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Economic Highlights
Rise Of Indian Economy:Entering Trillion Dollar Club, by Dr. Vinod Mehta,3 May 2007 |
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Economic
Highlights
New Delhi, 3 May 2007
Rise Of Indian Economy
Entering Trillion Dollar Club
By Dr. Vinod Mehta
Last week India joined what is known as the
“trillion dollar economy club” as its “eleventh member”, as per the calculation
of a Swiss firm, Credit Suisse financial services conglomerate. The other “members” of the “club” are the USA, Japan,
Germany, China, the UK,
France, Italy, Spain,
Canada and Brazil. The push came when rupee
appreciated vis-à-vis US dollar; the GDP of Rs. 41,00,000 crore when translated
into US dollar at the current rate of exchange gives the figure of 1.01
trillion dollars.
This is not surprising
considering nine per cent growth rate, booming stock market and positive
economic sentiments. In fact economists,
financial and investment experts from the developed countries, who have been
closely assessing the economic developments in India, are upbeat about the Indian
economy.
Three months ago Gerard Walsh,
Regional Director for Asia at the Economist Intelligence Unit in London, had said that India was already on the threshold
of a dollar one trillion economy. According to a report prepared by investment
bank Goldman Sachs, if this high growth rate continues, India's economy may then surpass the US
and be second only to China's
by mid-century. The report also says that India's programme of reforms has
brought increased competition and efficiency.
Professor
John Williamson of the Institute for International Economics in Washington observed
in his keynote address on “The Rise
of the Indian Economy” during a two-day seminar on "Teaching About
India," held in March 2006, in USA: “I see little reason so far to think
that the Indian growth rate is currently above 6-7 per cent on a trend basis,
but that's a lot higher than most countries have achieved for long periods of
time. It is high enough to take India
into the first world in the course of some of our lifetimes. I do not see this
as a threat to the United
States in any event. For all the jobs that
are being outsourced to India,
there's some outsourcing in the opposite direction, opportunities that are only
going to increase as India
grows richer. So the outlook is basically optimistic.”
Various studies conducted across
the globe envisage India and
China
to rule the world in the 21st century.
According to some experts, the share of the US
in world GDP is expected to fall from 21 per cent to 18 per cent and that of India to rise from 6 per cent to 11 per cent in
2025, and hence the latter will emerge as the third pole in the global economy
after the US and China.
Again economic experts have
projected that by 2035 the Indian economy will be about 60 per cent the size of
the US
economy. “The transformation into a tri-polar economy will be complete by 2035,
with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India
is likely to be a larger growth driver than the six largest countries in the
EU, though its impact will be a little over half that of the US.”
But there is also a flip side to
this current success story and if
not handled properly could take back India once again to low growth rate of
four per cent (the so called Hindu rate of growth) and perhaps to social
upheaval. There are contradictions galore behind this success story. As
a write up in Christian Science Monitor noted: India has had nearly 60 years free
of famine, growing enough food for its 1.1 billion people. Yet nearly 40 per cent
of its vegetables rot in warehouses before reaching market. The country has a
space programme, yet 30 per cent of the population lives on less than $1 a day; 78 per cent on less than $2. No wonder this years budgetary proposals
have rightly emphasized inclusive growth.
The economic growth has so far
benefited the rich and the middle class.
There are specific economic programmes for the poor people. But a vast majority of the people who fall
between the middle class and the poor people and can be said to belong to
informal sector have not benefited to any significant extent. These are the people all over India
working as migrant workers in big cities and towns with their families back in
villages.
When the economy grew by 6
percent from 1995 to 2005, the growth passed
them over. During this time, poverty in India fell by only 0.8 percent,
according to a study by the National Sample Survey Organization. These are the
people who are not even allowed to open a bank account because they cannot
furnish permanent residential proof in the city where they are working; these
are the people who do not have access
to insurance, to housing etc. And we are
talking of financial sector reforms!
Children of rich and middle class have access
to good education because their parents can afford it; these children are
equipped better to take advantage of job opportunities in the economy than the
children studying in government and municipal schools. The education standards are so poor in state-run
schools that the children coming out of these schools find themselves
unemployable. How many of the children
from these schools have become IT professionals,
bankers, investment advisers or managers or lawyers? The education in government and municipal
schools needs to be brought on par with education in private schools so that
the products of these schools can also take advantage of the economic
opportunities being thrown up by high economic growth.
