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 People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” That was Adam Smith, in The Wealth of Nations (1776). Typically, this is quoted in the context of joint producer behaviour, though politicians and trade unions behave no differently. “When I use a word, it means just what I choose it to mean — neither more nor less.” That was Humpty Dumpty, responding to Alice. In inflation-panic mode, we now have the hydra-headed government speaking in multiple voices, each head using words as it sees fit.

Steel Minister tells us there is a steel cartel, Finance Minister tells us there is cartel-like behaviour in steel and Minister of State for Steel tells us there is no evidence on cartels. To be strictly accurate, since a distinction is being drawn between cartels and cartel-like behaviour, Jitin Prasada didn’t tell us there is no evidence or information on cartel-like behaviour. Here is a formal definition of a cartel from The Economist magazine’s A-Z of Economics. “An agreement among two or more firms in the same industry to co-operate in fixing prices and/or carving up the market and restricting the amount of output they produce... Identifying and breaking up cartels is an important part of the competition policy overseen by anti-trust watchdogs in most countries, although proving the existence of a cartel is rarely easy, as firms are usually not so careless as to put agreements to collude on paper.”

Price-fixing, restricting output, allocating customers, market shares and territories, bid-rigging and so on are all behaviour characteristic of cartels. Note that a cartel has to be a formal and explicit agreement on paper. In its absence, competition policy instruments cannot be invoked. That is the reason one uses the word “cartel”, with the same etymological root as “paper”. The probability of cartel formation depends on factors like elasticity of demand, homogeneity in products, market concentration, ability of authorities to detect cartels and ability of cartel members to enforce contracts. But the existence of prerequisites doesn’t establish the existence of cartels. The former is about market structure, the latter is about market behaviour, a distinction the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 failed to make. And the mindset lingers. Like several industries in India, the steel sector is fragmented too. One doesn’t only have major producers, there are smaller stand-alone plants as well. Taken together, there are 173 producers. (The National Steel Policy mentions 3000, but this includes secondary producers too.) In the public domain, we don’t seem to have precise market shares and these also depend on the way a product is defined, apart from market shares constantly changing.

But clearly, when the cartel finger is pointed, we have larger producers in mind (SAIL, Tata Steel, Jindal, Essar, Ispat). More specifically, we target the private sector, there being a suggestion that private cartels are bad and public cartels are fine. Note that government policy encourages cartel formation. The Trade Unions Act encourages cartels, so does the Sixth Pay Commission, or for that matter, the telecom policy. What evidence do we have of cartel formation in steel? Ram Vilas Paswan points to simultaneous hikes in steel prices by Essar, Jindal and Ispat. If input costs (including landed cost of imports) increase simultaneously, you would expect simultaneous increase in output prices. The degree to which this occurs depends on the homogeneity of the product and the similarity in production structures, something that requires technical expertise to probe. Without this examination, any conclusion about collusion is premature. Since SAIL is Caesar’s wife, let’s place Tata Steel in the dock. If it charges the same price as Jindal, Essar, Ispat, it can be accused of collusion. If it charges a lower price than Jindal, Essar, Ispat, it can be accused of predatory intent. If it charges a higher price than Jindal, Essar, Ispat, it can be accused of monopolistic pricing.

One might legitimately argue that Tata Steel didn’t raise prices. Nor did SAIL. But that reinforces rather than negates the point about examination. Both Tata Steel and SAIL are less exposed to global forces, since they have captive mines for ore and coal. Every once in a while, Paswan comes up with the idea of a regulator for steel, the assumption being this regulator will undertake such examinations and even set steel prices. Government-determined price fixation is a throwback to a different era. Hopefully, we no longer need a Bureau of Industrial Costs and Prices (BICP). In passing, though renamed, the BICP still remains and continues to be manned. What does it do and why does the country pay for its existence? However, on regulation, why do we need sector-specific regulators? Are we going to have separate regulators for edible oils, pulses, vegetables, fruits, steel and cement? That doesn’t make sense and we don’t need sector-specific competition authorities (not regulators), but an overall one. That’s precisely the reason the Competition Commission of India (CCI) was set up with a great deal of fanfare.

Has the CCI examined whether there is a cartel in steel? Like the dog that did not bark in the night, it has not, because it cannot. The CCI has no such powers and there is no exit policy for the MRTP Commission, just as there is no entry policy for the CCI. The present National Steel Policy dates to 2005, so the present steel minister signed off on it. This Policy said: “Following de-regulation of prices for integrated steel plants in 1991-92, the domestic prices of steel have become market-determined... This dispersal of the distribution chain has been the principal reason why no price regulation of the steel trade has ever been in force. Government has recently set up a Competition Commission to look into complaints of monopolistic pricing.”

If the substantive content of a policy changes in three years, the policy was not worth the paper it was written on. All that is established is that Jitin Prasada believes in the policy, while Paswan doesn’t. In all fairness, there is some dated academic literature establishing collusion in the Indian steel industry. But consequent to liberalisation, this also suggests decline in collusion. That is the reason one needs teeth to the CCI. But have you noticed that despite considerable ministerial verbal diarrhoea, none of the principal actors mentions the CCI? Paswan wants to refer the case to the MRTP Commission. One should re-read that Adam Smith quote between the lines.

The writer is a noted economist

bdebroy@gmail.com