India’s Competition Leap Hides Deep Market Distortions

Introduction

India’s rise from 82nd to 57th place in a global assessment of structural and competitive reforms appears impressive. A gain of 25 positions suggests that the country has made meaningful progress in improving its business environment, reducing regulatory obstacles, and strengthening market competition.

The ranking, released on July 30, 2026, evaluates progress in reducing market distortions across areas such as property rights, domestic competition, and international trade. India’s improvement reflects the impact of major reforms undertaken between 2010 and 2023, including the Goods and Services Tax, the Insolvency and Bankruptcy Code, digital public infrastructure, and changes in foreign investment rules.

However, the headline hides a less comfortable reality.

India still ranks 57th and remains outside the top 50. This indicates that several structural distortions continue to influence who can enter a market, who receives government support, who obtains contracts, and who bears commercial risk.

India has made markets easier to enter in several sectors, but it has not always made them equally competitive. State owned enterprises continue to enjoy advantages that private companies cannot easily match. Agricultural markets remain divided by state regulations. Public procurement often favours government owned producers. Meanwhile, the Competition Commission of India faces the difficult task of regulating increasingly complex markets with limited institutional capacity.

The deeper issue is therefore not whether India has reformed. It clearly has. The real question is whether those reforms have created a genuinely neutral market or merely replaced older restrictions with subtler forms of state preference.

What Are Anti Competitive Market Distortions?

An anti competitive market distortion is any policy, regulation, subsidy, ownership structure, or administrative practice that gives certain firms an advantage unrelated to productivity, innovation, price, or quality.

Some distortions are explicit. These include legal monopolies, import restrictions, exclusive licences, price controls, and procurement reservations.

Others are implicit. A government owned company may receive cheaper credit because lenders assume the state will prevent it from failing. A public enterprise may retain valuable land without paying a market based cost. A private firm may be required to satisfy conditions that are applied less strictly to a state owned competitor.

Such distortions do not always eliminate competition. Instead, they alter the conditions under which competition occurs.

A private company may legally be permitted to enter a market, yet still face disadvantages in financing, regulation, procurement, and access to infrastructure. The market may appear open while remaining structurally unequal.

This distinction is crucial for understanding India’s position. Economic liberalisation is not complete merely because private participation is allowed. Genuine liberalisation requires competitive neutrality, meaning comparable firms should face comparable rules, risks, and opportunities regardless of ownership.

The Hidden Advantage of State Ownership

State owned enterprises remain important in India’s banking, insurance, energy, transport, mining, and infrastructure sectors. Many perform essential public functions and support developmental objectives that private firms may not willingly undertake.

The problem begins when public purpose and commercial privilege become difficult to separate.

Government ownership can create an implicit guarantee. Depositors, lenders, suppliers, and investors may assume that the state will rescue a public enterprise during financial distress. This perception lowers risk and can reduce borrowing costs.

A private company must convince the market that it is financially sound. A state owned competitor may receive confidence simply because of its ownership.

This advantage is especially visible in banking and insurance. Public sector institutions often carry social responsibilities, including rural expansion, priority sector lending, and participation in government programmes. These obligations may justify some support.

However, when the same institutions compete for profitable customers, commercial deposits, corporate lending, or insurance premiums, state backing can affect the competitive balance.

The correct solution is not the automatic privatisation of every public enterprise. India needs a clear separation between public service obligations and commercial operations.

When the government requires an enterprise to deliver a social service, the cost should be transparent and funded directly. Commercial activities should then be judged under the same capital, disclosure, governance, and insolvency standards applied to private firms.

Without such separation, public policy objectives can become a permanent justification for unequal competition.

Aviation Shows Why Ownership Neutrality Matters

The airline sector provides an important illustration of how state ownership can distort markets.

Airlines operate in an industry defined by high capital requirements, volatile fuel prices, thin margins, and substantial regulatory exposure. Private carriers must manage these risks while remaining commercially viable.

A government owned airline may historically receive capital support, debt restructuring, sovereign assistance, or preferential treatment justified by national connectivity. Even after ownership structures change, the legacy effects can influence airport access, route allocation, infrastructure, and market expectations.

India’s experience demonstrates that allowing private airlines to operate is not the same as creating a neutral aviation market.

