Govt should see competition while designing subsidies: CCI

Policymakers need to weigh in various aspects of overall competition while designing subsidies, which otherwise could lead to firms abusing their market dominance, according to competition watchdog CCI.

The Competition Commission of India (CCI) has emphasised the importance of competition in driving the economy amid moderate growth and fiscal constraints.

''In designing subsidies, policy makers should consider carefully both the degree of competition in the market and the way in which different approaches might affect this competition to minimise the potential negative impacts on competition,'' CCI's economic advisor Seema Gaur has said.

Gaur noted that both taxes and subsidies change the behaviour and incentives of firms, that could well have an impact on competition in the market.

In a presentation at a recent conference on 'Curbing Deficit through Effective Competition in Public Procurement' here, she said that subsidies and taxes affect competition by changing the costs of some businesses.

''They can also create entry barriers in a market and allow firms to build and exploit market power,'' she added. CCI has the mandate to keep a tab on anti-competitive practices across markets.

The Indian economy has witnessed significant liberalisation in the last two decades and most of the sectors have mixed markets.

''While earlier reforms have removed legal barriers to entry in most of the sectors, barriers to competition are still pervasive in many sectors... Creating more competition in markets involves breaking down these barriers to competition,'' she said.

Without mentioning any particular sectors, Gaur said the way in which government intervenes in the markets is crucial to both effectiveness of its interventions and their consequences for competitive markets.

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