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India's great journey to market economy

June 17, 2005

It is now 14 years since India embarked on its journey towards a market economy.

A survey of the various segments of the community, particularly those that are most closely associated with the markets, namely, citizens, the political system, business community, the administrative system, and the judicial-cum-regulatory system, reveals that the country has decidedly made the move towards the desired destination.

However, there are still many miles to go and interestingly, there is noticeable variability in the pace of change in these different segments.

Citizens--the world at their feet: The citizens have made a remarkable adjustment. They have evolved to become perhaps the most sophisticated and discerning consuming population in the world. They have got the attention of the world's sellers.

Clearly, they have the power and are moving up the value scale. However, they have not yet used their full potential to protect their rights and influence the country's policy.

As an example, the paying customers of electricity are still fairly tolerant of paying the bills of electricity thieves. The consumers have not protested hard enough for the policy makers and regulatory system to intervene.

Much work needs to be done also in the area of social security and creating a safety net to cater for the unfortunate segments of the citizenry that will get negatively impacted as a result of competitive markets and shifting policies. Pension reform, re-training programmes, and citizens' motivation to re-equip themselves, are initiatives that will provide the much-needed enabling environment.

Political system--responsive to all segments: The political system, perhaps, has been most responsive to this change. While common wisdom seems to suggest that the political system is too haphazard in its policy making and providing dedicated and disciplined leadership, I believe such evaluation tends to be biased in that fail to see the positive impact of the change process and is definitely not reflective of mass opinion.

There is a vast silent segment of citizens who have still not participated in or reacted to the market economy. There is also a segment, though in the minority, which has been negatively impacted and is therefore resisting the march to a market economy.

The political system has been smart in understanding these varying segments and making definitive choices as to which constituency it will serve.

The political system has quickly disaggregated itself, finding its own niches that it is best suited to serve. This is a definite move away from the monolithic centralised power system that once dominated the India's political system.

There are now choices of political leadership that will support every possible citizen segmentation, right from the agricultural community to the business community to "swadesis" to reformists, and the list keeps expanding as new meaningful segmentations emerge.

While this often leads to an inefficient delivery of policy solutions and slows down the process of market economy transformation, it is worth recognising the fact that the Indian receptive political system is becoming highly approachable and willing to support causes that are likely to give it political victories.

So, smart citizens and business communities will have to fully understand this new political system and find ways to aggregate their needs to get served efficiently by the political set-up of their choice.

The political system needs to make the manner of negotiating policies with its counterparts more efficient. A speedy and consistent decision-making process is essential for a market-based economy. The political system also needs to play a more active role in accelerating the transformation of the administrative system from one of "control" to facilitation.

Business community--up-stream marketing is the way to go: The business community has made sweeping changes in the way it does business. By and large, the community has accepted the customer as the king, and is no longer spending time trying to get monopoly rights through favourable restrictive policies.

However, it is still grappling with the dynamics of the market forces. It will do well to get sophisticated about up-stream marketing and up-front policy lobbying to induce a more favourable business environment.

It is still employing "ice age" tactics, therefore limiting its ability to shape policy to allow long-term strategising. It needs to work with its constituencies and align them all, including the political and administrative systems, to induce a more favourable business environment.

The business community is also under-investing in future markets and is fairly reactive in its preparedness to face new demands. This often leads to shoddy products and services, with the regimen sometimes still using a trial-and-error methodology.

It also needs to better protect its franchise as it still leaves a lot to chance and favourable developments, rather than securing itself a more predictable future.

Administrative system--moving from control to facilitation: The administrative system has made progress in changing itself to foster a market-oriented system. However, it has not been able to face the challenges of making the wholesale transformation as effectively as the other systems discussed so far.

The administrative system seems to find itself in no man's land. After years of iron-fist control on development, it is not sure about its role in a market-led economy. The dichotomy seems to arise from the fact that administration is more understood as a mode of control than facilitation.

This leads to fear of obsolescence and uncertainty regarding its own ability to perform the facilitation role, or even a reluctance to shift from a "master" position to one of "service".

There are already many inspiring examples of individuals who have made this transition and have become even more relevant and powerful as facilitators than as controllers.

Hopefully, they will serve as strident examples to others, thereby helping the administrative system understand that the market economy needs them more than the past regime, and neither their influence nor their power will diminish with this transition.

As mentioned earlier, constructive support from the political system, combined with self-motivated changes, will help make this brightest segment of the economy kick in with its contribution sooner than later.

Judicial system--needs synchronisation, without compromising independence: The judicial system has been the most measured in responding to changes.

It is interesting to note that the core of the judicial system has preserved its character, and changes have occurred only in the newer regulatory and quasi /special sub-system that has evolved around the core, be they the debt recovery tribunals, or the consumer courts, or the various regulatory authorities.

By its very nature, the judicial system occupies a distinct, superior position in influencing society. It needs to remain secular and independent of all other systems, and perhaps this is why we see an increasing distance between the judicial system and all others.

However, on the other hand, if the judicial system is not well synchronised with society at large, which are all adopting a different paradigm, there is a danger that the market system might become dysfunctional. The market system is likely to be more litigious than the controlled economy.

The judicial system needs to scale up to meet the fresh bout of justice seekers, and not create work-around solutions that seem to be the order of the day. The problem with these extended judicial systems is that they tend to often merely add an extra layer.

Since the judicial system still remains the final arbiter, these layers simply delay legal remedy. Moreover, all other systems, including the citizens, desperately need the reassurance and the sagacious counsel of the judicial system to march more confidently towards the market economy.

On the whole, the progress towards a market economy has been encouraging, and one can clearly shout out, "Markets Ahoy!"

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