Competition Act 2002

The competition Act was enacted in December 2002. this act aim at:
1. Promoting competition through prohibition of anti competitive practices
2. Abuse of dominance and
3. Regulation of combinations beyond a certain size.

Monopolies and Restrictive Trade Practices (MRTP) act, 1969 was replaced
with
competition act.

Objectives of the Act:

1. To prevent practices having adverse effect on competition

2. To promote and sustain competition in market
3. To protect the interest of consumers.
4. To ensure freedom of trade carried on by the other participants in the
market.

Main provisions of the act:

1. Prohibition of anti-competitive agreements.

2. Prevention of abuse of dominant position.
3. Regulation of combinations.
4. Establishment of Competitive commission and competition appellate
tribunals
Competition commission and competition appellate tribunal:

It consisting of a chairperson and not less than two and not more than six
other members.

Functions:

1. It act as a market regulator for preventing and regulating anti-competitive

practices in the
country.
2. It also have advisory and advocacy role as a regulator.

Duties of the commission:

1. Eliminate practices having adverse effect on competition

2. Promote and sustain competition
3. Protect the interests of consumers
4. Ensure freedom of trade carried on by other participants, in market in
India.

The commission is empowered for imposition of penalty for contravention of

its orders.

Anti-Competitive Agreements:
According to this act, agreements or decisions which have any of the
following effects
shall be presumed to have an appreciable adverse effect on competition:
1. Directly or indirectly determining the purchase or sales prices.
2. Limiting production, supply, markets, technical developments, investment.
3. Directly or indirectly resulting in bid rigging or collusive bidding.

Agreements causes or likely to cause adverse effect:

1. tie-in arrangement
2. Exclusive supply agreement
3. Exclusive distribution agreement
4. Refusal to deal
5. Resale price maintenance.

Abuse of dominant position:

Section 4 of the competition act lays down that no enterprise shall abuse its
dominant
position. The following cases are considered abuse of dominant position:

1. Directly or indirectly impose unfair or discriminatory

(a) conditions in purchase or sale of goods or services
(b) price in purchase or sale of goods or services
2. Limits or restricts
(a) production of goods or provision of services.
(b) technical and scientific development
3. Indulge in practices resulting in denial of market access
4. Uses its dominant position in one relevant market to enter or protect.

Division of enterprise:

according to section 28 of the Act, the competition commission may order

the

division of the enterprise enjoying dominant position to ensure that such

enterprise
does not abuse the dominant position.

Regulation of Combinations:

The act provides for regulation of combination through mergers and

acquisition
which causes an appreciable effect on competition.

Power to exempt:
The central government is empowered to exempt from the application of act,
or any
provision thereof.
INDUSTRIAL POLICY

Industrial policy is an important document. It lays a wide canvas and sets the
tone for implementation of government’s regulatory and promotional roles.

The industrial policy has no legal sanction and as such its violation cannot be
challenged in court. But it has justification for existence.

Rationale:

1. Correct the balances in the development of industries and help bring about a
desirable
balance and diversification in them.
2. Prevent wasteful use of scare resources and ensure their conservation and
judicious
utilisation.
3. Empower the government to regulate the establishment and expansion of private
industry in accordance with the planned objective.
4. Prevent through fiscal and monetary policies, the formation of monopolies and
concentration of wealth in a few hands.
5. Give guidelines for importing foreign capital and the conditions on which such
capital
should be permitted to operate.

Industrial policy 1948:

The first industrial policy resolution was issued by the government of India on April
6, 1948.

Features of 1948 industrial Policy:

1. Acceptance of the importance of both private and public sectors

2. Division of industrial sectors
(a) Industries where government had a monopoly.
(b) Mixed sector.
(c) The field of government control.
(d) The field of private enterprise.

3. Role of small and cottage industries: these industries are suited for the utilization
of local
resources and for creation of employment opportunities.

4. Other important features:

(a) Recognised the importance of foreign capital in industrial development
(b) This resolution called for harmonious relations between the management and
labour.