Competition depends on transparent slot allocation, equal airport access, predictable taxation, and consistent treatment during financial stress. A market cannot be considered genuinely competitive when some participants are allowed to fail while others are repeatedly protected.

The broader lesson applies across sectors. The state must decide whether it is acting as a regulator, owner, purchaser, or provider of public services. When these roles overlap without safeguards, conflicts of interest become unavoidable.

Agricultural Markets Remain Fragmented

Agriculture is one of India’s clearest examples of incomplete market integration.

Agricultural Produce Market Committee laws were created to protect farmers from exploitation and regulate wholesale markets. In practice, their operation varies widely across states.

Farmers in many regions still face restrictions concerning where produce can be sold, who can operate as a buyer, how market fees are imposed, and whether private marketplaces can function freely.

This fragmentation reduces competition among buyers and limits the farmer’s ability to discover better prices.

The withdrawn farm laws revealed how politically difficult agricultural market reform can be. The failure was not simply about the economic content of the laws. It also reflected concerns about consultation, federalism, trust, corporate concentration, and the future of minimum support prices.

Yet the withdrawal of those laws did not eliminate the underlying problem.

India still needs better agricultural markets. Farmers require more buyers, reliable contracts, storage facilities, accessible dispute resolution, transparent electronic trading, and stronger farmer producer organisations.

The challenge is to achieve reform without treating deregulation as an automatic substitute for regulation.

Removing an APMC restriction does not guarantee competition if only one or two large private buyers enter the region. A private monopsony can be as damaging as a regulated market monopoly.

Genuine liberalisation must expand farmer choice while preventing excessive buyer concentration. This requires state level reform, infrastructure investment, market information, competition oversight, and credible safeguards against unfair contracts.

Public Procurement Can Quietly Exclude Competition

Government procurement represents a major share of economic demand in India. It influences markets ranging from defence and railways to technology, construction, healthcare, and manufacturing.

Procurement preferences for public sector units are often justified on the grounds of national security, strategic capacity, employment, and domestic industrial development.

These objectives can be legitimate. However, permanent preferences can discourage private investment and innovation.

A private company is less likely to invest in research, manufacturing capacity, and specialised talent when the largest buyer in the market routinely favours a public producer. Even when private firms are allowed to participate, contract conditions may be designed around the capabilities of established government suppliers.

This can create a circular problem.

Public enterprises receive orders because they possess capacity, while private firms cannot build comparable capacity because they do not receive sufficient orders.

Defence procurement illustrates this tension. India wants technological self reliance, domestic production, and national security. Public sector enterprises have accumulated expertise and infrastructure over decades.

However, self reliance cannot mean public ownership alone. It must include competitive domestic capability.

Private firms should be able to compete for contracts through transparent criteria based on quality, security, cost, delivery, and technological value. Public enterprises should succeed because they perform well, not because their ownership guarantees preference.

A similar principle applies to railways. Public procurement should support domestic industry without insulating established producers from competitive pressure.

Why Competition Is Necessary for Innovation

Competition policy is often misunderstood as a narrow effort to reduce prices. Its economic role is much broader.

Competitive markets pressure firms to improve productivity, adopt technology, develop better products, and allocate capital efficiently. When inefficient firms remain protected, resources stay trapped in weaker businesses rather than moving towards more productive uses.

Market distortions can therefore reduce long term growth even when their immediate fiscal cost appears limited.

A subsidised loan, preferential contract, or regulatory exemption may not seem economically significant when examined individually. Across multiple sectors, however, such advantages influence investment decisions throughout the economy.

Entrepreneurs avoid sectors where government ownership determines outcomes. Investors demand higher returns when regulations are unpredictable. Innovative firms struggle to scale when procurement systems reward established relationships rather than performance.

India’s ambition of becoming a developed economy cannot depend only on increasing investment. It must also improve the efficiency with which investment is allocated.

That requires markets in which firms gain scale by serving consumers better, not by securing administrative protection.

The Competition Commission’s Capacity Problem

The Competition Commission of India is responsible for preventing anti competitive agreements, examining abuse of dominance, reviewing combinations, and promoting competition awareness.

Its role has become more demanding as markets have grown in size and complexity.

Digital platforms, algorithmic pricing, large technology mergers, data concentration, online marketplaces, and interconnected business groups require specialised economic and technical expertise.

