Most of the Indian industry had grown in the greenhouse. That was necessary for a nascent industry which could not be exposed to brutal competition right from the start. We were not the only country that followed this clever strategy.

Many other countries in the development stage did exactly the same thing. That is true, for instance, of South Korea or Japan which are now the most industrialised economies. But there was a difference. In other countries, the protection that was given was from competition from abroad. We went even further and protected industry from competition from within. This is what delayed our opening of the economy.

Indian industry was over protected. From the outside world it was protected with powerful devices like quantitative restrictions on imports and high tariffs. The combined effect of the two was to stop import of any commodity which could in a any way harm domestic industry. Protection also came by preventing foreign investors from undertaking production in India except as partners in Indian companies. Competition between Indian companies was drastically reduced due to the system of industrial licensing. It virtually meant allocation of market shares which no competitor could bite into. The result was that Indian industry became the most protected in the world.Protection killed competition. In the absence of competition industry became inefficient. Technology was backward, the quality of products was poor and prices were high. Since production could not catch up with demand industry generally enjoyed a sellers' market. Prime minister Rajiv Gandhi was the first to see the devastating results. "Indian industry is priced out of the international market", he said, "and soon it will be price out of the domestic market." Convinced of the need, he introduced the first batch of reforms. These were insignificant in relation to the malady that had afflicted industry. A major operation was called for. That came in 1991 exposing the industry to competition both from within as also the rest of the world. Industrial licensing was knocked off, foreign investment was most freely allowed, tariffs were reduced, and raw material, components and capital goods were put on the OGL. That was tough because all of it came in one go.

It was feared that as a result of the opening of the economy many industries with soft belly will go under. That did not happen. The incidence of sickness, in spite of competition, did not increase. In fact, the average profitability for all companies increased almost every year since the reforms came into operation. For instance, gross profits in the private sector rose from 13.1 per cent of sales in 1989-90 to 16.6 per cent in 1996-97. Companies adjusted quickly to the new situation, cut out the excess fact, improved quality and faced world competition. Right from 1991 onwards, when globalisation became imminent, almost every management restructured its companies, redefined strategies and regrouped activities. That saved the day.That is not, however, going to be enough. More competition is in store. Even now, the average tariff is more than 20 per cent. That will come down to 10 per cent by the turn of the century. Besides, the 2,500 commodities which still enjoy quantitative restrictions will be allowed to be imported if the developed countries have their way at the WTO. That means industry must be prepared to live with prices down and imports open. That looks like a calamity at least for some of the industries. But they can still be salvaged because additional protection can come from the exchange rate. With imports wide open, the exchange rate will certainly tumble. The more we import the more the demand for dollars and, consequently, the weaker the rupee. That will be the effective protection that the industry can look forward to. It was the devaluation of the rupee in 1991 that hap helped industry to survive. Even so, the overall protection will decline and the industry exposed to more competition.

The survival and progress of industries will depend on their inherent competitive strength. It needs to be recognised that, with globalisation spread right from China to Chile, there is considerable mobility of capital. The more open the economy the more foreign investment it attracts. We can, therefore, expect more investment to flow into different sectors of the economy competing with and complementing industry which is already in place.Obviously, existing industries have an advantage. They have established channels of distribution, the land they have acquired is at low price, and so on. That is not enough to survive in a global economy. Two conditions are vital. First, the management must be scientific and world class. Most business houses now belong to that category. Second, industrial laws should not be biased against existing enterprises. This seems obvious but is not so. For instance, an existing enterprise will continue to be burdened with excess labour because retrenchment is impossible. If the right reforms come through most Indian industries will have no problem in a growing global market.

More specifically, the traditional industries like cotton textiles, sugar, cement, edible oils, aluminium, etc., will continue to grow. These industries surfaced even before independence because of their inherent competitive strength. These industries have a long history and a long future. Most of these industries are close; to the technology frontier and will have no handicaps in a global economy. Paper may be an exception because of the shortage of raw material.

In the next five years the complexion of the industry will radically change. More competition will come not so much from imports as the influx of foreign investment. Much of this investment will come with majority foreign holding. After the adopting of MIA this trend will gather further momentum. The Indian industry will become completely global.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.