POST REFORM REALITIES

 POST REFORM REALITIES

After 1989 when the political scene in India became very chaotic, unstable coalitions were formed and many political decisions taken at that time had severe economic impact leading to Indian businesses finding themselves going on a downward spiral along with the economy. The worst situation emerged when the VP Singh led government announced the introduction of Mandal reforms leading to country wide agitation further taking the economy down. The ultimate situation was that the foreign currency reserves fell to such a low level that the Congress minority government led by PV Narasimha Rao had no option but to announce major liberalisation and economic reforms. One of the consequences of this was that most of the consumer and industrial goods were freely available for imports and also opened the economy for foreign direct investments.

Suddenly we found what was earlier available in Singapore and Dubai only for Indians to shop were available in many department stores in major cities. Many foreign brands of consumer and Industrial goods found shelf space with local brands. Slowly these moves started having their impact on the Indian manufacturing sector affecting both small and large businesses alike which had thrived under the License Permit Raj.

I remember meeting a classmate of mine from Indian Institute of Technology in Mumbai and the discussions we had on the electronics industry post liberalisation. My friend had established a niche business as a consultant in the electronics industry and had also helped establish a few small units to make specialised electronics products around Mumbai and Pune. One such unit was making power supplies which are needed to power any electronic product. Most of these convert 230V AC supply to 6 to 12V Dc supply with different current ratings in milli and micro amps for use in the electronic devices and products. Due to the earlier policy of indigenisation there were many local manufacturers who were making these power supplies using mostly critical imported components and some locally available parts. My friend narrated the story of the fate of the unit which he had helped set up post liberalisation. They were very successful before supplying to major customers like Siemens India and others and they were charging a price of Rs 1200/- per unit. Post liberalisation, he attended a major electronics exhibition in Mumbai where he found one of the Taiwanese suppliers was displaying an identical power supply unit to one his supported unit makes for US $9/- unit. At the exchange rate prevailing then for US $ to Rupee, even after paying customs duty and other expenses he calculated that the landed cost was coming to less than Rs 200/-. Quickly he advised his client to stop manufacturing and start importing these power supplies and sell in the local market!!!

Post liberalisation one of the major casualties was all those small businesses which were established based on the policy of Indigenisation. All of them had to fold up when they found that what they were making locally at whatever prices they could sell were available at much lower prices from other countries particularly Germany, Japan, Taiwan and Korea. In many other cases they discovered that the technology used by them were outdated and they had no money to upgrade their technology to meet the global competition.

The opening up of the Indian economy had created a new opportunity for global manufacturers to set up large operations in India to tap the huge untapped and hungry market of India. One impact of this was that employment opportunities and the corresponding higher wages offered lead to exodus of many talented professionals to these new industries. Small and medium businesses suddenly found that they could not afford to match the salaries offered by the new industries and that further eroded their ability to survive.

There was a positive impact of liberalisation too. Many new small businesses started coming up in many industrial sectors taking advantage of liberal import policy announced to set up more efficient and technologically advanced operations to compete with the old established businesses. Thus we found in many building materials products and other consumer industries local brands started by small businesses competing with national brands and taking away market shares. Reform also opened opportunities for many small businesses to come up and flourish in the service sector since the economic growth now offered more opportunity and larger market for this sector to thrive. So we saw many consultancies and service providers in IT, Advertising, Marketing Research, logistics   setting up shops. Apart from these due to increased consumer demand post reform retail business also underwent many changes and we started noticing many local Kirana shops run by traditional Marwari families upgrading into Super Markets. 

I remember one such case in Hyderabad where I live. The neighbourhood Kirana store was run by an energetic young man who used to supply regularly to our household needs and to many other families in the upmarket neighbourhood giving them even credit for a month. The store was popular because of the quality and honesty of the shopkeeper and he had a large clientele. But his market was typically local.

I had a habit of chatting up with him when I went to shop and during one such chat I told him the threat he would face from supermarket chains that would come up soon and since he was very energetic advised him that he should explore setting up a supermarket store in his neighbourhood so that he won't lose his upmarket clients who would be the first to ditch him when the other supermarket stores come up there.

I forgot all about it till one day he called up and showed me the neighbourhood place he had rented to start a super market and wanted my advice on how to proceed further!! I gave him ideas and suggested that he go and see how other stores that have come up elsewhere are running and try to replicate their model in his own way. It is now more than 25 years since he started that supermarket and his business is thriving. Recently I noticed that he has taken over the location of another national supermarket chain in a nearby locality which was floundering and set up his second store there. When I met him recently and asked him about his business he proudly informed me that he has also taken over a corrugated carton making unit and running it to use for his own business as also to supply to others. Now he has opened more supermarkets in other parts of the city competing with larger national chains!!!

So I realised that reform was a double edged sword. In the hands of the old businesses it was a tool to cut their throat and in the hands of the new age entrepreneur it was a tool to find cutting edge opportunities.

There are many cases of such failures and resounding successes. But I notice one other major development is the entry of many women entrepreneurs post the millennium 2000 in many areas where one had never imagined any business opportunity existed. I will discuss these cases in later posts to show how for the enterprising small businesses now with the internet revolution global opportunities are awaiting them and for those who would not like to adopt only dark futures!!