GS Paper 3
Syllabus: Effects of Liberalisation on the Economy, Changes in Industrial Policy and Their Effects on Industrial Growth
Source: TH
Context: The biggest of India’s big businesses seem to be thriving.
Data regarding India’s big businesses: According to a former RBI Deputy Governor’s report,
- The share of assets in the non-financial sectors owned by the Big-5 business groups has risen from 10% to 18% between 1991-2021.
- Whereas the share of the next five has fallen from 18% to less than 9%.
What causes this industrial concentration?
- Functioning of markets: Given asset-income inequality and differential power among economic agents, markets do not promote competition but concentration and centralisation.
The dangers of such a rapid rise in industrial concentration:
- Stifles competition
- Contributes to inflation or profiteering, through the manipulation of costs and prices.
- Influence institutions of democracy, such as the capture of the media.
- Dilutes the role that civil society can play as a countervailing power.
- In time, leads to undue corporate influence over political processes and the formulation of policy.
- Tendencies of state capture.
- Fosters extreme asset and income inequality.
How can this be minimised? By regulating markets to physically prevent the growth of dominant businesses and excessively large conglomerates or even break up those that are seen as too big for comfort.
Challenges towards regulating markets:
- The state is not independent of the influence of big businesses: The distance between the state and private capital has narrowed hugely, leading to the current situation in which the state promotes big business rather than regulates or curbs the latter.
Three trends have signalled this narrowing of political distance:
- The embrace of neoliberalism by powerful voices within and outside the state.
- This implied the adoption of the view that the role of the state is not to regulate private capital but to facilitate its growth to foster competition and all-around economic progress.
- However, the reverse has happened. Examples are in areas such as telecommunications and civil aviation.
- The propagation of the view that the state must help strengthen domestic big business.
- State policy, diplomacy and public resources had to serve as instruments for the purpose.
- While liberalisation opened up Indian markets, and subjected much of Indian business to global competition, state intervention (like subsidies) was modified to protect and promote sections of big business.
- The refusal to reduce the influence of money in politics.
- Over time, the policy has been changed to legitimise corporate donations to political parties, including through the infamous electoral bonds scheme.
- Thus, big business has turned out to be a prerequisite for garnering the resources needed to manage elections and win electoral support.
What is frightening in the current situation?
- These tendencies have coalesced into a strategy of strengthening Indian business as part of promoting the national interest.
- Any dissent against centralisation and concentration is being suppressed by the state in the name of national interest.
Way ahead:
- Democracies have battled hard to force governments to maintain some distance from private capital in general and big business in particular.
- A broad alliance of diverse classes can push the state to take strong action against monopoly and trustification.
- Similar efforts were seen in India immediately after Independence – License-Permit-Quota Raj.
Conclusion: Though License-Permit-Quota Raj of the pre-reform era is not possible in today’s India, what new India needs is the equitable treatment of all businesses (irrespective of their size) to promote national interest in the long term.
Insta Links:
Oxfam inequality report: Taxing the ‘obscenely’ wealthy may not be the right solution
Mains Links:
Examine the impact of liberalisation on companies owned by Indians. Are they competing with the MNCs satisfactorily? Discuss. (UPSC 2013)
