X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Economic freedom... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 28, 2001

    Economic freedom...

    According to the McKinsey prescription, removing regulations governing the product markets would add 2.3% growth to GDP, doing away with the distortions in the land market would add another 1.3% and divestment by the government 0.7%.

    The land markets reforms and divestments are certainly something that we agree with. Land market reforms would make one the most important input for businesses cheaper and thus, reduce the break-even point. On the other hand, the divestment process would take the burden of managing businesses off the government's back. Though the incumbent government has agreed in principle to this, it has not been able to do much on this. But the comforting thought is that the government sees the point.

    When it comes to product market reforms, McKinsey's argument is that regulations protect Indian organisations from competition and thus, productivity suffers. This undoubtedly is a very valid argument. To support its point the company has put forward the case of the automotive sector. The Indian government, as part of its 1991 economic reforms, relaxed licensing requirements for carmakers and restrictions on foreign entrants into the industry. Competition increased dramatically, and the old dominant players (Fiat and Ambassador) lost substantial market share.

    The government rules
    (April to July FY02) Sales Market share
    Daewoo Motors 6,436 3.3%
    Hyundai Motor India 30,772 15.7%
    Maruti Udyog 114,916 58.5%
    Telco 17,082 8.7%
    Hind Motors 5,719 2.9%
    Ind Auto 2,127 1.1%
    Honda Siel 2,939 1.5%
    General Motors 2,435 1.2%
    Ford India 13,467 6.9%
    Mercedez Benz 583 0.3%
    Total Cars 196,476 -

    Makes sense, but let us look at the players who have gained here - Telco, a part of the Tata group that is one of the oldest corporates in the country, Maruti that is semi-government, Daewoo and Hyundai that are multi-nationals. The point that we are trying to make is that all had resources, enormous amount of wealth for technology, marketing and for taking on competition. But it is not that this effort did not take its toll. Telco in its 56-year history reported losses for the first time.

    Small but so many
    Rs bn FY99 FY00 (Projected)
    No of units (m) 3.1 3.2
    Total production 5,275.0 5,784.7
    Average Turnover (Rs m) 1.7 1.8
    GDP 17,626.0 19,446.0
    % of GDP 29.9% 29.7%
    Exports 489.8 539.7
    % of total production 9.3% 9.3%
    Employment (m) 17.1 17.8

    Thus, the transition to a free market economy is not going to be an easy one. Only agile, alert and resilient organisations are going to survive. Thus, the onus is on the government to set the stage for the entry of the foreign competition. If the Indian industry, especially the SSI (small scale industry), is going to take on foreign competition, the least the government can do is create a level playing field. The government needs to be very careful. Considering that the contribution of the SSI to the GDP is almost 30% and provides employment to 61% of the non-agricultural work force of the population. If this segment cannot compete because of structural inefficiencies, this will have a negative impact on the economy. It's about time the government got its own act together.

    The problem that hurts these industries the most is structural inefficiencies. Capital has to be available easily and to the right kind of projects and people. There were 0.3 m (10% of total units) sick SSI units as on 31st March, 1999. Interestingly these units were those, which had obtained loans from banks. An amount of Rs 43 bn was blocked in these units. Of this only 6% (18,692 units) were considered potentially viable by the banks with their outstanding credit of Rs 3.7 bn.

    The second issue that the government needs to do is to address the issue of corruption. Due to the small size of these industries they are at the mercy of inspectors and various government officials. The money they would have to pay to keep these officials happy would have to be passed on to their consumers. This would make them less competitive. Also, technology has become central to business strategy. The government has to handhold these industries to move quickly from obsolete technologies, to those essential to survive competition today.

    While the government can only set the playing field right, it is the industry that has to play. It is not a question of 'if', but rather it is 'when' the regulations will go. The writing on the wall is very clear, there is no sense complaining when you got a job to do. And that job is ensuring India's economic freedom by being the best against global competition.

    "The time is ripe for people of India to embark on an economic freedom movement with the same fervour and the same intensity as we did on a different kind of freedom movement about 50 years ago. This movement must be led by entrepreneurs who create jobs and companies."

    Dr. Suhas Patil, is the founder and chairman emeritus of Cirrus Logic

     

     

    Equitymaster requests your view! Post a comment on "Economic freedom...". Click here!

      
     

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    MARKET STATS