Cracking the cement cartel

The Competition Commission of India has has done well to slap a penalty of Rs 6,000 crore  on 11 cement companies for forming a cartel. These companies have been making illegitimate profits for a long time but were getting away with it. It is only with great difficulty that they have now been brought to book. While imposing this penalty, the commission  noted the parallel and coordinated behaviour of these cement companies with regard to price, dispatch and supplies in the market. It has also noted that the cement companies did not utilise the available capacity in order to reduce supplies and raise prices in times of higher demand. As the commission has rightly observed, the act of these cement companies in limiting and controlling supplies in the market and determining prices through an anti-competitive agreement is not only detrimental to the cause of the consumers but also to the whole economy because cement is a crucial input in the construction and infrastructure industry that is vital for economic development of the country. It is hardly necessary to state that a cartel is the most pernicious violation of competition law and is therefore subject to the severest penalties. It is an agreement formed in secrecy between cometing firms in a market which result in profits due to an unreasonable increase of prices caused by them at the cost of the exploitation of the customers. There is a very thin blurred line of distinction between legitimate cooperation and illegitimate collusion, which has been crossed as far as the cement industry is concerned. The cement compaines have done what is expected of typical cartels:  agree on fixing prices, total industry output, market shares, rigging bids, and a combination thereof.

There has been a boom in the real estate and construction business in India but it was acompanied by a remarkable and unaccountable rise in the prices of cement. These jumps in the prices are entirely inexplicable in terms of an analysis of  structural economic factors such as a demand-supply mismatch or a sudden increase in the cost of producing cement. They only made sense in the context of illegitimate collusion within the cement industry as do the observations of a decline in cement price after government decisions to import cement. Now that the cartel in the cement industry has been identified and coralled, it will hopefully be its end. The act of the commission may bring in some much needed competition within the cement industry leading to a normalisation of prices, much to the benefit of consumers and the Indian economy.