Industrial Policy 1956:

Four developments set the tone for industrial policy 1956:

1. Adoption of constitution.
2. Planning began to be implemented.
3. Socialist policy was adopted.
4. Government was rich enough to invest in public sector.
Objectives of the policy:

1. To accelerate the rate of economic growth and to speed up industrialization.

2. To expand the public sector, develop heavy and machine making industry.
3. To increase employment opportunities and improvement of living standards and
working conditions of people.
4. To prevent creation of monopolies and concentration of economic power.
5. To reduce existing disparities of income and wealth.
6. To build up a large and growing private sector.
7. To expand the cottage, village and small-scale industries.
8. To achieve balanced industrial development and other socio-economic objectives.

Industries were classified into three categories:

1. Schedule A industries: future responsibility of these companies will be the

exclusive
responsibility of the government. There are 17 industries in this categories.
2. Schedule B industries: State will take the initiative in establishing the new
undertakings, but in which private enterprise will also be expected to supplement
the effort of the state.
3. Private sector: initiative and development left to the private enterprises.

Schedule A industries:

Arms and ammunition and allied items of defense equipments, atomic energy, iron
and
steel, heavy castings and forging of iron and steel, heavy plant and machinery,
heavy
electrical plant, including large hydraulic and steam turbines, coal and ignite,
mineral oils, mining of ore, manganese, chrome ore etc…

Schedule B industries:

Drugs, fertilizers and other synthetic rubber, carbonization of coal, chemical pulp,
road
transport and sea transport etc…
Appreciations of the policy:

Emphasize on socio economic objectives was indeed laudable.

Criticism: the policy was criticized on the role assigned to the public sector.
Government
was unduly straining its already overburdened and overstrained financial and
administrative resources.

Monetary and Fiscal Policy

Monetary Policy:

Monetary Policy is an important aspect of overall macro-economic policy. Monetary

policy can be defined as, “the deliberate effort by the central bank to influence
economic activity by variations in the money supply, in availability of credit or in the
interest rates consistent with specific national objectives”.
Objectives:

1. Maintaining price stability.

2. To maintain exchange stability.
3. Full employment and maximum output.
4. High rate of economic growth.
5. Ensuring adequate flow of credit to the productive sectors of the economy to
support economic growth.
6. Balance of payment equilibrium.

Instruments of Monetary Policy:

the instruments of monetary policy can be broadly classified into two categories.

 Quantitative/General Methods.

 Qualitative/Selective Methods.

Quantitative/General Methods

1. Open market Operations

2. Bank rate policy
3. Reserve Requirement changes

Open Market operations:

Open market operations refers to buying or selling of securities by the central bank.
These securities include government securities, Bankers acceptances or foreign
exchanges.

When central bank sells securities, it reduces the quantity of money and credit
as well.

When the central bank follows an expansionary monetary policy, it buys

securities from the market. This increases money in circulation and banks cash
reserves increases. Therefore, their capacity to provide credit increases.

Bank Rate policy:

The bank rate is the rate of interest at which the central bank rediscounts
approved bills of exchange. It also refers to the minimum rate at which the central
bank provides financial accommodation to commercial banks in the discharge of its
function as the lender of the last resort.

the central bank can bring about a contraction in the money supply by raising
the bank rate and an expansion in the money supply by lowering it. The central
bank may, therefore, attempt to contain an inflationary situation by raising the
bank rate and fight a depression or recession by lowering it.

Reserve Requirement Changes:

The reserve bank stipulates the statutory limits of cash reserve requirements for
commercial banks. It asks banks to maintain a minimum percentage of their deposits
as reserves.

Qualitative or selective methods:

Selective/Qualitative credit control refers to regulation of credit for

specific purposes.

1. Rationing of credit
2. Direct action
3. Changes in margin requirement
4. Regulations of consumer credit
5. Moral suasion.

Inflation:

General rise in price of goods and services year on year.

Problems caused by inflation:

1. Inflation reduces the household savings.

2. Higher inflation effects the external competitiveness through appreciation of
the real exchange rate.

Fiscal Policy:

Fiscal Policy deals with taxation and expenditure decisions of the government.
These includes tax policies, expenditure policies, investment or disinvestment
strategies and debt and surplus management.

It concerned with raising revenue through taxation and other means and
deciding on the level and patter of expenditure.

Objectives:
1. Mobilization of Resources.
2. Economic development and Growth.
3. Reduction of Disparities of Income.
4. Expansion of Employment.
5. Price Stability.

