Liberalization’s Lasting Impact: Rules-based Regime, Disintermediation

Liberalization’s Lasting Impact: Rules-based Regime, Disintermediation

The Indian government should retreat from being a direct service provider in major sectors.

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Liberalization’s Lasting Impact: Rules-based Regime, Disintermediation

This article originally appeared on Livemint.

Much before disruption became a keenly discussed topic in global boardrooms, the mother of all such upheavals played out here when the new industrial policy of 1991 was announced. The government was no longer to be the clearing house for new businesses as a more rules-based regime was ushered in. For companies, the policy changed the rules of competition: Instead of focusing on managing government systems, firms could now make their own strategic choices and leverage their capabilities to stay ahead of the curve—to the greater benefit of the corporate sector.

Starting up easier, but mixed bag across sectors and states

Entry barriers have eased and more companies are able to enter and compete in India today. To make it easier for companies to start up, the government recently launched an ambitious programme of regulatory reforms, which included simplified application forms, removal of the minimum capital requirement, an online tax-filing option and a much faster process for getting electricity connections. Resultantly, the number of days to register a new business has drastically improved—to 29 days in 2015, up from the 127 days in 2004 as recorded in the World Bank’s Ease of Doing Business index—though still below the OECD (Organisation for Economic Cooperation and Development) average of 8.3 days.

It was also critical for the government to cede ground on economic affairs and divest its stake in state-run companies to facilitate the entry of private players and foster real competition. But the government’s record on disinvestment has been sketchy at best, having missed the disinvestment target 16 times in the past 25 years. Only 42% of the disinvestment target (often used for plugging revenue gaps in the budget) was achieved in 2015.

Read the full article at Livemint.

Sri Rajan is chairman, Bain & Co., India. Nikhil Prasad Ojha is a partner with Bain & Co. in Mumbai and co-editor of the Mint-Bain series 25 Years of Reforms. Shyam Unnikrishnan is a principal in the firm and a member of the strategy and consumer products and retail practices in India.


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