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How effective was MRTP Act in achieving its principal objective? Analyze.

How effective was MRTP Act in achieving its principal objective? Analyze.

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1 Answer

A bill seeking to set-up MRTP Commission was introduced on the recommendation of the monopolies Commission. It Was introduced in Rajya Sabha. on August 18, 1967 but it became an Act on December 27, 1969 and came into effect from June 1, 1970. The objective of MRTP Act was to ensure that the concentration of economic power to the common detriment should not be the result of the operation of the economic system and prohibition of such monopolistic and restrictive trade practices are prejudicial to public interest.

The Act does not apply to: (i) The Government Companies, public corporations, cooperative societies, trade unions, any undertaking in purchase of any purchase of authorizations made by the Central Government. The control over MRTP is exercised through setting up MRTP commission as permanent body, agreements related to restrictive trade practices are registered and controlled, establishment of new undertakings, mergers, amalgamations, regulation of substantial expansion, appointment of directors, etc.

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Under MRTP Act 1969, MRTP firms had assets of Rs. 20 crore or more but in 1985, the MRTP asset limit was raised to Rs. 100 crore. MRTP Act provided the Government an additional instrument for controlling large firms. MRTP clearance procedure was more restrictive than general companies procedure. Between 1982 and 1984, the approval rate of industrial license applications including MRTP clearances was 25% whereas it was 40-50% for the general companies. MRTP companies decides the less than half of all companies within a year but other companies took two or more years.

Increasing competitions in markets characterized by high concentration and excess profits did not touch MRTP companies as there is a MRTP limitations on entry and expansion of large firms. This restriction on large firms under MRTP Act paradoxically protected firms dominant in their markets when Act was implemented. Thus, this Act divided certain industries into a series of protected monopolies, each within an assured share of the market.

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July 10, 2019
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