Posted in: Percival's Corner Posted by: P S Billimoria
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“Liberalisation” is a favourite word being bandied about the National Press. What it means is the dismantling of controls, by making economic legislation less stringent. The objective of liberalisation is to move from a regulated economy to one governed by free market forces.
In India, nothing can be done without Government approval. An industrial licence is required to start’ most industries. Large units wanting to expand need approval. Sick units wanting to close shop cannot do so without permission. Even appointment of managerial personnel needs approval. In other words, the decision-making powers are in the hands of the bureaucracy rather than the business community. Such a system has two serious flaws. Firstly, the businessman, having a personal stake in the venture is more likely to make the right decisions, than the myopic, cud-chewing bureaucrat. For instance, no businessman would keep running a unit which is consistently losing money. However, there are thousands of such sick units kept alive by the bureaucrats, merely because the closing down of such units would result in unemployment. This futile attempt to solve, what is actually a social problem, by a short-term economic solution, results in the locking up of scarce capital in unviable and inefficient companies. Perhaps, if the capital was withdrawn and reinvested in other more efficient units, it would generate employment for a larger section of the populace. But such pragmatic decision making is beyond the understanding of the morons who frequent the corridors of power.
The second reason why controls are undesirable is that they result in wide spread corruption. Every bureaucrat has his price and the businessman is quite adept at “getting things done” in this manner.
Given the pitfalls described above, it makes eminent sense to dismantle controls. Quite naturally, the bureaucracy has reason to be aggrieved by the process of liberalisation, since it erodes their powers (and consequently also their incidental earnings). I’m of the opinion that the Prime Minister is being prevented by the bureaucracy from bringing in liberalisation at a faster pace.
However that is not the whole story. Strange as it may sound industrialists themselves have a vested interest in maintaining controls. This is because liberalisation also implies increased competition for which Indian industry is simply not geared. For instance when the import of capital goods was liberalised, the indigenous industry raised………….