So far the IT sector has been the
major contributor to India’s
success story in terms of employment
generation. The jobs in this sector will
continue to grow and it is feared that India may face shortage of trained
manpower, but the problem is that one cannot just transfer farm hands and
people working in the informal sector to IT sector. Only the manufacturing sector has the ability
to absorb these people to start with. It
is only now that the manufacturing sector has started growing. Efforts are needed to facilitate the movement
of these sections of people to the organized manufacturing sector.
The other contradiction is
country's poor infrastructure which is already struggling to keep up with
growth; power cuts are common as there isn't enough electricity to meet current
demand, ports are overflowing, many roads are pot-holed and crumbling. It has been noticed that India's roads and power grids are
ill-equipped to handle the strain of a manufacturing economy.
China has already completed half of
an 80,000 km national dual carriage highway network. India has at present only about
5,000 km of comparable standard highways. Chinese ports and airports have much
greater capacity and are more efficient than India’s. In fact India has under-invested in
infrastructure and is now facing obstacles to broadening and deepening its
growth process as a result. India You wish to make Mumbai a world financial
hub but how will the financial institutions function in Mumbai with everyday
power cuts?
Finally the agricultural sector
calls for special attention. More than
58 per cent of country's population depends on agriculture, a sector producing
only 22 per cent of GDP. However, the full potential of Indian agriculture as a
profitable activity hasn't been realized yet. Agriculture upliftment will not
only benefit farmers and a large section of the rural poor, but also will give
fillip to overall growth of the economy through the backward and forward
linkages of agriculture with the rest of the economy.
Time is running out and India
has to move fast to tackle the obvious contradictions to remain “member” of the
“trillion dollar club.”---INFA
(Copyright,
India News and Feature Alliance)
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Keep Pace with Growth:REFORM ADMINISTRATION FOR RESULTS, by Dr. Vinod Mehta,19 April 2007 |
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Economic
Highlights
New Delhi,
19 April 2007
Keep Pace with Growth
REFORM ADMINISTRATION FOR RESULTS
By Dr. Vinod Mehta
Economic reforms were initiated 15
years ago, but successive
governments are still struggling to start reforming the administration, which
has become anarchism by world standards.
The governments are not keeping pace with the high economic growth rate.
Worse, in many cases they appear to be coming in the way of economic reforms.
The bureaucracy is unable to shed its old mindset. There is no initiative to
introduce police reforms; the jail manual is as old as 1861; an officer is
promoted over his 20 seniors one fine day with no justification and so on. All this is leading to confusion, heart
burning and low morale within the bureaucracy. Those who want to do something
feel frustrated.
This imbalance in the reform
process is creating problems and the
Government is unable to implement its schemes.
Reforms in administration essentially mean transparency and putting an end to
inefficiency and red tapism in governance. The second administrative reforms
commission headed by Veerappa Moilly
is looking into all of it. However, implementation of its recommendations at
the earliest is was is required.
The APEC
economies (consisting of Australia
and Asian countries) are implementing wide-ranging regulatory and
administrative reforms, resulting in improved market access,
increased efficiency and reduced impediments to competition and innovation.
According to studies, the reforms have generated large reductions in compliance
and administrative costs, and in some cases have underpinned far-reaching
domestic reforms that have significantly improved efficiency across a range of sectors. So, if administrative reforms
can benefit the APEC economies’ economically, why not us?
The Prime Minister is quite aware
of the imbalance between economic and administrative reforms. Delivery
mechanisms are weak. Transfer of bureaucrats, often and without any reasons,
has affected their morale, forcing him to personally supervise administrative
reforms. One only hopes that he would be able to set things right.
It is common knowledge that
decisions are taken but seldom implemented. Difficult decisions are glossed over by referring these to fresh committees. There are too many layers of hierarchy, affecting
the smooth functioning of administration; files keep hopping from one desk to
another, back and forth, without any meaningful addition to the decision-making
process.
Office rules and procedures are
outdated and clearly hampering the functioning of various government offices. Discipline
amongst employees is very bad. Citizens
are simply fed up with the administration. The Right to Information and
creation of websites will not help unless
mindsets and official procedures are also changed.
