Saturday, May 07, 2005

Where is the Level Playing Field?

The economic reforms that were initiated in 1991 were meant to dismantle the prevailing socialistic setup and replace it with a free market set up. The economy would be controlled by the forces of a free market as opposed to government control. That in itself is most surely a very progressive step. However, due care to provide a level playing field to all the players in the economy was ignored.

The reforms process resulted in the decrease or in some cases even the abolishment of quantitative restrictions on imports. This , among other reasons, led to a veritable flood of foreign goods and services into India. Multinational companies with deep pockets and established brand names have the ability to take losses for a while during which they market their products. Indian brands on the other hand, already long suffering from the license-permit raj of the socialistic setup, just cannot and could not face the competition. They are either forced out of the market or taken over by the multinationals. Remember Thums-Up being bought by Coca-Cola; 7'O Clock shaving blades made by the Malhotra group by Gillete.

All these MNC's such as Gillette, Pepsi, Coca-Cola, Hyundai etc themselves grew to the levels they were at because of domestic protections. They operated in free market conditions but for a long time these were protected free markets. There was internal competition within their own countries but no or very little competition from foreign companies because their governments had high import duties and other restrictions. It was only much later that these restrictions were dismantled. Whereas in the case of India, there was no such thing. For almost four decades after independence entrepreneurship was suppressed and then the flood gates were opened! How then can Indian companies,whatever be their size, hope to compete in such unfair conditions?

Most of the middle class and the affluent were ofcourse quite happy with this. And they have a good reason to be too. They have access to much better commodities and services now. But what about the urban and rural poor and the economy of the rural areas in general? I wonder how they have fared. I am begining to suspect life has gotten a lot more harder for them.

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