Competition regulator could regulate peers

The five-year-old Competition Commission of India (CCI) may soon be put in a position where it may have to sit in judgement on other sectoral regulators. The ongoing transformation in the basic structure of the economy where natural monopolies such as the provision of water in urban areas are being gradually transferred to private operators, may evolve into a situation where the CCI has to step in to balance the interests of the different stakeholders.

It would be a situation "fraught with legal difficulties," as Finance Minister, P. Chidambaram, put it.

Chidambaram, who delivered the CCI's annual day lecture in the capital on Monday evening, took the audience through areas he anticipates will be challenging for the competition regulator. A distinct theme of the lecture was that the CCI's job is going to get tougher as India is likely to soon see the start of consolidation in areas such as banking and telecommunications. Another challenging area would arise when the public sector's special privileges were slowly removed.

The Financial Sector Legislative Reforms Committee has already recommended that public sector financial services companies such as State Bank of India and Life Insurance Corporation should be asked to compete with their private competitors without privileges as it makes for a fairer environment.

Of the different scenarios sketched by Chidambaram, the CCI's biggest challenge could arise when it has to regulate sectoral regulators. While things have not come to that stage as yet, it is not far-fetched to imagine a scenario where a sectoral regulator gives decisions which appear to favour a particular service provider and the CCI is called upon to play an overriding role.

Setting up regulators may well turn to be the easy part. Regulating fairly in an economy in the midst of far-reaching structural transformation could become one of the most controversial areas in the near future.