Constituents of Fiscal Policy:

1. Public Expenditure
2. Taxation
3. Public Borrowings
4. Budget

Structure of budget:

The budget is divided vertically into revenue (receipts) and expenditure

(disbursements), Horizontally, it is divided into revenue account and capital
account.
The receipts are thus, broken into
1. Revenue receipts and
2. capital receipts;

Disbursements are broken up into

1. revenue expenditure and
2. Capital Expenditure.

Privatization:

Privatization is the process whereby activities of enterprises that were once owned
and operated by government are now transferred to private hands.

Forms of privatisation:

1. Sale of business or of its assets

2. Contracts, leases and concessions.

in the above form only the management of PSUs is privatized but not their
ownership.

Objectives:

1. to improve the performance of PSUs so as to decrease the financial burden on tax

payer
2. To increase the size and dynamism of the private sector.
3. Distributing ownership more widely in the population at large
4. Encouraging and facilitating private sector investment from both domestic and
foreign sources.
5. Reducing the administrative burden on the state.
6. Popularisation of the private sector is also an important objective.

Privatisation routes:

1. Sale to outsiders
2. Management-Employee Buy-outs
3. Equal-access voucher privatisation
4. Spontaneous privatisation.

Arguments against Privatisation:

1. Privatisation is to improve the efficiency. Efficiency depends on people but not the
sector.
2. The PSUs are causing fiscal imbalances. But fiscal imbalances is not on account
of
decline savings rate of PSUs but due to administrative departments.
3. A well developed legal frame work is especially important to successful
privatisation. Creating such a frame work entails developing important aspects of
business legislations (Property law Competition Law, Corporate dispute
settlement).
4. Privatisation should not tamper with constitutional provisions.
5. Poorly planned privatisation will do more harm than any good.
6. Revenue maximisation must not be the main objective of disinvestment of PSU
 equity. The objective, instead should be to improve the efficiency of these units.
7. Privatisation should not result in greater concentration of assets. Rather the
process of disinvestment should ensure greater competition through more
dispersed ownership.
8. Suuccessful privatisation requires the cooperation of labour forces which may not
come forward for obvious reasons.
9. Important principle of privatisation is every transaction of sale must be
transparent.

Securities and Exchange Board of India (SEBI)

Objectives:

1. To protect the interest of investors so that there is a steady flow of

savings into the capital market.
2. To regulate the securities market and ensure fair practices by the
issuers of securities so that they can raise resources at minimum
cost.
3. To promote efficient services by brokers, merchant bankers and
other intermediaries so that they become competitive and
professional.

Functions:

Section 11 of SEBI Act specifies the functions as follows:

Regulatory Functions:

1. Regulation of stock exchange and self-regulatory organization.

2. Registration and regulation of stock brokers, sub-brokers, registrar to all issue,
merchant bankers, underwriters, Portfolio managers and such other intermediaries
who are associated with securities market.
3. Registration and regulation of collective investment schemes including mutual
funds.
4. Prohibition of fraudulent and unfair trade practices relating to securities market.
5. Prohibition of insiders trading in securities.
6. Regulating substantial acquisition of shares and take-over of companies.

Development functions:

1. Promoting investors education.

2. Training of intermediaries
3. Conducting research and publish information useful to all market participants.
4. Promotion of fair practices and code of conduct for self-regulatory organizations.
5. Promoting self-regulatory organizations.

SEBI Guidelines to Capital Market:

1. Guidelines for Primary Market:

New Company: A new company is one: (a) which has not completed 12 months
commercial production and does not have audited results and (b) where the
promoters
do not have a track record.
These companies will have to issue shares at par only.

New Company set up by Existing Company: When new company is being set up by
existing companies with a five-year track record of consistent profitability and a
contribution of at least 50% in the equity of new company, it will be free to price its
issue

Private and closely Held companies: the private and closely held companies having
a
track record of consistent profitability for at least three years, shall be permitted to
price
their issues freely.

Reservation of Issue:

Reservation under public subscription for various categories of persons are made in
the
following manner:

1. Permanent employees - 10%

2. Indian Mutual funds - 20%
3. Foreign Institutional Investors - 15%
4. Development Financial Institutions - 20%
5. Shareholders of Group of Companies - 10%

Lock-in Period: Lock in period is five years for Promoters contribution from the date
of
allotment or from the commencement of commercial production whichever is late.
At
present, the lock-in period has been reduced to one year.

