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Allowing Competition In India’s Energy Sector

As we know at the global level energy is one of the most precious contributions to a country’s economy and also for the development of Human Beings. The development of any nation, consisting of various sectors of the economy, is basically dependent on the ability to give decent and reasonable entryway to different sources of energy.

As India has the target to achieve a sustained annual economic growth rate, there is a need to supplement its energy and its related infrastructure. To achieve this growth, energy demand is estimated to raise annually. India is expected to witness one of the highest growth in terms of energy demand in the current decade. Although, the demand for commercial energy has grown significantly, but still a large part of India’s population continued to have limited or no access to various energy resources. Thus, the time has come to promote competition in the energy market by making strategies to enable competition, so that it can be used by all.

Competition Law And Its Regulations

Competition law promotes streamlined allotment and usage of natural resources, that are commonly meager in emergent nations. An accessible competition law lessens the entrance obstacles in the market as well as makes the market propitious to promote entrepreneurism.

Regulations, on the other hand, are public barriers on market. They are basically a benchmark set by the governments on business and as well as to the citizens.

These regulations can be bifurcated as mentioned below:

  1. Economic Regulation – These are the regulations which hold up the market decision such as competitions, entry or exit and pricing.
  2. Social Regulations – The regulations which protects the public interest at large which are in the form of health, safety, environment etc.
  3. Technical Regulation – The regulations help in dealing with the technical regulations and various technical aspects those are evident and exclusive in the market.
  4. Administrative Regulations – These regulations help in dealing with the administrative formalities which helps in collecting the important information which are helpful by the government in decisions making the economic sector.
As far as the regulations are concerned, we need to understand the market structure and its power and also its relevance in implementing competition law.

Market for the purpose of Competition Law

Market is usually addressed as a category consisting of various types of sellers and buyers for really unique goods and services. It depends on the consumer to decide the orders for the products, and the seller decides the availability of the products in the relevant market. the important ingredient which maintains the visible equilibrium in a market, mostly with respect to the consumer well-being is the healthy competition. the reason behind is that is equalizes the abuse of dominance of any particular product in the market.

The main aim of the law of competition is to control and curb the unhealthy competition in the market for profitable efficiency, consumer benefits and to encourage the aims such as, market consolidation. In order to succeed in these objectives; the first prerequisite is identification of a market. The market definition works as a systematical instrument in order to define the range of competition. And affect the formation and implementation of connected strategies, between the undertakers. The reason behind is to identify that the gamers does not conclude the price separately, for their product or service, which is opposed to consumer well-being.

Market Power

Market power occurs when one buyer or seller in a market has the capacity to exert significant influence over the quantity of goods or services, or the price at which they are bought/sold. In a perfect competitive market, market participants have no market power. The ability of an entity to raise its price above competitive levels is limited by the competition law.

Market power comes into picture when the price exceeds from the minimal or marginal cost, so the entity make out the good amount of profits for itself.

Market power has the power of controlling supply and demand of goods or services as increase in price leads to decrease in demand and then its leads decline in the supply because of the influence of market power.

There are different types of Market Power:

Oligopoly Market Power: There are basically handful of sellers who have significant shares, which results into the collusions among themselves. Due to which there is reduction in the market competition and further it leads to higher prices. These big giants exercise the market power through cartel system.

Monopoly Power: when one seller has the capacity to influence the prices in market. There are various methods through which the monopoly power can be exercised in the market like, Predatory pricing, brand loyalty, large scale production etc.

Various Source of Market Power

One of the frequently adopted trend to achieve market power is to prevent these competitors from entering the market by applying various hurdles on their entry.

These are the source which helps in attaining the market power:

Exclusive control over input

A sole entity has absolute control over the goods and services and no other entity have access in the market in relation to these inputs, and thus that particular entity attains power and hike the pricing of the products without losing their customers.

Copyrights and Patents

This source of market power is created by the Government which is a kind of barriers for the organizations to enter the market. The organization which has acquired the patent or copyrights on the products, then they can bar the other entities to enter into the same product market until the patent is given to them. And due to this the patented company enjoys the market power and increased the pricing of the products according to their wish.

Economies of Scale

Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be fixed and variable.

