice of
customers;

Indulging in practice or practices resulting in the denial of market

access

Making conclusion of contracts subject to acceptance by other

parties of supplementary obligations, which has no connection with
the subject of such contract;

Utilization of the dominant position in one relevant market to enter

into, or protect, another relevant market.

3. COMBINATIONS
The Act is designed to regulate the operation and activities
of "combinations", a term, which contemplates acquisition, mergers
or amalgamations. Combination that exceeds the threshold limits
specified in the Act in terms of assets or turnover, which causes or is

likely to cause an appreciable adverse impact on competition within the

relevant market in India, can be scrutinized by the Commission.
Threshold limits that would invite the scrutiny are specified below:
For acquisition:

Combined assets of the firm more than Rs 3,000 crore (these

limits are US $ 500 millions in case one of the firms is situated
outside India).

The limits are more than Rs 4,000 crore or 12,000 crore and US $
2 billion and 6 billion in case acquirer is a group in India or outside
India respectively.

For mergers:

Assets of the merged/amalgamated entity more than Rs 1,000

crore or turnover more than Rs 3,000 crore (these limits are US $
500 millions and 1,500 millions in case one of the firms is situated
outside India).

These limits are more than Rs 4,000 crore or Rs 12,000 crore and
US $ 2 billions and 6 billions in case merged/amalgamated entity
belongs to a group in India or outside India respectively.

Further, such combination, which causes or is likely to cause

"appreciable adverse impact" on competition, would be treated as void.
A system is provided under the Act wherein at the option of the person
or enterprise proposing to enter into a combination may give notice to
the Competition Commission of India of such intention providing
details of the combination. The Commission after due deliberation,
would give its opinion on the proposed combination to approach the
Commission for this purpose. However, public financial institutions,
foreign institutional investors, banks or venture capital funds which are
contemplating share subscription financing or acquisition pursuant to
any specific stipulation in a loan agreement or investor agreement are
not required to approach the CCI for this purpose.
4. COMPETITION COMMISSION OF INDIA
CCI, entrusted with eliminating prohibited practices, is a body corporate
and independent entity possessing a common seal with the power to

enter into contracts and to sue in its name. It is to consist of a

chairperson, who is to be assisted by a minimum of two, and a maximum
of ten, other members.
Acts taking place outside India
CCI has the power to enquire into unfair agreements or abuse of
dominant position or combinations taking place outside India but having
adverse effect on competition in India, provided that any of the below
mentioned circumstances exists:

An agreement has been executed outside India

Any contracting party resides outside India

Any enterprise abusing dominant position is outside India

A combination has been established outside India

A party to a combination is located abroad.

Any other matter or practice or action arising out of such

agreement or dominant position or combination is outside India.

To deal with cross border issues, CCI is empowered to enter into any
Memorandum of Understanding or arrangement with any foreign agency
of any foreign country with the prior approval of Central Government.
Benches
For the execution of duties, the Act contemplates the exercise of the
jurisdiction, powers and authority of CCI by number of Benches. If
necessary, a Bench would be constituted by the chairperson of at least
two members; it being mandated that at least one member of each
Bench would be a "Judicial Member". The Bench over which the
chairperson presides is to be known as the Principal Bench and the
other Benches known as Additional Benches. However, the Act further
empowers the chairperson to further constitute one or more Benches
known as Mergers Benches exclusively to deal with combination and
the regulation of combinations.
Extension of the executive powers
The Act contemplates the extension of the executive powers of CCI by
the appointment of a Director General and as many other persons for

the purpose of assisting it in conducting enquiries into contraventions of

the provisions of the Act as well as conducting cases before the
Commission.
CCI is empowered to conduct enquiries into:
1. "Certain agreements and dominant position of enterprise"
2. "Combinations"
CCI, either on its own motion, on receipt of a complaint or on a reference
made to it by the Centre or State Government may enquire into any
alleged contravention regarding the nature of the agreement, which is
suspected to be inherently anti-competitive, or the abuse of dominant
position. Any person, consumer, consumer association or trade
association can make a complaint.
An enquiry into a combination, existing or proposed, may be initiated
upon the knowledge or information in the possession of CCI or upon
notice of the person or entity proposing to enter into a combination or
upon a reference made by a statutory authority. Limitation of time for
initiation of enquiry is one year from the date on which the combination
has taken effect when CCI conducts such enquiry.
Jurisdiction
An enquiry or complaint could be initiated or filed before the Bench of
CCI if within the local limits of its jurisdiction the respondent\s actually or
voluntarily resides, carries on business or works for personal gain, or
where the cause of action wholly or in part arises.
CCI has been vested with the powers of a civil court including
those provided under sections 240 and 240A of the Companies Act,
1956 on an "Inspector of Investigation" while trying a suit, including
the power to summon and examine any person on oath, requiring the
discovery and production of documents and receiving evidence on
affidavits. CCI is also vested with certain powers of affirmative
action to act in an expedited manner. Civil courts or any other
equivalent authority will not have any jurisdiction to entertain any suit or
proceeding or provide injunction with regard to any matter which would
ordinarily fall within the ambit of CCI.