Gains from market reforms
By V. S. Mahajan

THE nineties have been quite different from other decades. During this period of foundations of India’s modern market economy were laid. There have been vast changes in technology, especially in the area of infoteck, where we stand firmly with the world community and are capable of competing with any advanced player. This has been singular largest achievement for this country, where every metropolis as well as small towns are now well-knit, both nationally and globally. We have also created a vast network of training facility, benefiting a large number of young people. Several of them at present are drawing salaries comparable with the international market.

In telecom area, too, we have made vast changes. In fact the emergence of private sector in this area has resulted in agreeable changes that have benefited enormously the whole community. Here also we have moved close to world circuit and have made steady progress within this short span despite several constraints, which itself is a good indicator of our quick response to this very important sector.

When we move to consumer goods sector, we never had it so good all these years. In fact in consumer durables, for pretty long we had a very restricted area of production, where just a few manufacturers primarily controlled the whole market and consumers had very little choice but to buy from these manufacturers who often charged high price for products far below the world technology.

Particularly in transport segment, consumers were faced with very limited range of vehicles and often they had to wait for long time to get vehicles of their choice, and had to pay hefty premium in case they wanted these out of turn. While customers fondly looked to small cars, the government policy of encouraging only a single manufacturer, Maruti, made it difficult for another manufacturer to enter the market. No new licence was given. Thus Maruti commanded a hefty premium with a long waiting list which caused considerable inconvenience to the public.

Now one can just walk in any showroom and get a car of one’s choice. No waiting. No premium. Even finance is arranged and one has to clear it in easy instalments, which also helps to escape tax liability.

The case of scooters and mobikes is even more attractive. The latest world class brands incorporating all the latest facilities are so very easily available. In fact dealers are so keen to attract customers that they offer several facilities apart from interest-free credit.

No surprise then, with such development the country’s major roads, especially in the metropolises, are now far more crowded. In fact emergence of such traffic would help to pay good attention to roads, their widening, better maintenance and emergence of flyovers.

Modernisation of the consumer sector has also brought about tremendous change in the living style where latest gadgets have found easy access to make life more comfortable and pressure free. Take washing machine, where the lastest model virtually takes care of a family’s entire washing problem, and the housewife is just free to watch television or attend to any other job while the washing machine is performing its job. Similar is the case with several other latest gadgets which have made life both in kitchen and outside quite comfortable.

There has also been a revolution in soft and hard drinks, where several quality varieties are now easily available at affordable prices. In fact in both these areas (quality and price) there has been a sea change compared with pre-globalisation period.

All this clearly points at multiple advantages that have been there after opening the Indian market to global capital and manufacturers. Earlier, because of limitation of resources as well latest know-how, it was not possible to effect structural change in the mode of production. Now with the opening of the Indian market to multinationals and others, direct investment has taken place in several areas. Not only has there been a liberal flow of resources, more importantly latest technology, know-how in several areas have also flowed in abundantly, bringing large gains to the country and consumers.

As Arthur Lewis, noted development economist, had pointed out long back that every growth has its price. The price that this country had to pay for this growth witnessed in the current decade, is its side-effect on domestic manufacturers, who had for so many years failed to move with time in accordance with the world market situation, and felt quite satisfied with the protected domestic market. They have been the first casualty after the introduction of reforms.

Several of them have not liked these reforms as these have adversely affected their production as well access to the market. Those who have failed to rise to the occasion have naturally been let down with quite a few of them either closing down or shifting to other lines of production or even merging with other better placed units.

In such a category there are a large number of small units who earlier thrived as independent producers or were integral part of large units. Lately they have been facing quite a tough time, despite support rendered by the government and financial institutions. Particularly the banking sector, which, prior to reforms was under obligation to lend credit to small units at nominal interest rate, is no longer under such obligation.

In fact prior to the recent banking sector reform, it was reckless lending to priority sector, including small units at the behest of politicians who often organised loan melas to boost their party image, that had resulted in the accumulation of non-productive assets, which had eroded viability and profitability of these institutions.

Certainly, this situation in the name of priority sector lending, when recovery became the major problem could not go on indefinitely without harming the interest of banking sector.

The lesson is that these small units should improve their functioning and stand on their own, which is a far more effective solution. In fact quite a number of such units have already realised this fact and adjusting them accordingly. In this country’s vast national market there is a large scope for these units, particularly subsidiary to large ones. We could in this country learn from advanced economies, adopt similar means to modernise small sector and integrate it effectively with large units which, in turn, would be happy to subcontract part of their production to small units.

Another major hinderance foreign investors face is that while they obtain clearance from the centre, they face a lot of difficulty from the state administration, where the project has be located, particularly when the state government is controlled by a political party other than at the Centre. We know too well what has happened in Maharashtra, the most potential state for foreign investment’s were because of several hinderances raised by the state government we lost much of long-term investment.

Another problem that foreigners face is that no government at the Centre has been able to promise transparency of such investment over a long period. Foreigners would not like to risk their investment when they were not sure of (a) tenure of a present government at the centre and (b) long-term assurance about the safety of such investment where terms and conditions were not tamped later.

When these problems are faced in case of urban development, one can well imagine the situation in rural areas. It is often pointed out that foreigners have shied away from development in rural areas particularly in infrastructure.

Recently there has been change in the attitude of the administration. Bureaucrats are no longer that rigid they were earlier. They have gradually realised that loss-sustaining public sector ventures which had interested them earlier are no longer a solution to the country’s rapid development. Rather these should be closed down or made more effectively functioning if the country had to catch with changing times. As a result these bureaucrats, particularly the younger lot, are quite keen on attracting long-term investment in key areas and use rules and regulations.