Breakingviews: Cement ruling mixes India's business reputation

Labourers pull a cart loaded with cement sacks down a street in Mumbai May 20, 2011.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Jeff Glekin

MUMBAI (Reuters Breakingviews) - New Delhi has done itself a big favour imposing a record $1.1 billion price-fixing fine against 11 cement firms. In spite of all the accusations of policy paralysis and corruption within the Indian government, it is apparent that there are some bodies which continue to be respected and may be feared for their power to do the right thing. For all the criticisms recently leveled, it suggests there is an appetite for competition, and a willingness to take on vested interests.

It takes strong institutions, and strong individual leaders, to make these things happen. The Comptroller and Auditor General of India, is a case in point. It has impressed, under the leadership of Vinod Rai who took control in late 2007, not least thanks to the way it tackled the 2G telecoms scandal.

The June 21 cement ruling was taken by Ashok Chawla, the relatively new head of the three-year-old Competition Commission of India. Like Rai, Chawla was previously the top civil servant in the Finance Ministry. To act against the politically well-connected cement industry, moreover, is bold, especially since it his first big decision. As is their right, several of the firms have said they will appeal the decision. But the $1.1 billion fine amounts to 50 percent of all firms' net profits for the fiscal years ending in March 2010 and March 2011.

Other sectors of the economy may soon feel the welcome regulatory heat. The Commission is expected to give a ruling next week on tyre companies including Apollo Tyres and CEAT over alleged price fixing.

Chawla is now keen to grab more power for his watchdog. He is pushing for changes to legislation that will give him, and his organisation, additional scope to scrutinise mergers and acquisitions.

India's growth depends on economic reform and developing a pro-active competition policy is a hugely important step. In the short run it will cause pain to those businesses that have been able to keep prices artificially high. But the economy will benefit from the resulting enhancements in productivity. Consumers will win too, from lower prices. India's challenge is to ensure it has the institutions and individuals it needs to cement the reputation.

CONTEXT NEWS

- The Competition Commission of India (CCI) imposed a $1.1 billion fine on 11 cement firms on June 21. The CCI said the companies colluded to push prices higher by under-utilising their plants and creating an artificial shortage of cement.

- UltraTech Cement (ULTC.NS), part of the diversified Aditya Birla Group, Holcim-controlled ACC (ACC.NS) (HOLN.VX) and Ambuja Cement (ABUJ.NS), India Cements (ICMN.NS) and the Indian unit of France's Lafarge SA (LAFP.PA) were among those fined the equivalent of 50 percent of their net profit for the fiscal years ending in March 2010 and March 2011.

The ruling, expected for several months, came after the close of stock market trade in Mumbai. Several of the firms have said they will appeal the decision.

(Editing by Chris Hughes and David Evans)