Syllabus
GS Paper 3 – Effects of Liberalization on the Indian Economy
Context
This article examines how market dynamics, sustainability, and competition policies intersect, focusing on the impact of climate change on supply and demand.
Source
The Hindu| Editorial dated 5th August 2024
Balancing competition and sustainability for India
Markets have evolved significantly from the barter system to the modern digital marketplaces, playing a central role in the economy. The forces of supply and demand primarily dictate prices and consumer preferences. However, climate change disrupts the supply side, leading to mismatches between supply and demand, impacting consumer demand and the overall economy.
To address these challenges, regulatory bodies and competition authorities worldwide are increasingly integrating sustainability considerations into their frameworks and guidelines.
Impact of Climate Change on Markets
- Disruption of Supply Chains: Increased frequency and intensity of storms, floods, and droughts disrupt production and distribution networks.
- Agricultural Productivity: Altered weather patterns affect crop yields, leading to volatility in food prices and supply shortages.
- Energy Prices: Climate change impacts energy production, especially from hydropower and thermal plants, leading to higher costs.
- Insurance Premiums: Rising risks from natural disasters increase insurance costs for businesses and consumers.
- Consumer Preferences: Growing awareness of environmental issues shifts consumer demand towards sustainable and eco-friendly products.
- Seasonal Products: Altered climate patterns change the demand for seasonal goods, impacting sales cycles.
- Environmental Regulations: Stricter environmental laws and regulations require businesses to invest in cleaner technologies and sustainable practices, increasing operational costs.
Global Competition Authorities and Sustainability
- Japan’s Anti Monopoly Act: The Anti Monopoly Act in Japan introduced specific guidelines aimed at assisting private businesses in navigating horizontal collaborations.
- These guidelines are designed to facilitate cooperation among competitors while pursuing environmental sustainability goals.
- According to the Act, most activities focused on environmental sustainability are unlikely to restrict competition.
- This recognition allows businesses to engage in sustainable practices without fear of violating anti-monopoly regulations.
- The guidelines emphasize that sustainability-focused activities can have pro-competitive effects.
- European Commission – Revised Guidelines: The European Commission has published revised guidelines on horizontal agreements, including a specific section on sustainability agreements.
- These guidelines provide a framework for assessing the competitive impacts of collaborations aimed at achieving sustainability objectives.
- Singapore’s Environmental Sustainability Collaboration Guidance Note: aims to provide greater clarity to businesses on how the Competition and Consumer Commission of Singapore (CCCS) will assess collaborations that pursue environmental sustainability objectives.
- Netherlands’ Approach: In the Netherlands, cartel prohibition does not apply if the competitive process is not significantly impeded or if sustainable production offers clear benefits to consumers.
- This approach encourages businesses to engage in sustainable practices without fear of anti-competitive repercussions.
- The authority adopts a broader definition of agreements that do not restrict competition, taking into account the overall environmental benefits to society.
- This perspective allows for more flexibility in assessing the competitive impacts of sustainability initiatives.
- U.K.’s Market Study
- The Competition and Markets Authority (CMA) in the U.K. launched a market study into the electric vehicle (EV) charging sector.
- This study aims to understand the development of competition alongside innovation, providing more choices for consumers, lower prices, greater investment, and improvements in quality.
A similar comprehensive study on green initiatives and market feasibility would greatly benefit the Indian market.
Competition Commission of India (CCI) and Sustainability Policies
India’s Net-Zero Pledge
- Emissions Target: India has pledged to achieve net-zero emissions by 2070.
- This ambitious target underscores the need for comprehensive sustainability policies across all sectors.
- In 2023, India ranked fifth on the list of contributors to global warming, highlighting the urgency of addressing environmental impacts and implementing effective sustainability measures.
- TRAI Recommendations (2011): In 2011, the Telecom Regulatory Authority of India (TRAI) recommended that sustainability practices be included in the proposed National Telecom Policy.
- This initiative promoted an environmentally friendly telecom sector, setting a precedent for integrating sustainability into national policies.
CCI’s Role
- The Competition Commission of India (CCI) was established under the Competition Act, 2002, to promote and sustain competition in markets, protect consumer interests, and ensure freedom of trade.
- Sustainability Focus: The CCI chairperson has acknowledged the importance of considering sustainability policies for markets. The CCI aims to integrate these considerations into its regulatory framework to support India’s environmental goals.
- Pandemic Response: During the COVID-19 pandemic, the CCI issued advisories recognizing the disruptions in supply chains and the necessity for information sharing to ensure fair distribution of products and services. These actions demonstrate the CCI’s capability to adapt and respond to critical issues affecting the market.
- The Competition Act, 2002, includes built-in safeguards to protect businesses from sanctions when addressing pandemic-related concerns.
- These provisions can be extended to support sustainable collaborations and greener technological innovations.
Potential Actions that can be Adopted by CCI
- Advisories for Sustainability: The CCI could issue advisories exempting collaborations focused on sustainable goals or greener technological innovations when necessary and proportionate.
- Such advisories would encourage businesses to pursue environmental sustainability without fearing anti-competitive sanctions.
- Promotion and Awareness: Under Section 49(3) of the Competition Act, 2002, the CCI is empowered to promote competition advocacy and awareness.
- This includes participating in the formulation of economic policies that consider both competition and sustainability.
- Guidance Notes: The CCI can release guidance notes on sustainability agreements and exemption methods under the Competition Act, 2002.
- These notes would provide businesses with a clear framework for pursuing sustainability objectives while maintaining competitive practices.
- Future Considerations: The CCI can consider incorporating sustainability practices into the National Competition Policy in the future.
- This inclusion would align with India’s broader environmental goals and support the development of sustainable and competitive markets.
Conclusion
Integrating sustainability into competition policy is essential for addressing climate change and promoting innovation. By adopting newer technologies and encouraging enterprise collaboration for greener innovations, regulatory bodies can ensure that the benefits of sustainability outweigh any potential negative effects on competition.
Related PYQ
Explain intra-generational and inter-generational issues of equity from the perspective of inclusive growth and sustainable development. [ UPSC Civil Services Exam – Mains 2020]
Practice Question
How can India incorporate sustainability considerations into its competition law framework to meet its net-zero emissions target? [150 words]