February 28, 2006, New Delhi, Press Release

Mr Chidambaram's budget for 2006-07 did not come out with any fanfare. It simply followed the famous American maxim, "If it ain't broke, don't fix it," says Pradeep S. Mehta, Secretary General, CUTS International.

Taking cue from yesterday's economic survey which projected economic growth of 8.1% the Finance Minister did not raise the corporation tax or income tax paid by the rich but did not dither from raising the indirect taxes paid by all the others, Mr Mehta said.

What he gave with one hand, he took away with the other. On the taxation front, where as the custom duty on non agri products is reduced from 15% to 12.5%, a CVD of 4% is imposed on most imports. Thus the import duty has gone up from 15% to 17%. Similarly, the rate of Service Tax has been raised from 10% to 12%.

As all domestic production in an open economy is priced on trade parity basis, one can expect prices to go up. This is contrary to the advice given in Economic Survey to keep a check on inflation, Mr Mehta said.

Indirect taxes on manufactured goods in India are among the highest in the world. Consumers pay CENVAT at 16% and over and above this is the cascading 12% VAT raising the total to almost 30% taxation.. This is against an average indirect tax in China of about 13-14% and even in developed countries in the West of about 18-23%.

Even the risk averse small investor who was seeking an equitable treatment for investment in Fixed Deposits in banks has been given only a token concession as a very long maturity cut off of five years has been set.

The only real concession to the small investor is the creation of an Investor Protection Fund under SEBI to be funded by fines and penalties.

Mr Mehta however welcomed the FM's move to recognise that the poor can not wait indefinitely for the fruits of growth to trickle down to them. In addition to aiming for 10% growth of GDP in the next fiscal, he made allocations to specific sectors which target the weaker areas of the economy including rural electrification, rural telephone connectivity, farm credit, irrigation, low cost loans to farmers and development of tourism destinations.

Education and health have been given particular emphasis and they are certainly areas where government intervention is most necessary. Similarly, setting up of gender budgetary cells to support women is a welcome move.

In the manufacturing sector, emphasis has been laid on textiles, food processing, petroleum, chemicals and petrochemicals, leather while in services, tourism and software have been identified all of which can generate large number of jobs, Mr Mehta added.

Food processing is one area which has till now not been given its due attention. Food processing will now be treated as priority sector industry for bank credit and should be able to reduce wastage on the farms and thereby increase farm income.

For further information, please contact:
Shrawan Nigam 9810428027
Mani Lamba: 9818280809

February 25, 2006, New Delhi, Press Release

The government should establish a Common Appellate Tribunal for the Competition Commission of India (CCI) and sectoral regulators, instead of establishing another appellate body for the CCI, and add to the already existing list of appellate bodies in the country, to ensure coherence in the interpretation of regulatory laws and competition law. This view emerged from a seminar organized by CUTS International in the capital on "Amendments to Competition Act 2002: The Way Forward".

The seminar was organized on the eve of the Parliament discussing the Competition (Amendment) Bill in the ongoing budget session of the Parliament. Among the key amendments proposed by the government is splitting the functions of the CCI, and creating an appellate body to hear appeals against the orders of the CCI and adjudicate compensation claims.

The seminar was attended by parliamentarians, academicians, lawyers, representatives of consumer organisations, business, government officials and other experts and practitioners.

Commenting on the amendments proposed, Sharad Joshi, MP (Rajya Sabha) said "the government is creating a plethora of appellate bodies, without there being adequate work for them to do. This is an unnecessary burden on the exchequer."

On the issue of interface between the CCI and sector regulators, the emerging view was that the consultations between these market-regulatory agencies should be made mandatory and reciprocal.

On selection rules, another contentious issue that led to the writ petition in the Supreme Court and the proposed amendments, there was a consensus on following a transparent procedure and advertising the posts
rather than follow an opaque administrative search mechanism. It is important to have in place clear selection procedures, otherwise quality of persons appointed through an ad-hoc mechanism could be severely compromised.

TCA Anant, Professor, Delhi School of Economics, raised a concern that the present structure of the Competition Act does not facilitate accessibility and reach for addressing local level competition abuses owing to the absence of a provision for regional benches. Referring to collusive practices that take place in price determination of foodgrains in local mandies, he opined that it would be difficult to implement the Act from Delhi, and there is need for regional offices/branches of the CCI.

On providing leniency for prosecuting cartels, Aditya Bhattacharjea, Associate Professor, Delhi School of Economics opined that the proposed amendments of extending leniency to more than one parties, and until the time the Director General submits his report to the CCI is welcome. However, to avoid any clandestine deals in the office of the DG, there should be a provision to make public, the reasons for granting leniency. Further, leniency should be awarded on a declining scale graded according to the sequence of cooperation by parties.

Prof Sriram Khanna, VOICE, was critical of the expertise that the CCI would acquire. "We cannot expect retired civil servants to analyse issues as technically and analytically as would be desirable. This requires experts should be appointed as full-time members."

