CORPORATE AFFAIRS: THE WAY FORWARD

I am happy to be here this morning

It is a matter of great satisfaction for all of us that the Indian economy has been growing at an impressive rate continuously for the last 3-4 years and the future prospects are even better. We also recognize that our corporate sector has played a very significant role in this growth process. We salute the captains of our trade and industry.

Today, India is considered a preferred destination for investment. Within the country, there is a perceptible enthusiasm in terms of business confidence, buoyant economy, increasing investments by Indians abroad and a large number of new businesses launched by foreigners in India. We are witnessing the gradual dismantling of barriers to the trade and industry. Over the last 20 years, the economic reforms have helped in creating a vibrant, forward looking and globally integrated economy. Foreign direct investment has increased manifold in the recent years. A number of Indian companies have made acquisitions abroad, including in the USA, Europe and Far East. A variety of alliances have been noticed between Indian companies and their foreign counterparts. Significant action has been seen in venture capital and private equity space.

Friends, beginning with about 30,000 companies in 1956, and about 2,00,000 in the year 1990, the corporate sector has registered a sharp growth since early nineties consequent to the liberalisation of our economic policies. The number of companies has risen to about 8.65 lakh today. The data for the last two years indicates incorporation of about 55,000 companies per year. More important than the increasing numbers of corporate entities, is the emergence of a globalized competitive business environment in which our companies are proving their worth.

This fast changing business environment has brought, along with it, a high set of expectations from the Government in many areas; be it in terms of enabling legal framework suited to the modern day requirements; an effective regulatory regime and efficient service delivery systems. These changes have also been continuously challenging the regulators.

We recognize that unless the regulators understand these changing patterns on a continuing basis, their response could become ineffective and even counterproductive. The Government has to provide our corporates a level playing field in which they can deliver their best in the process of the development. It is in this background that a number of initiatives have been taken by us in the Ministry of Corporate Affairs since its elevation as an independent Ministry in the year 2004.

These initiatives include (i) comprehensive revision of the Companies Act (ii) provision of an enabling legal framework for Limited Liability Partnerships (iii) Reforms in the laws governing the three Professional institutes of Chartered Accountants, Cost & Works Accountants, and the Company Secretaries (iv) notification of the Accounting Standards (v) amendments to the Competition Act, 2002 and (vi) implementation of an ambitious e-Governance Project known as MCA21.

These initiatives have been taken by the Ministry to revamp the regulatory framework for the corporate sector with a clear belief that a forward-looking, supportive and facilitative, legal and regulatory framework along with effective delivery systems are essential to accelerate the economy's growth rate on a sustainable basis. It is in this background that the Ministry has redefined its vision in the following words:

"To be a Leader and Partner in initiatives for Corporate Reforms, Good Governance and Enlightened Regulation, with a view to promote and facilitate effective corporate functioning and Investor protection"

We are committed to realize our vision through our actions, many of which you have already witnessed.

Friends, I am aware that your wait for the new Company law is now too long. Let me tell you that this exercise has been quite complex and exacting. But, I am happy to share with you that this long wait is likely to be over soon. Based upon the inputs received by the Government, through a wide consultative process, the drafting of the law is now almost complete. After completing necessary processes, we propose to introduce the Bill in the ensuing budget Session of the Parliament, 2008. The new law will promote shareholders' democracy, replace the `approval based system' with a system of responsible disclosures, promote good corporate governance and effective protection of our investors.

Another major problem area relating to corporate functioning in the country has been the slow liquidation process. Today, it takes ten years on an average for a company to be liquidated. In this process, the value of the assets is significantly reduced. The past attempts to address this issue, at least partly, through NCLT and NCLAT have not yet succeeded because of litigation. This issue is also being addressed in the new law. Broadly, our approach in this regard is based on the general principles adopted by the United Nations Commission on International Trade Law.

Ladies and Gentlemen: India has responded to the current worldwide trends of globalization by opening -up its economy, removing controls and resorting to liberalization. In this context, the Indian markets needed to equip themselves to face competition from within the country and outside. Accordingly, the Competition Act, 2002 was enacted to replace the existing Monopolies and Restrictive Trade Practices Act, 1969. I would like to read the object clause of the Competition Act :

Quote

"An Act to provide keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets,in India and for matters connected therewith or incidental therto."

unquote

The law is to be administered by the Competition Commission of India. The Government could not operationalise the CCI in the past because of certain legal challenges, which got settled only in 2005. In order to address various issues that came-up during the litigation, the law has been amended and now we are in the process of operationalising the CCI at the earliest. It is one of our top priorities as the existence of an effective competition regulator is crucial in a market economy.

Friends, in the past few weeks, we have received several representative regarding a few provisions of the amended Competition Act. Mostly, these relate to the 'combination regulation'. I have had occasions to hear many of such concerns from our friends in the trade and industry. I have also discussed these issues with my officers in the Ministry as well as the officers of the CCI.

Some of the apprehensions appeared to be well founded. But most of these appear to be the outcome of incomplete and inadequate appreciation of the law and the fear of unknown. There appears to be a presumption that the provisions of the law are going to be implemented with a negative mind-set.

Let me tell you that till only a few years back, I was one of you. I can, probably, appreciate your pains and apprehensions better. And, therefore, I immediately advised my officers to carefully listen to all the apprehensions and explain to all the stakeholders various pros and cons of the provisions and the background in which these have been enacted. I have also advised them to address the genuine concerns through regulations, which should be framed through a transparent and wide consultative process.

It is in this background that draft regulations were released for comments of all concerned. Those of you, who have not yet found time for this, may like to contribute in the process. We assure you that all your genuine concerns shall be addressed.

I am sure, if you look at these regulations with an open and positive mind, you will be quite satisfied. However, before doing so we should appreciate the changing times and the mind-set. We should not forget that it is this very system, which has facilitated the liberalization process, the fruits of which are being reaped by all of us today. No law can be evaluated on the presumption of 'lack of good faith' and that too before it is actually implemented.

There is another aspect of the Competition law. And that relates to protection of interests of consumers. No economy can prosper in the long run if it ignores those who are sitting at the fence. It is our prime duty to protect the interest of those who are not able to give voice to their grievances. In our zeal and enthusiasm of immediate gains, we should not ignore the fact that long-term and sustainable prosperity of our trade and industry is very much dependant on the welfare of consumers. Their interests have to be adequately protected. You will agree that the Competition law has been enacted in the over all interest of the economy and consumers are the backbone of the economy. If anti competitive practices are not checked effectively, it is the consumer who suffers the worst. In such a scenario let us not fall pray to certain ill-founded apprehensions and pre-conceived notions. Let us contribute in the process of bringing-in a modern and effective Competition Authority in national interest.

Friends, the Government is committed to do everything necessary to facilitate our corporate sector in their efforts to deliver their best within and outside the country. We appreciate the valuable contribution of our corporates in the process of economic development of the country. The 'Brand India' which is attracting attention of every part of the globe today, owes a lot to our corporates, who have shown their metal against all the odds. Appreciating the importance of the inclusive growth, our corporates are also coming forward in discharging their social responsibilities. What is needed is a little more sensitive approach remembering that even today millions of our brothers and sisters do not get even two meals a day. Let us work together for the nation.

Thank you and Jai Hind