At the same time, traditional competition concerns remain unresolved in sectors such as cement, transport, pharmaceuticals, real estate, agriculture, and public procurement.

Institutional capacity is therefore central to effective competition policy.

A regulator may possess strong legal powers yet remain ineffective if it lacks economists, lawyers, data scientists, investigators, and sector specialists. Delayed investigations can weaken deterrence. Poorly reasoned orders can be overturned. Limited research capacity can make it difficult to identify emerging risks before markets become concentrated.

Vacancies and funding constraints within the Commission are not minor administrative issues. They directly affect the quality of market governance.

Strengthening the institution requires predictable funding, faster recruitment, specialised training, stronger investigative tools, and greater operational independence.

Competition Law Is Necessary but Not Sufficient

India’s competition law framework has undergone significant reform. Recent amendments have introduced faster merger review timelines, settlement and commitment mechanisms, and new thresholds intended to capture high value transactions that may escape traditional turnover tests.

These reforms can make enforcement more responsive to modern markets.

However, competition law cannot correct every distortion created by government policy.

The Competition Commission may act against a cartel or an abusive dominant firm. It cannot easily eliminate a procurement rule that favours a public enterprise, restructure agricultural markets across states, or remove an implicit sovereign guarantee.

This is why India needs a wider competition policy rather than relying only on competition law.

Every ministry and regulator should assess whether a proposed rule creates unnecessary barriers to entry, protects incumbent firms, restricts consumer choice, or treats public and private enterprises differently.

Competition impact assessment should become part of routine policy design.

Before granting an exclusive right, procurement preference, subsidy, or licensing restriction, the government should explain the market failure being addressed and evaluate whether a less distortive alternative exists.

What Genuine Market Liberalisation Requires

Genuine market liberalisation does not mean the absence of government. It means that state intervention is transparent, targeted, proportionate, and open to evaluation.

India’s next phase of reform should begin with competitive neutrality. Public and private enterprises engaged in commercial activity should face comparable rules on taxation, borrowing, disclosure, procurement, and financial failure.

Public service obligations should be clearly identified and separately compensated.

Agricultural reform should proceed through state cooperation rather than abrupt centralisation. Farmers should gain access to more buyers, better storage, transparent prices, enforceable contracts, and strong collective bargaining institutions.

Public procurement should become more outcome oriented. Strategic preferences should be limited, time bound, and reviewed regularly. Contracts should reward innovation, reliability, security, and value rather than ownership.

The Competition Commission should receive the people, funding, data access, and technical capability required for modern enforcement.

India should also review existing regulations through a competition lens. Rules created decades ago may continue protecting incumbents even after their original purpose has disappeared.

Competition After Viksit Bharat

The Viksit Bharat ambition requires India to become more productive, innovative, and globally competitive. That cannot happen through infrastructure spending and industrial incentives alone.

The quality of markets will determine whether new investment creates efficient firms or protected national champions dependent on state support.

Industrial policy may be necessary in strategic sectors. However, support should encourage firms to become globally competitive rather than permanently sheltering them from domestic rivalry.

Temporary assistance can build capability. Permanent protection usually builds dependence.

India must therefore move beyond a simplistic debate between state control and free markets. The relevant question is whether the state is creating capabilities while preserving incentives for performance.

A capable state and competitive markets are not opposites. In a successful economy, they strengthen each other.

Conclusion

India’s movement from 82nd to 57th position deserves recognition. It reflects years of structural reform and a meaningful reduction in several barriers to enterprise.

But a 25 place improvement should not become a reason for complacency.

India remains outside the top 50 because important distortions continue to shape its markets. State owned enterprises enjoy advantages linked to government backing. Agricultural trade remains fragmented. Procurement preferences can crowd out private innovation. The Competition Commission faces expanding responsibilities without matching institutional capacity.

The next stage of reform will be more difficult than the previous one.

Creating a common tax system or an insolvency framework involves major legislation. Removing subtle ownership advantages, reforming state level agricultural markets, and making procurement genuinely neutral require persistent institutional change.

India’s competition challenge is no longer simply about opening markets. It is about ensuring that markets remain open after entry.

For Viksit Bharat to become an economic reality, India must create a system where ownership does not guarantee privilege, regulation does not protect incumbents, and public policy does not quietly decide winners before competition begins.