Therefore, it is time to introduce
administrative reforms without further delay.
Already a number of committees have made recommendations, which need to
be implemented with all seriousness.
For instance, the report of the Fifth Pay Commission’s
far reaching recommendations regarding administrative reforms.
But instead of accepting the
report in toto, the Government only
accepted populist recommendations! So we have an absurd situation, where
recommendations on pay-scales is accepted, but suggestions on a freeze on fresh
appointments, downsizing of the bureaucracy, simplification of office
procedures etc. are ignored. This makes baloney of the whole report and some
bureaucrats are of the firm opinion that the report should have been accepted in
full.
In simple words, if
recommendations regarding administrative reforms were not acceptable to the
employees, those regarding pay-scales should not have been accepted. The latter
led to heavy expenditure on the non-Plan side and the financial condition of
some States which implemented the pay-scales is in bad shape.
Also, the bureaucratic structure
in the country is not officer-oriented and is rather heavy at the bottom. Once
their jobs are permanent, the employees rarely show any interest in their
work. There is growing public opinion
that work should be outsourced at the lower level on a contractual basis as
there is no need to have a permanent cadre at that level. Some even believe
that the higher posts too should be given out on contractual basis!
Another disturbing factor is that
over the years the bureaucratic structure has been highly politicized. Interference from political leaders in
bureaucrats’ postings has not only vitiated the work atmosphere, but has also
led to a growing indifference towards work amongst them. Fixed tenure of
postings for bureaucrats may be the answer to this anomaly, feel experts.
Then there is the question of
training and retraining of government employees from top to bottom. It is
common knowledge that people from different social backgrounds, enter the
services at various levels and one cannot expect similar kind of behaviour from
all. Senior officers with middle-class background appear to have some sophistication,
but live in their own cocoons, while those coming from the lower strata of
society are relatively crude while dealing with the public. Therefore, proper
training of employees becomes all the more important to achieve results.
In fact, there is an emerging
view that politicians too need training in administrative matters to enable
them to understand the problems of administration. A case in point is that of France -- all
the politicians are expected to clear a course on administrative matters before
they are entrusted to handle the Ministries.
Besides, opinion is growing that instead
of the "general administrator" there should be the "specialist
administrator", who knows what he/she is expected to do in their
area. Today, bureaucrats are made to
move, say, from the Department of Animal Husbandry to that of Education,
followed by Commerce and health etc. In the process,
the incumbent has no specialist knowledge in the area he is assigned.
As for the Government, it is equally
important that in the interest of better administration, it should not put its
finger in all the pies. It should ask itself whether it is really its concern.
If not, then the Government should not get involved. But if it is its concern,
then the next question to be asked is whether it should be done by the
government or by some other organization, say an NGO or an autonomous
body. This way the government can save
itself from undertaking irrelevant and unnecessary
work.
In sum, it is time to initiate
reforms in administration, which go in line with the economic reforms. And,
while the Administrative Reforms Commission
is looking into this question and the Sixth Pay Commission
into pay and productivity, the bottom
line is how soon can we implement the reforms.—INFA
(Copyright, India
News and Feature Alliance)
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Reserve Bank’s Role:Controlling Inflation Canadian Style, by Dr. Vinod Mehta, 12 April 2007 |
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Economic Highlights
New
Delhi, 12 April 2007
Reserve Bank’s Role
Controlling
Inflation Canadian Style
By Dr. Vinod Mehta
Inflation has been a worldwide problem and most of
the governments across the world have
to tackle it one way or the other as it not only erodes the real incomes of the
people but also hurts the economy over a period of time. Moderate Inflation
rate of two to three per cent may be tolerable but inflation rate going beyond
five per cent becomes a political hot
potato.
President Jimmy Carter was seriously
bothered about inflation during his Presidency.
In a televised speech on October 24, 1978, he said: “I want to have a
frank talk with you tonight about our most serious domestic problem. That
problem is inflation. Inflation can threaten all the economic gains we've made,
and it can stand in the way of what we want to achieve in the future. “This has
been a long-time threat. For the last 10 years, the annual inflation rate in
the United States
has averaged 6-1/2 percent. And during the 3 years before my inauguration, it
had increased to an average of eight percent.
“Inflation has, therefore, been a
serious problem for me ever since I became president. We've tried to control
it, but we have not been successful.
