Advocates of reform would however argue that, while some mistakes were made in the early stages of reform in the telecommunications industry, the reconstitution of the TRAI and recent revisions of policy would set things finally right. If the TRAI plays the role of watchdog appropriately, it may. Otherwise it would not, as experience elsewhere indicates. This is because competition even if temporarily ensured, as it seems to have been in the telecom sector, could soon lead to oligopolization. This is illustrated by the experience of the cement industry, which has for some time now been freed of restrictions on entry as well as controls on prices. Liberalization did initially spur competition, which led to increased capacity, an improved demand-supply balance and better prices for the consumer. Cement production rose from 49 million tones in 1990-91 to 88 million tones in 1998-99, because of a wave of capacity creation in the wake of liberalization. However, with public investment depressed and growth in the construction business slowing, the industry came to be characterized by excess capacities and depressed prices. To help the industry the government stepped in with protection from international competition with a basic customs duty of 38 per cent, a special additional duty of 4 per cent, an anti-dumping duty of Rs.10 per tonne and a countervailing duty of Rs. 350 per tonne.
 
Behind these protective barriers the demand-constrained industry has been witnessing a substantial change in structure. The industry has seen a process of growing consolidation of capacity in a few hands as a result of a spate of mega-mergers and acquisitions. Leading the movement has been international cement major Lafarge of France that has acquired the cement businesses of Raymond and Tata Steel and is reportedly gearing up for an acquisition of Jayaprakash Cement. But there have been others in the game as well. Gujarat Ambuja has bought out the Tata stake in ACC for Rs. 925 crore, India Cements has acquired Raasi Cement and Italcementi has acquired a 50 per cent stake in Zuari Cement. All this is occurring in an industry where already capacity with the top six players accounts for more than 60 per cent of total production, though there are 60 companies and 120 plants in the industry.
 
Acquisitions such as these may be dismissed as inevitable in a more market-driven environment. But what is disturbing is that the process of consolidation has been accompanied by growing evidence of monopolistic practices. The demand for cement picked up in 1999-2000, as reflected in the 20 per cent increase in output during the first eight months of that financial year. Using the occasion, as well as the base for collusive practices that concentration in capacity affords, producers have consciously jacked up cement prices. Prices which were slack till about November last year, have been escalating rapidly since, as leading producers repeatedly hiked prices supported by measures aimed at reducing supply and creating an artificial shortage. Thus in November, these producers had decided to shut down capacity for 35 days more than the 25 during which capacity is normally shut down for maintenance purposes. Restrictions on the distribution of cement have also reportedly been adopted by what is quite clearly an organized cartel. With the support of of such measures, prices were hiked by 36 per cent in five successive revisions during the last two months of 2000, taking the Mumbai price of cement from Rs. 140 a bag to Rs. 190 a bag. Other markets such as those in Andhra Pradesh, Tamil Nadu and Kerala have witnessed similar increases.
 
The large increase in price over a short period of time has met with an adverse response from the building industry. The Builders Association of India has called for intervention by the government in the form of import duty reductions and price regulation and the Department of Company Affairs has reportedly instituted an inquiry. The fact, however, remains that liberalization has done away with many of the instruments that the government has at its command to deal with cartels of the kind that have formed in the cement industry. Reform not only engenders monopoly, it provides greater leeway to oligopolistic firms to exercise their market power.
 
The difference between the situation in the cellular and cement industry is worth noting. Though a new industry, cellular operators have used the same strategy as the traditional oligopolistic groups that flourished during the import substitution years. Just as the traditional oligopolistic structure used the licensing system as a means to prevent the entry of new players into their bases of monopoly power, the cellular operators used the State including the official regulatory authority to preempt entry and charge tariffs that ensured high profits. The cement industry, on the other hand, has seen the emergence of oligopoly as a natural result of unbridled competition. And the withdrawal of the State in the wake of deregulation has helped those oligopolies to protect and increase their profits.
 
The cement experience suggests that even if recent policy decisions have helped reduce the strangehold over the market of the early entrants into the cellular industry and widen and intensify competition, this is no guarantee against subsequent oligopolisation. What remains to be seen is whether the reconstituted TRAI would be able to prevent those oligopolies, when they emerge, from reaping unfair benefits from their market power. Even if that happens, the lesson is clear. Markets freed by reform breed anti-competitive practices. The State must come in to prevent them, as it must in the case of cement.