Guidelines for Public Issue:

1. A bridged prospectus has to be attached with every application.

2. A company has to highlight the risk factors in the prospectus.
3. Objectives of the issue and cost of project should be mentioned in the prospectus.
4. Company’s management, past history and present business of the firm should be
highlighted in the prospectus.
5. Particulars in regard to company and other listed companies under the same
management which made any capital issues during the last three years are to be
started in the prospectus.
6. Justification of premium in case of premium is to be stated.
7. Subscription list for public issue should be kept open for a minimum of three days
and maximum of 10 working days.
8. The collection centers are at least 30 which includes all centers with stock
exchange.
9. The quantum of issue, whether through rights or public issue, shall not exceed the
amount specified in the prospectus. No retention of oversubscription is permissible
under any circumstances.
10. A compliance report should be submitted to SEBI within 45 days from the date of
closure of issue.
11. Minimum number of shares per application has been fixed at 500 shares.
12. The allotment have to be made in multiples of tradable lot of 100 shares.
13. If the minimum subscription of 90% has not been received, the entire
amount is to be refunded to the investors within 120 days.
14. The capital issue should be fully paid up within 120 days.
15. Underwriting has been made mandatory.

2. Secondary market:

Stock exchange:

1. Board of directors of stock exchange has to be reconstituted so as to include non-

members, public representatives, Government representatives to the extent of 50%
of
the total number of members.
2. Capital adequacy norms have been laid down for members of various stock
exchanges
depending upon their turnover of trade and other factors.
3. Working hours of all stock exchanges have been fixed uniformly.
4. All the recognized stock exchanges will have to inform about the transactions
within
24 hours.
5. Guidelines have been issued for introducing the system of market making in less
liquid
scrips in a phased manner in all stock exchanges.

Brokers:

1. Registration of brokers and sub-brokers is made compulsory.

2. In order to ensure that brokers are professionally qualified and financially
solvent, capital adequacy norms for registration of brokers have been
evolved.
3. Compulsory audit of broker’s book and filing of audit report with SEBI have
been made mandatory.
4. To bring about greater transparency and accountability in the broker-client
relationship, SEBI has made it mandatory, for brokers to disclose transactions
price and brokerage separately in the contract notes issued to client.
5. No broker is allowed to underwrite more than 5% of the public issue.
Thank You

Capital Markets

Stock exchange:

Stock exchange is a market in which securities are brought and sold and it is an
essential component of a developed capital market.

According to the securities (Regulation) Act 1956, stock exchange means

any body of individuals, whether incorporated or not, constituted for the
purpose of assisting, regulating or controlling the business of buying, selling or
dealing in securities.

Functions of Stock exchanges

1. Providing Liquidity and Marketability to Existing Securities.

2. Pricing of Securities
3. Safety of Transactions
4. Supply of long term funds
5. Flow of capital to profitable ventures
6. Promotion of investment
7. Reflection of business cycle
8. Marketing of New issues.

Organisation of stock exchange in India:

1. Members.
2. Authorized clerks.
3. Revisers.
4. Brokers.
5. Clearing house.
6. Jobbers

NSE:
The national stock exchange of India was established in 1994 by financial institutions
and banks with IDBI as a nodal agency.

the NSEI has been conceived as a model exchange with a national-wide electronic
screen based, “scripless” and floorless trading system in securities which is both
efficient and transparent and offer equal and nation-wide access to investors.

Till the advent of NSE an investor wanting to transact in a security not traded on
the
nearest exchange has to route orders through a series of correspondent brokers.

NSE operates mainly in two different segments:

1. Wholesale debt market (WDM).

2. Capital Markets.
3. Derivative market.

Objectives of NSE:

1. Establishing a nationwide trading facility for all types of securities.

2. Ensuring equal access to investors all over the country through an
appropriate communication network.
3. Providing a fair, efficient and transparent securities market using
electronic trading system.
4. Enabling shorter settlement cycles and book entry settlements.
5. Meeting international benchmarks and standards.