It's time for all of us to make a greater and more coordinated effort. “If
inflation gets worse, several things will happen. Your purchasing power will
continue to decline, and most of the burden will fall on those who can least
afford it. Our national productivity will suffer. The value of our dollar will
continue to fall in world trade.”
Inflation continued and Jimmy Carter did not get the second term.
China has also been bothered by
this problem. In Vietnam, which is considered to be “emerging China”, consumer prices in
the first eight months of 2006 rose from 4.8%, mainly prompted by high fuel
prices and interest rate-driven high production costs, to 7.5%.
In India too the rate of inflation was
around 17% in 1991, which was brought down to the level of seven per cent in
1993. As recently as 2004 the rate of
inflation was around six per cent. And
most of the time the Reserve Bank of India has responded by restricting
money supply as all the Central Bankers do.
The problem at the moment is that
inflation has raised its ugly head at a time when the economy is growing at the
rate of about nine per cent and the Government fears that any hike in interest
rates and credit curbs would lead to a decline in growth rates. For instance, a hike in the interest rates
for home loans or car loans will lead to decreased demand for homes and cars
which in turn will affect the growth rate of vehicle and construction
industries. Higher interest rates would
also add to the cost of production when the loans are taken by the business and finally affect the growth rate. It appears that in India the Government and the
Central Bank do not see eye to eye on the ways to curb inflation; this is also
true of many other countries.
But the Central Bank and the Government
in Canada
have found a way to cooperate in keeping the inflation under control. The Government of Canada and the Central Bank
of Canada have developed “inflation-targeting framework” Instead of working at cross purposes both the Government and the Central Bank have signed a kind of MoU
to keep the inflation under control.
This has been going on for the past 15 years and this agreement is
signed every five years.
To quote from their recent Joint
Statement: “The primary objective of Canada's monetary policy is to enhance the well-being of Canadians by
contributing to sustained economic growth, rising levels of employment and
improved living standards. Experience has clearly shown that the best way
monetary policy can achieve this goal is by giving Canadian households and
businesses confidence in the value
of their money.
“It has
been 15 years since Canada
adopted an inflation-targeting framework to guide its monetary policy. During
this time, Consumer Price Index (CPI) inflation has been reduced to a low,
stable and predictable level of close to 2 per cent, real output has expanded
at an average rate of 3 per cent per year and the unemployment rate has fallen
to a 30-year low. Although a generally supportive international environment,
coupled with significant domestic economic reforms and a prudent fiscal policy
track, has played an important role in these positive developments, a key
contributor has been Canada's
monetary policy under the inflation-targeting framework.
The joint commitment
of the Government of Canada and the Bank of Canada to the inflation targets has
helped anchor inflation expectations. It has also provided a more stable and
certain economic environment in which Canadians can make their investment and
spending decisions.”
This agreement has
been further extended by five years up to 2011.
As per the renewed agreement, the target will continue to be defined in
terms of the 12-month rate of change in the total CPI (Consumer Price Index)
and the inflation target will continue to be the 2 per cent mid-point of the 1
to 3 per cent inflation-control range.
The first such agreement was signed
in 1991 when the rate of inflation in Canada was 5.9 per cent. The
rate now ranges around two per cent.
Canada has found that inflation-control target assists the Central Bank in determining what monetary policy actions are needed in the short and medium term to
maintain a relatively stable price environment.
To achieve a rate of monetary expansion consistent with the target
range, the Bank of Canada uses its influence on short-term interest rates.
If inflation is moving
towards the top of the 1 to 3 per cent target range, that is usually a sign
that demand in the economy for goods and services needs to be restrained
through a rise in interest rates.
If inflation is moving towards the bottom of the range, it is often a sign that
demand is low and needs some support through a reduction in interest rates.
In this way, Canadian experience shows,
monetary policy tied to an
inflation-control target tends to act as a growth stabilizer. Ensuring economic
growth at a sustainable pace means preserving past gains by avoiding a
recurrence of the inflationary "boom-and-bust" cycles of the early
1980s and 1990s. It also means encouraging long-term investment in future
growth and job creation by maintaining a stable, low-inflation environment.
The lesson
from the Canadian experience is that the Reserve Bank should not act only when
the inflation rate goes out of hand but act throughout the year by way of inflation-control
target shows. This is a sure way to avoid recession which tight money policy (severe curbs on credit
creation, higher interest rates etc.) may bring.
