BETTER WITH LESS

Competition law and promoting frugal innovation in India

The super wicked nature of the current pandemic needs a multipronged strategy to tackle intricately related issues like recession, inequality, and climate change in a holistic manner. In this context, rebooting the Indian economy based on “frugal innovation” in which social entrepreneurs constantly work on the idea of cheaper, user-friendly transformations that cater to social needs is the path forward.

By Devanshu Jha & Nidhi Singh

October 22, 2021

‘Frugal Innovation’ can be defined as the mechanism through which we bring down the cost and complexity of a good and its production processes. So, the essence of frugal innovation is based on a less resource intensive approach and providing higher value to a bigger group of people at lower cost. For rebuilding the economy, we need to promote frugal innovation so that we can guide our attention towards creating better social, ecological and economic values simultaneously along with reforming the efficient use of resources.

In the present VUCA (Volatility, uncertainty, complexity and ambiguity) times, we need a transformation in the way businesses; institutions and common masses think to tackle the pervading challenges in the Indian ecosystem. Scholars like Navi Radjou have insisted on creating mechanisms for building circular value networks, simplification of organization structures, crowdsourcing solutions and developing citizen centric innovation networks in emerging economies like India to promote frugal innovation. India can be a cradle for frugal innovation in terms of need and opportunity. It's not surprising that circular economy and value networks have been a part and parcel of traditional lifestyle. Further building innovation networks can be very beneficial  as a quantum of opportunities are available.

For instance, only 30 % of wastewater is recycled  in India. This is because “frugal innovation (jugaad)” has been regarded as an important social value in India since ages. The unique selling proposition of the Indian workforce lies in the presence of skilled workers, artisans and craftsmen in rural areas. This talent can be used further in recycling, repackaging , establishing a new customer base and serving  at the bottom of the pyramid of society. As per Hofstede model India tends to move towards collectivization of society. This makes the art of collective intelligence like “crowdsourcing” easier in Indian society. These factors can be very important while promoting India as the leading market in frugal innovation with the advantage of cost (across different professions and industry), high demand and skilled professionals.

In present  circumstances when demand, consumer sentiments and capacity utilization (63%) are low, people are trying to save more in emerging economies including India. The pressure on households, government and company budgets has been increasing.There has been a rise of total tax burden on households to 75 % from 60% in 2011. Further retail inflation at 6.3% in May (high fuel and food prices) present tough challenges and demand side issues in the economy. As per FICCI report, more than 80% of the companies have cash flow issues and more than half are having operational issues. Dunn & Bradstreet has stated that about 80% of the small business had a negative impact like less finance (34%), market access (42%) and productivity (37%) in the Covid era.  So, organizations have to “think big with few resources'' through B2B platform sharing and new regeneration methods. One of the biggest challenges is tackling the institutional voids as institutions are failing to provide the basic support to business operations.

Further, with a mission to promote social equality and reduce ecological degradation we need to prevent monopolies, economies of scale through mass production (for pollution control and resource optimization), and zero sum business games. This will require a quantum leap towards disrupting the multi company business model and rejuvenating the entire entrepreneurship and skills-based business ecosystem in India. In this era of rentier capitalism, undesirable monopolistic trends have been evolving in the economy in the last few years. For example the telecom sector has become a near duopoly while other players are going bankrupt. Further important sectors like aviation infrastructure have also developed monopolistic trends with six airports going to one group in 2019 auctions. We must realize that greasing the wheels of the Indian economy through frugality also requires social sustainability as the need of the hour. Frugal innovation is the best means to serve the bottom of the pyramid population in India by providing them affordable goods and promoting a sense of self-dignity. 

These efforts shall require encouraging small business and creating a level playing field for all the firms. Thus, the role of Competition policy of the government becomes pivotal in ensuring greater consumer welfare and promoting competition at the lowest level of the economy. The Competition policy encourages even the small traders to adopt such practices that promote competition and does not cause appreciable adverse effect on competition in the market. By adopting such methods, the consumer gets access to competitive prices and better quality of products.  What frugal innovation does is achieve “continuous process industries”, which keeps on evolving with time in terms of scale and scope. It helps improve innovation, offers the consumer with more choices and as a result enhances economic growth. However, it is imperative that the innovators should be allowed to reap benefits of their innovation but not at the cost of unfair monopolistic pricing leading to abuse of dominant position. The government needs to strike a balance between not discouraging the new players entering the market such that they are able to recover their R&D costs and also promoting equitable competition at the same time. 

The Indian Competition Act, 2002 seeks to prohibit anti-competitive agreements and abuse of dominant position under section 3 and 4 respectively. The objective is to regulate such unwarranted restriction in production and supply of goods that curbs unhealthy competition in the market. It also prevents companies and large corporations from engaging in such practices that may hinder effective competition. The purpose is to punish those kinds of business conduct that undermines innovation and harms consumers. For example: Several Indian enterprises in the past have been found to be indulging in such unfair trade practices like price-fixing, cartelisation, tying & bundling, resale price maintenance, predatory pricing and abuse of dominant position that has the effect of foreclosing competition in the market. The enforcement under these sections have become all the more challenging with the increasing dominance in online platform markets.

The Chairperson of Competition Commision of India has recently remarked “Digital markets are the epicenters of technological progress and innovation…unchecked dominance and high concentration is the result of presence of certain characteristics which makes market power in the digital space uniquely durable”. Frugal innovation has this unique characteristic of challenging the traditionally established markets by offering the same product at cheaper and a more economical price that could even be more climate-friendly. Regulating by products of such innovation in the name of competition could be detrimental if the Competition Commission of India does not chalk a proper strategy. Instead of seeing their practice as predatory in nature, it is essential to distinguish between players who want to escape competition and who intend to compete through innovative business strategies like frugal innovation. 

The current law needs to take into account the innovation such that the current emerging innovators are able to thrive in a sharing economy. Prices in the sharing economy tend to be lower than the usual market. Therefore, sharing economy business models including frugal innovation can go a long way in ensuring competitive advantage. Even the US Federal Trade Commission (FTC) has recently acknowledged that growth of the sharing economy can boost growth in the economy “by encouraging entrepreneurship and promoting more productive and efficient use of assets.”

It will not be legally fallacious to acknowledge that the time during which the Indian competition regime was designed, it was written with the conventional business in mind. Therefore, it is crucial for the apex antitrust body to acknowledge and design strategies in line with the new business models and their impact on emerging markets and interface with the extant regulatory landscape.

Devanshu is an MSc Philosophy of the Social Sciences (Major in Economics) Candidate at London School of Economics & Political Science, U.K and Nidhi is a JSM Candidate & SPILS Fellow at Stanford Law School, USA