Inefficient government monopolies must end: Jaitley

21 May 2016

Finance minister Arun JaitleyFinance and corporate affairs minister Arun Jaitley on Friday said there was a need to ensure greater competition in the country in sectors such as public transport, railways, power distribution and insurance that are currently dominated by the public sector.

Delivering a lecture on 'Competition, Regulator and Growth' at an event organised by the Competition Commission of India (CCI) in New Delhi, Jaitley said one of the reasonable exceptions to the fundamental right to trade and occupation laid down in the Indian Constitution was the entitlement given to the government to create monopolies.

The rationale behind this seemed to be that private monopolies are "bad" but state-owned monopolies are "good" in the public interest, he said.

However, he said, this situation led to sluggishness in the economy, restriction in consumer choice, inefficiency in markets, goods and services of poor quality, licence raj and corruption.

Citing the examples of sectors like telecoms, automobiles and civil aviation, which were liberalised and thrown open to competition, he said these sectors had only grown and become more competitive after being opened up.

Jaitley said air passengers in India had grown from 1.7 crore in 2001 to 8.3 crore today, while telephone call rates had fallen from Rs16.9 per minute in 1999 to Rs0.5 per minute today and tele-density had risen from 0.8 per cent in 1991 to 74.1 per cent now.

The number of four-wheelers had also jumped from 5.13 lakh in 2000 to 33.78 lakh at present, he pointed out.

He, however, said price-controls can be justified in a sector like pharmaceuticals where it was important to balance the need for innovation with public health considerations. "India cannot have a situation where essential and life-saving medicines are unaffordable," he said.

The minister said that there were still several sectors where public sector firms were provided either a purchase preference or a price preference, but added that many believed this protection granted to state-owned firms only incentivised inefficiency.

Jaitley, however, stressed the need to ensure that liberalisation went hand in hand with efficient implementation of competition rules. Citing the example of Russia, he said though Russia undertook liberalisation, it was not pro-competition, which led to the creation of private monopolies, oligarchy and crony capitalism. Therefore, he said, "being pro-business alone is not enough, you have to be pro-competition. Otherwise, the consequences will be dangerous."

He said, "Competition creates innovation, efficiency, price competitiveness, greater choice and better quality of products and services and higher investment."

'Most under-insured'
The finance minister also said India was one of the most under-insured societies in the world as the country relies mostly on state monopolies.

He said due to inefficiencies and poor quality of services in the state-owned railways sector, consumers had shifted to airlines - where liberalisation and more private players resulted in greater competition, lower prices and better services.

Turning to the public transport in states, where government-owned companies enjoy a monopoly, he said the Centre wanted to free this sector up for competition and would work with the state governments on the matter.

Referring to state-government owned distribution companies, he said they were the third-largest contributor to bad loans - mostly due to the populist policies adopted by the state governments to score political brownie points. Opening up the power distribution to competition was an important reform that must be done soon, Jaitley said.

"Competition is at the heart of a market economy. Socialism per se is anti-competitive as it promotes state-owned monopolies and restrictions. That is never in the consumer interest. It is always competition which ensures that the best product and service wins," he said.

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