The Ministry of Finance and the
Reserve Bank of India
should sit across the table and
develop inflation targeting framework. The need of the hour is to preserve
higher growth rate with moderate inflation over a longer period of time. In the 1990s the tight monetary policy of the
RBI to control inflation, which was raging at seven per cent, led to severe
recession; that needs to be avoided
now.---INFA
(Copyright,
India News and Feature Alliance)
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Remove Barriers:Indo-Pak Trade Should Grow,by Dr. Vinod Mehta, 5 April 2007 |
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Economic Highlights
New Delhi, 5 April 2007
Remove Barriers
Indo-Pak Trade Should Grow
By Dr. Vinod Mehta
After
the 2004 SAARC summit in Islamabad
and the meeting between the Prime Minister of India and the President of
Pakistan, there were positive indications that direct trade between the two
countries would grow in the coming years.
At that time Pakistan
was reported to have said that it was willing to give MFN plus (whatever it may
mean) status to India.
But till date Pakistan
has not moved an inch in that direction.
After
nuclear tests by the two countries, while India
has been able to maintain its growth rate at around six per cent then and
increase it to nine per cent today, Pakistan suffered a decline to 3.1
per cent in 1999 against 5 per cent in 1998. Pakistan’s GDP growth rate in the
year 2002 was placed at 2.8 per cent. The steep fall was attributed to fall in
exports and in investment. The economic
sanctions imposed by the Western countries following nuclear tests had affected
Pakistan the most, as
compared to India.
According
to a report prepared by the Centre for Strategic and International Studies, Pakistan, the
nuclear test precipitated a balance of payment crisis and near default on its
external debt. It further stated:
"The Pakistani economy, unlike India’s, faced an immediate foreign
debt crisis. A US dollar 1.56 billion loan from the International Monetary Fund
helped stave of default and stabilize the country’s external financing
position."
But
now Pakistan’s
economy is also growing at a very fast pace, overcoming the debilitating impact
of economic sanctions. According to Dawn,
“Pakistan’s economy is on the up and business is booming. In 2005,
the GDP growth rate hit 8.4%, which was the fastest growth rate achieved in
over two decades, and per capita income has now surpassed the US$ 700 mark.
Adding to the buoyancy is the fact that growth is taking place
across all sectors of the economy, including agriculture (7.5%), manufacturing
(12.5%) and services (7.9%). As a result, Pakistan
is now counted among the fastest growing economies in Asia.” According to Pakistani newspapers, Pakistan is the third fastest growing economy in
Asia after China and India.
In
2002 Pakistan
exported goods worth US $ 11 billion and imported goods worth US $ 11.6
billion. As for India, it
exported goods worth 65.2 million US $ and imported worth 73.7 million US $ in
the same year. Pakistan's major export items are cotton, fabrics and yarn, rice
and other agricultural products while its imports consist of machinery,
petroleum products, chemicals, transport equipment, edible oil and grains,
pulses and flour.
As
far as trade between India
and Pakistan
is concerned, it is not much by world standards. According to available data,
the bilateral trade between the two countries has increased almost 14 times
between 1987-88 and 1998-99; in absolute terms it increased from Rs 47.15 crore
to Rs 463.92 crore during this period. This is what is legal trade between the
two countries either on Government to Government basis or between two private
organizations of the two countries.
However,
much of the trade between India
and Pakistan is being routed
through a third country generally countries from the middle-east are South-East Asia. It is estimated that the trade between India and Pakistan through a third country
has increased from about US $ one billion to US $ two billion in the past few
years. If this could be converted into
direct trade both would gain a lot.
The
older generation would recall that before the partition, the fertile
agricultural areas, which are now in Pakistan,
were areas which produced surpluses in the agricultural sector and supplied
them as raw materials to industries which were in this part of undivided India. This
complimentarity relatively speaking still stands. If this was to be revived India would get
the raw materials still relatively cheap at international prices as the
transport costs between the two countries will be much lower.
In
fact, since the two countries are contiguous, freight charges of any commodity
that moves between the two countries will be much lower whether they are
transported by ship or by rail.
Therefore, if they open up their economies to each other, they would be
able to satisfy each other's demand at much lower prices.
