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CUTS INTERNATIONAL Assessing Policy based Competition Impediments in Pharmaceutical and Agriculture Product Marketing Sector in India 1 Swati Thapar, Research Associate

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Outline of the Presentation Competition & its Legislation in IndiaNeed for CompetitionCompetition Impact Assessment: Agriculture Product Marketing SectorCompetition Impact Assessment: Pharmaceuticals Sector Agenda for Competition Reforms; Agriculture Product Marketing Sector Agenda for Competition Reforms; Pharmaceuticals Sector Concluding with the National Competition Policy 2

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Competition & its Legislation in India A situation in a market place in which firms/entities or sellers independently strive for the patronage of buyers in order to achieve a particular business objective, such as profits, sales, market share, etc. Competition & its legislation in India has been reactive so far: MRTP Act (1969) Competition Act (2002) (Draft) National Competition Policy (2011) Given the market oriented economic planning, a pro-active competition legislation is needed for the country 3

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National Competition Policy 4

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Need for Competition Promoting & Protecting Consumer Welfare Promoting/ Checking level- playing field for producers/firms, development of markets, enhancing competitiveness, etc. Curbing market & welfare distortions from Govt. Policies & practices 5

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Aim of the Paper This paper assesses competition distortions existing in Agriculture Product Marketing and Pharmaceutical sector in India, as a result of government policies, rules and regulations governing the sector 6

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Overview: Agriculture Product Marketing Sector Provisions under various laws affect limit, restrict or distort the elements of competition Affects the livelihood of majority of the population that it supports Policy-based Competition Issues in Agricultural Markets Stage of sale and purchase; governed by APMC Stage of procurement of food-grains; FCI 7

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Competition Impediments: Agricultural Produce Marketing Act APMCs vested with wide powers to regulate the sale, storage & marketing of agricultural produce within the state Distort market by preventing direct access of framers to retailers and to end-consumers Lack of transparency in price discovery of agricultural produce 8

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Competition Impact Assessment Agriculture Product Marketing Sector The Essential Commodities Act (ECA), 1995 (Amend ) Since the provisions in the act authorise the government to grant a license, permit or authorisation process as a requirement of operation, it creates natural barriers affecting prospective entrants or significantly raise costs of entry or exit by a supplier. ECA thus limits the number of suppliers. The Food Corporations Act (FCA), 1964 (Amend - August, 2001) This act, by making a single entity, the Food Corporation of India (FCI), responsible for all the range of activities across the food sector, grants exclusive rights for a supplier to provide goods or services. There is a possibility of abuse of power by the FCI which then, might limit the number or range of suppliers (farmers) to supply food grain/stuffs and hence also, limits the choices/quality available to customers. 9

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Overview: Pharmaceuticals Sector 65% of the population lacks regular access to essential medicines in India Ambiguity in legislations, abuse of dominance by patented pharmaceutical giants distort competition Policy-based Competition Issues in Pharmaceutical Sector Drug-Price Regulation Drug-Quality Standards Abuse of dominance by Patent Monopolies 10

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Competition Impact Assessment Pharmaceuticals Sector Drugs and Cosmetics Act, 1940 (amended as on 1995) Schedule M ensuring Good Manufacturing Practices (GMP) WHO norms for product quality Blanket provision setting high-standards SMEs cant comply Definition for the term spurious drugs under Section 17B(b) Loose definition Includes legitimate generics Limits free operation in market Impact on Competition - 1. limits the ability of suppliers to compete & significantly raises cost of entry or exit by a supplier 2. limits the choice and information available to consumers 11

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Competition Impact Assessment Pharmaceuticals Sector Indian Patent Act, 1970 (amended as on 2005) Section 3 (d), What are not Inventions, Non-Patentable Inventions provides safeguard to ever greening of patents efforts by big pharmaceutical companies to delay generic entry into the market & prolong monopoly status Section 84, Compulsory Licensing Gives consumers no option but to purchase the high priced patented drugs Impact on Competition- 1. limits the ability of some types of suppliers to provide a good or service 2. Grants exclusive rights to some suppliers 3. Limits choice available to consumers 12

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Agenda for Competition Reforms; Agriculture Product Marketing Sector Immediate need to review APMA, its implementation & practices of APMCs. Introduce competition: demand side & supply side in the agriculture sector Assessment of powers & nature of FCI operations 13

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Agenda for Competition Reforms; Pharmaceuticals Sector Government support to boost SMEs: financial & technical support Definition of spurious drugs needs to be revisited and clarified Sensitize Patent Office & DIPP Compulsory licences: Effective administration to promote generic competition and serve public health objectives 14

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Concluding with the (Draft) NCP Competition Policy is a broader term which includes all government policies and laws whereas competition law is a specific statute with a predefined mandate to adjudicate on violation(s) of the law is a proactive and positive effort to build a competition culture in an economy Infusing NCP principles in legislations provide a consistent approach to dismantle barriers to competition, optimal allocation of resources and granting economic agents appropriate, incentives to pursue productive efficiency, quality and innovation. 15