For further information, please contact:
Shrawan Nigam 9810428027
Manish Agarwal: 09829285925

February 22, 2006, New Delhi, Press Release

Presenting its pre budget Memorandum to Mrs Vasundhara Raje, Chief Minister, Rajasthan, CUTS International has stressed on the need for simplified tax structures and strong consumer movement to enhance competitiveness of the economy.

"The Government should at one end facilitate business through rationalising rules and regulations and remove difficulties being faced and at the same time, should focus on strengthening consumer movement in the State as an enabling force to enhance competitiveness and efficiencies of the economy," Mr Pradeep S Mehta, Secretary General, CUTS International said during the interaction.

Mr Mehta said that the next major tax reform for the state Government is to adopt Value Added TAX (VAT) regime which will go a long way in brining in tax rationalisation and revenue generation for the state.Given that most of the neighboring states have adopted VAT, Rajasthan cannot let its businesses in a disadvantageous position.

The forthcoming budget should also announce constitution of State Competition and Regulatory Agency (SCORA) as an autonomous agency to promote efficiency and effectiveness of services in the state. "Consumer abuses being rampant in services such as education, health, transport, entertainment and given that unregulated markets do not provide adequate incentives to better service providers, timely enactment of SCORA is imperative to address these concerns," Mr Mehta said.

CUTS International also called for setting up a Consumer Directorate under which all departments related to consumer welfare be brought in. A Consumer Welfare Fund, announced last year should also be operationalised and a system be put in place to ensure its smooth operation in objective manner.

Commenting on the power sector reforms, CUTS International stated that aggregate technical and commercial losses of over 40% were causing adverse impact on the entire economy. Attainment of reduction in losses would require the government to invest heavily in electricity distribution and active involvement of consumers in the reforms process. Given this scenario, the government should further invest in the feeder renovation program in rural areas so that not only the losses were reduced, but rural areas get 24hr power supply. A separate fund should also be created for awareness generation and information dissemination across the state with active involvement of consumer groups. It is estimated that 5% conservation of electricity at consumer end would save as much as Rs.400crores for the state.

The state should implement Right to Information Act at all levels in the system. Whereas Rajasthan was the first state to bring in the Act, the implementation of the provisions has somehow not been very effective despite its potential to weed out corruption. Extensive training programs should be chalked out and launched to sensitise government officials at all levels and civil society groups in the state.

For further information, please contact:
Mani Lamba: 9818280809
Vijay Singh : 9818250102

February 09, 2006, New Delhi, Press Release

CUTS International has urged DGCA to redistribute Air Sahara's rights to all airlines in order to prevent Jet Airways from attaining a dominant position in slots as this would restrain growth of competition.

Air Sahara's aviation rights should not automatically accrue to Jet; the latter should instead be required to re-apply for securing additional rights. The DGCA, as the competent authority should use this window to re-distribute Air Sahara's rights to all airlines. Had Air Sahara continued and given the inevitability of its closure, its rights would have anyway got released for distribution to others, and not available only to Jet. The DGCA must take into account these factors, CUTS-International has said in a representation Submitted to DGCA.

Citing the example of British Airways/American Airlines alliance wherein the European Commission required the merging airlines to give up some of their slots to competitors, CUTS International has submitted a representation to DGCA stating that given the current shortage of aviation infrastructure, there is need to impose similar conditions before approving the merger.

Acquisition of Air Sahara will help Jet rationalise and consolidate its operations. However, given the emergence of Jet as a dominant enterprise controlling almost 50% of the domestic market share, there is a fear that it can exert considerable market power to the detriment of consumer welfare if it also gets all the parking bays and landing slots, domestic and international flying routes, technical staff and other ground handling facilities.

The dominance of Jet would be more in prime routes such as Mumbai and Delhi that account for over 30% of the country's air traffic revenue. This is apparent from the dominance of the two airlines in peak hour traffic. With increasing traffic and inability of airports to expand their infrastructure facilities in the near future, slots become a valuable resource and the combined entity would enjoy considerable advantage on this front. With limited access to slots, other airlines will face difficulty in providing a competition to Jet. This places the combined entity in a position to exercise its market power and is a competition concern worth considering, CUTS International representation states.

With resulting dominance of Jet in peak hour traffic, it may hike fares during peak hours to cross-subsidise those in non-peak hours and out compete other airlines. Jet is already doing this in certain routes. Further, with limited competition, Jet may have little incentive to pass on the benefits of consolidation to customers in the form of lower fares.

Prima facie this merger would have come under CCI's lens, given Jet and Air Sahara's combined turnover of over Rs.7000 crore, which exceeds the threshold of Rs.3000 crore provided in the Competition Act. Though the CCI is in a limbo, the provisions relating to combinations regulation in the Act provide an appropriate framework to analyse the merger from the competition angle, CUTS International has stated.

For further information, please contact:
Mani Lamba: 9818280809
Vijay Singh : 9818250102