It
is common knowledge that there is a great demand for commodities like tea,
tyres and iron ore in Pakistan. India
is well placed to sell these items directly to Pakistan. But Pakistan
at the moment imports tea from countries as far as Kenya,
iron ore from Australia and Argentina while Indian tyres are either smuggled
or imported via Dubai and Singapore. All
these items can be easily purchased by Pakistan
from India
directly at much lower prices. India
on the other hand would still be interested in procuring apart from Sugar goods
such as cotton and textiles, moulded plastic goods, fresh and processed
agricultural produce, spices, cooking oil etc. directly from Pakistan.
If
one goes beyond this India
can meet Pakistan's demand
for various kinds of machinery and equipment, including transport equipment,
extend help in the modernization of its railways while India in turn can buy power from Pakistan.
Apart
from trade in merchandise both the countries can benefit from trade in
services, especially in the tourist sector.
As a confidence building measure why not start one day conducted tours
from Amritsar to Lahore and vice-versa. One day inter-country-inter-city tours are
quite common in Europe. The tourist industry of the two countries too
will gain much from the regulated movement of tourists.
It
has been generally argued in Pakistan
that opening up of its economy would hurt its industry and business. But one can counter-question Pakistan that if opening up of its economy to China has not
hurt it, how could opening up to Indian economy will hurt its economic
interests? The argument as advanced by some groups in Pakistan in
defence of its industry is not valid. India has already extended MFN status to Pakistan. It is now for Pakistan to decide whether it wants
to reciprocate in the same manner. The sooner the better.
Apart
from Iran-Pakistan-India gas proposed gas pipeline, If the business grows India and Pakistan
may also think of a gas pipeline from Turkmenistan
via Afghanistan.
The Turkmen gas will be the cheapest even after paying to Afghanistan and Pakistan
the royalty/fee for transit to India.
Similarly Pakistan has a
number of products to offer, including dry and fresh fruit to India. It is
also interested in selling electricity to India.
According to a report prepared by Indian Council for
Research on International Economic Relations (ICRIER), trade between India and Pakistan
could increase manifold, to US $ 6.6 billion, if barriers are removed and Pakistan
implements the requirements of the South Asia Free Trade Area (SAFTA)
agreement. The World Bank Chief believes that the trade between India and Pakistan has the potential to grow
to US $ nine billion.
The sectors identified by the ICRIER report for trade
between India and Pakistan are
textiles, agriculture, engineering, chemicals, pharmaceuticals, electronics,
metals and minerals, rubber and plastic. In addition, there is scope for trade
in several services such as health, entertainment, IT, energy and tourism, the
report concludes.---INFA
(Copyright,
India News and Feature Alliance)
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Despite Reforms…:Small Sector Survives Competition, by Dr. Vinod Mehta, 29 March 2007 |
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Economic Highlights
New Delhi, 29 March 2007
Despite Reforms…
Small
Sector Survives Competition
By Dr. Vinod Mehta
More
than a decade ago the Abid Hussain Committee had recommended de-reseravation of
the small sector on the economic consideration of efficiency, economies of
scale and use of modern technology. The
Committee never recommended the wounding up of the small sector, but still
doubts persisted. As for as the small
scale sector is concerned there are always the same stereotyped stories like
the entry of large sector and multinationals will spell ruin for them.
After
one and a half decade of economic reforms one can say that the small, as well
as the tiny and the unorganized sectors have responded and are responding well
to the challenges not only of the large domestic industrial sector but also of
the multinational corporations. Short of entering into an expensive and
sometimes unwinable advertising wars, the small, the tiny and the unorganized
sectors are concentrating on quality aspects of marketing to retain and expand
their share of the market. These are the
stories coming out of small and medium towns of India.
Before
we dwell on this, let us be clear about three points. First, as the economic historian would say
that when the market is growing, in a very general way every manufacturer finds
that the absolute demand for its product is also growing whether the
manufacturer is a multinational company or a small-scale sector firm; putting
it differently, along with an increase in the demand of a commodity, the demand
for its substitutes also grows. For
instance, if the demand for multinational soft drink grows, the demand for
lemonade produced in the small sector also grows; if the multinationals
advertise for biscuits, the tiny sector finds that its sales of biscuits are
also growing.