Network Economies:

It has now become the trend for the organizations to evade the Patent law by doing few changes into their products. Patent protection may be a temporary solution. At last, the government grants only to few users every year. But the economies of scale are both widespread and persistent.

Since, network economies are almost same as to economies of scale. When network economies are beneficial for the consumers, the quality of the product increases as it is directly proportional to the number of users. Hence, the number of users also increases in the market, so it is said that, with increase in the volume of sales, the quality level of the products also escalates. Therefore, network economies may be observed as an alternative form of economies of scale in the production.

Strategy for Allowing the Competition in India’s Energy Sector

India requires an energy market which is flexible, competitive, and integrated, and also which provides a genuine setback for electricity, oil and gas where there is demand. In order to tackle India’s energy and climate defiance and to make sure profitable and safe energy supplies to each and every households and also to the business enterprises, India must make sure that the energy market should operate efficiently and with full flexibility.

Advantages of unprejudiced, unsegregated and versatile energy market

The native governments, businesses and individuals of any nation can be satisfied only when the market gives them the best opportunity to deal with. But such a situation is not possible at the present moment. As the generation market is still highly intense in India. The energy market in India in general sense are not to be transparent enough or adequately open for new entities to have a level playing field in the market. Economically, rational investments in energy efficiency are not up to the mark and those which are in existence they are not enough. Even Consumer’s satisfaction is very low in India even though, we can see that there is fairly competitive market.

Some of the Strategies already Accomplished:
Need for Private sector participation
Since 1990’s, India has progressively involved the private sector in supply and financing of energy services.

This trend has to be continued due to the following factors:
  • There is a rising demand-supply gap in availability of various energy resources.
  • There is need to attract greater private players to deal with the energy projects and also operational efficiency.
  • There is need to reduce to energy poverty.
  • There should be technological innovations that will help to increase services.
  • There is a need for realization that an efficient energy infrastructure is essential for competition at global level.

Demand –Supply position in India’s Energy Market
The rising demands can be either met by imports or by cutting the supply infrastructure of energy resources. It can also be met by increasing in studying certain activities, development and advancement in the transmission and distribution infrastructure as well as setting up of new advanced Technology in the fulfilling the Energy market demands.
Currently, gap/shortages of energy and demand supply raise serious concerns about India’s energy and its impact on the overall economic development.

Investment Requirement
The World Bank (2006) has projected that developing countries including India need about US$ 165.0 billion from 2010, increasing at 3% per annum till 2030-2031 to ensure complete energy access in energy sector. However, financing of projects which is available can meet only half the requirement, which results in huge investment gap in the energy sector.

The Public Investment in the energy sector (power, petroleum and natural gas) reflects a consistent and compounding gap between planned investment and actual expenditure. The business in the energy sector is as usual and the economic development objectives still remain unfulfilled and it will be so, if the need of the investment in the energy sector is not realized.

Reduction in Energy Poverty
Improved efficiency, access and affordability of energy resources to the lower strata make a significant difference to their socio-economic development and will be a bone of contention for human development. The linkages in energy-development in multi-dimensional, such as, energy indirectly related to every aspects of economic activity, enables use of equipment’s needed for improved production, enhances the standard and the quality of the life and well-being and improves access for the information.

However, the challenges threatening policymakers is to create a competitive energy market that not only raises investment and efficiency but also improves national welfare and development, particularly that of the poor. Certain frameworks either legislative or regulatory who have strong focus on the delivering of the energy services to the poor should come into the picture.

Other Strategies which have to be fulfilled:
  1. More efficient use and development of grids.
  2. Utilizing the energy packages provided in Five-year plans.
  3. Ensuring a level playing field.
  4. Bridging gap between member states.
  5. Enhancing consumer awareness about taking advantages of opportunities.
  6. Enabling the delivery of diverse and innovative sciences.
  7. Flexibility to the customers and competitive pricing.
Opening of energy markets gives consumers variety of choices. It restricts the public interference and prevents inappropriate public interruption. There are some of the important issues which need to be addressed urgently and expeditiously in order to cover the energy market in India. These issues act as impediments in realizing full benefits to users, raises certain limitations for competition and innovation in technologies used and also chip away the security and sustainability of energy resources in India.Written By: Aditya Kumar Tomar

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