Features of NSE:

1. The NSE employs a fully automated screen based trading system.

2. It has two segments: the Wholesale debt market and capital market
segment.
3. The market operates with all participants stationed at their offices and
making use of their computer terminals, to receive market information,
to enter order and to execute trade.
4. The trading member in the capital market segment are connected to
 the central computers in Bombay through a satellite link using VSAT.
5. NSE has opted for an order driven system. A trading member can place
various conditions on the order in terms of time, price or size.
6. When a trade takes place a trade confirm slip is generated.
7. The identity of trading member is not revealed to others.

Bombay Stock exchange (BSE):

BSE is the oldest stock exchange in Asia and it was established as early as 1875
itself. It
is under the control of governing body consisting of 19 directors. Among them, one
is
an executive director, another one is a RBI nominee. Nine are elected by brokers
and
the balance five are public representatives. It has more than 700 members and most
of
them are individual members. At present, corporate members are being admitted.

There are three segments in BSE:

1. Equity segment
2. Debt segment
3. Derivative segment.

Objectives of BSE:

1. To safeguard the interest of investing public having dealing on the exchange

and the members.
2. To establish and promote honorable and just practices in securities
transactions.
3. to promote, develop and maintain a well regulated market for dealing in
securities.
4. To promote industrial development in the country through efficient resource
mobilization by way of investment in corporate securities.

Commodity Market:

What is “Commodity”?

When an economist, economics professor, or economics textbook

talks about a “commodity”, they mean a good that possesses the
following properties:

•usually produced and/or sold by many different companies/entities.

•Is uniform in quality among companies that produce/sell it. we cannot tell the
difference between one firm's product and another. ( LONG FLAT STEEL)

•Basmati rice, Brent crude oil, and electricity could all be considered commodities,
while Levi's jeans would not be, as consumers consider them to be distinct from
jeans sold by other firms. Economists call this distinctness "product differentiation".

History of Commodities Derivatives in India

•The first commodity exchange was set up in India by Bombay
Cotton Trade Association Ltd., futures trading started in cotton
in 1875.
•The Gujrati Vyapari Mandali came into existence in 1900
futures trade in oilseeds first time in the country.
•The Calcutta Hessian Exchange Ltd and East India Jute
Association Ltd were set up in 1919 and 1927 respectively for
futures trade in raw jute.
•In 1921, futures in cotton were organized in Mumbai under
the auspices of East India Cotton Association.
•The exchanges in Hapur, Muzaffarnagar, Meerut, Bhatinda,
etc were established 1920’s to trade wheat futures.
•By 1939, more than 300 commodity exchanges in the
country dealing in commodities like turmeric, sugar,
pepper,cotton, oilseeds.
•Futures on gold and silver trading started in Bombay in 1920
later spread to Jaipur, Kanpur Delhi etc.
•The futures trade in spices was first organized by IPSTA in
Cochin in 1957.
•Till 1952, trading in these exchanges was conducted without
any standard policy guideline.
•There was no market regulator and there was no uniformity
in trading practices. Further, there was no structured clearing
and settlement system.
•After independence, the responsibility of
regulating the commodity market were
brought under central government.

•In 1952, Government of India formulated

the Forward Contracts (Regulation) Act, 1952
and set up Forward Market Commission.

Under this act, recognized association can only

undertake futures trading and all commodities
were categorized into three types.

Commodities in which futures trading can be done

– regulated list

Commodities in which futures trading is not

allowed – prohibited list

Commodities which were not in the above two

categories, known as “ free list” were to required
to obtain the permission from the Forward
Markets Commission before futures trading could
be done.

In 1966, Government of India banned

the futures trading all commodities.

3. Recent Changes in Commodity Trading in India

•Recommendation of Kabra Committee and Expert
Committee on National agricultural Policy 2000
recommendation led to the creation of three national
multi-commodity exchanges.

•Secondly, expansion of permitted list of commodities

under the Forward Contracts (Regulation) Act,1952
(FC(R)A).
•In early 2003, Govt. of India permitted four entities to
set-up nation-wide, online, demutalized, multi-
commodity exchanges

•MCX, NCDEX, NMCEIL

•Started functioning in 2003.

•During 2003 India has 25 regional single commodity

exchanges.
Most of these regional exchanges deal with single/related commodities

Ahmedabad Commodity Exchange (1952) : Castorseed

Indian Pepper & Spice Trade Association Kochi (1957): Black

Pepper

The Chamber of Commerce, Hapur( 1923): Mustrad, Gur( Jaggery)