Second,
we always perceive one monolithic market for one kind of product. But reality is somewhat different. For practical purposes market can be broadly
divided into two categories---market of individual or family buyers and market
of institutional buyers (like hotels, hotels, canteens, offices, establishments
etc.). The individual buyers usually buy things in small quantities while
institutional buyers buy in bulk; the institutional buyer is relatively more
cost conscious than an individual buyer.
Again in the case of an individual or a family buyer it is the carry
home pay which generally determines its demand pattern.
Finally,
within these two broad categories of markets, namely individual and
institutional, there are various layers of markets catering to different
segments of people and institutions. For
instance, both a five star hotel restaurant and a dhaba need edible oil for
cooking purposes but both will use different quality of edible oil, and hence
their sources of procurement would be different. The products of multinationals and large
industrial houses may appeal to the people of upper income brackets and to the
institutions patronized by them, the vast majority will still be attracted to
goods which are relatively cheaper and produced in the small sector.
With
these initial observations, we can now go into the changes that are occurring
in the small scale sector. One of the consequences of liberal economic policies
has been that both the consumers and the manufacturers of producers have
suddenly become conscious of quality. The consumers from all income brackets
are now demanding quality products at competitive prices. The small scale sector including the tiny
sector have started responding to this by improving the quality of their
products.
From
biscuits and other bakery products to readymade garments to food processors and
coolers one can see significant improvement in the quality of their
products---in some products the improvement is more and in some others it is
less. But the most important fact is
that the small-scale sector has come to realize that it cannot survive without
improving the quality of its products and that it has to be constantly
innovative. Since these units cannot
advertise their products, one has to see for oneself the quality of their
products in actual shops.
The
second consequence of liberalization for the small-scale sector has been that
it has now started playing serious attention to packaging. The goods are now being packed by the
small-scale and tiny sector in colourful attractive packages whether it is
biscuits or bread, a shirt or a jean, a bath soap or detergent powder. The individual shopkeepers of groceries can
now be seen cleaning bulk products like pulses and packaging them in convenient
packs for retail sale. Similarly, new
garments being sold on the roadside are being packed in a way they are packed
in big stores. Many of the things which
the shopkeepers used to weigh in front of us are today sold in a pre-packaged
form.
Thirdly,
the small and the tiny sector has also started using brand names for their
products even if they find difficult to advertise them. That is to say the small-scale sector has
also started attempting product differentiation. Though these brands are seldom advertised,
yet the small-scale sector is attempting to build its own brand following, even
though in many cases it is limited to a particular territory. For instance, a few years ago the citizens of
Delhi could buy
bread made either by one of the two big manufacturers or from one of the
numerous small bakeries. But in the past
ten years apart from the two big manufacturers in Delhi, a large number of other branded breads
from the small-scale sector are being sold in large numbers.
Fourthly,
the concept of neighbourhood provision stores is slowly giving way to
supermarkets of all kinds where all the products for sale are displayed on the
shelves and one finds the products of small-sale sector getting the same
exposure as the products of large sector leaving it to the consumer to make up
its mind.
This
was not possible under the old provision store concept where one had to demand
an item by name. The arrival of the concept of supermarket has brought the
unadvertised products of small sector on the open shelves for the public to
choose from.
As
for as non-food sector is concerned, the small-scale units are upgrading their
technical base with the help of large companies with which they may have
backward linkages like auto parts. Since
large companies outsource the manufacture of their small components they also
maintain quality control by helping those units buy and assimilate new
technologies. In these kinds of backward
linkages the small-scale units do not have to worry about their sale targets.
There
are some problems with the small-scale units in rural areas as their demand
base is limited to a few nearby villages and have almost no forward linkages
with large companies to sustain them
There is an urgent need to study the impact of economic reforms on small
scale and tiny units in rural areas and then devise policy measures to help
them to sustain themselves.
Therefore,
generally speaking, the small scale sector, far from being overawed by the
multinational corporations and by the large domestic sector has not only
changed but is still continuing to change with the times, adopting new
approaches and strategies to stay put in the vast Indian market. Going by the experience of past 15 years,
competition from MNCs and large domestic companies has not spelt death knell of
the small sector and if the country were to fully dereserve the small sector,
it would not only survive but become more robust.---INFA
(Copyright, India News and Feature Alliance)
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