[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
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MORE MARKETS, LESS GOVERNMENT<br />
Survey of India, which was released in<br />
October <strong>2007</strong>, to briefly assess two areas<br />
in which regulation could be made<br />
more supportive of competition and private<br />
sector involvement: the business<br />
environment in markets for goods and<br />
services (henceforth referred to as the<br />
product market) and labour markets.<br />
This work is based on field work in<br />
twenty one states that has enabled us to<br />
construct cross-state indicators of regulation<br />
in product and labour markets.<br />
<strong>The</strong>re are other areas where government<br />
interference is also high, such as<br />
the financial and energy sectors, and<br />
areas where large subsidies are paid.<br />
Our views on these areas can be found<br />
in the Survey.<br />
Despite Liberalisation, Product<br />
Market Regulation Could<br />
Still Do More To Support<br />
Competition<br />
Figure 1. Product Market Regulations: An International Comparison<br />
Australia<br />
UK<br />
Iceland<br />
US<br />
Ireland<br />
Denmark<br />
New Zealand<br />
Canada<br />
Sweden<br />
Luxembourg<br />
Japan<br />
Finland<br />
Belgium<br />
Netherlands<br />
Austria<br />
Slovak R.<br />
Germany<br />
Norway<br />
Korea<br />
Portugal<br />
Spain<br />
Switzerland<br />
Grance<br />
Czech R.<br />
Greece<br />
Italy<br />
Brazil<br />
Hungary<br />
Mexico<br />
Chile<br />
Turkey<br />
Poland<br />
INDIA<br />
number of barriers that do limit private<br />
sector involvement and competition in<br />
markets.<br />
PSEs for 14 % of GDP, rising to 22 % of the non-agricultural<br />
business sector and an even higher share of activity<br />
in the formal sector of the economy. Many of the sectors<br />
in which they operate are inherently competitive<br />
OECD<br />
Average<br />
0 1 2 3<br />
<strong>The</strong> indicator score runs from 0-6 from least to most restrictive of competition<br />
4. Overall, product market regulation in<br />
India restricts completion to a greater<br />
extent than in all OECD countries and<br />
both Brazil and Chile (Figure 1). This<br />
is despite some aspects of India’s regulatory<br />
framework in product markets<br />
being comparable with best practice in<br />
OECD countries. For example, formal<br />
legal barriers to market entry have been<br />
removed in almost all sectors and there<br />
is minimal government interference in<br />
the conduct of private sector firms<br />
through, for example, price controls and<br />
special voting rights (notwithstanding<br />
restrictions on the voting rights of private<br />
shareholders in government-owned<br />
banks). <strong>The</strong>re are, however, still a<br />
<strong>The</strong> Public Enterprise Sector Is<br />
Large And Distorts Competition<br />
5. A high level of government involvement<br />
in commercial activity is one important<br />
reason why India’s business<br />
environment is less supportive of competition<br />
in comparison to other countries.<br />
Overall, public enterprises account<br />
for 14% of GDP, rising to 22% of<br />
the non-agricultural business sector and<br />
an even higher share of activity in the<br />
formal sector of the economy. Many of<br />
the sectors in which public sector enterprises<br />
(PSEs) operate are inherently<br />
competitive.<br />
6. PSEs have a negative effect on the<br />
business environment for a number of<br />
reasons. First and foremost, because<br />
government plays the dual role of major<br />
market player and policy maker (and<br />
sometimes regulator in infrastructure<br />
sectors), there is often no clear separation<br />
between the ownership function<br />
and other functions that influence market<br />
conditions. For example, PSEs are<br />
often required to fulfil social and public<br />
policy obligations with their governance<br />
adversely affected by political interference<br />
and the use of civil servants as directors.<br />
Moreover, in many states the<br />
strategic commercial choices of PSEs<br />
often have to be cleared by the state assembly.<br />
Finally, the procurement poli-<br />
THE INDIA ECONOMY REVIEW<br />
139