🔄 LAST WEEK RE-KNOCK: Demonetization Deep-Dive
Last week, we analyzed the high-impact economic shift of November 2016. We explored Demonetization as a tax administration measure and its four core features—from curbing tax evasion to channelizing savings into the formal banking system. We realized how it acted as a catalyst for the digital payment revolution we see today in Ranchi and Patna. Today, we broaden our lens to look at the overall impact of government policy changes on business and industry, specifically the landmark New Economic Policy of 1991.
3.4 Government Policy Changes: The 1991 Shift
In 1991, India faced a severe economic crisis. The government responded with a "New Economic Policy" that fundamentally changed how businesses operate. **In my experience**, this was the moment India moved from a "License Raj" to a competitive global market. The strategy was built on three pillars: Liberalisation, Privatisation, and Globalisation.
(i) LiberalisationThis meant end of license, quota, and many restrictions that were earlier placed on industries. It aimed at liberating Indian business and industry from all unnecessary controls and restrictions.
Key moves: Abolishing licensing requirements in most industries, freedom in deciding the scale of business activities, and removal of restrictions on the movement of goods and services.
This refers to giving a greater role to the private sector in the nation-building process and a reduced role to the public sector. This was achieved through Disinvestment—the transfer of ownership and control of public sector enterprises to the private sector. The goal was to improve efficiency through private management.
(iii) GlobalisationGlobalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy. It involves the free flow of goods, services, capital, and technology across borders. For a consumer in Siliguri, this meant being able to buy the same international brands available in London or New York.
3.5 Impact of Policy Changes on Business
The 1991 reforms didn't just change laws; they changed the "survival of the fittest" rules for every firm. Here are the six critical impacts defined by NCERT:
1. Increasing CompetitionAs a result of changes in the rules of licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, and banking. **In my experience**, this competition forced Indian companies to either become "world-class" or shut down.
2. More Demanding CustomersCustomers today are better informed and more demanding. Increased competition in the market gives the customer wider choices in purchasing better quality of goods and services. The "Seller's Market" of the 80s became the "Buyer's Market" of the 90s.
3. Rapidly Changing Technological EnvironmentIncreased competition forces firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products, and services. The rapid technological changes create tough challenges before smaller firms.
4. Necessity for ChangeIn a regulated environment (before 1991), business enterprises could have relatively stable policies and practices for a long period of time. After 1991, the business enterprises have to continuously modify their operations to survive in a dynamic environment.
5. Need for Developing Human ResourceIndian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources has arisen. **In my experience**, training is no longer a luxury; it is a necessity for a firm in Ranchi to stay relevant.
6. Market OrientationEarlier, firms used to produce first and then go to the market for sale (Production orientation). In other words, marketing was second to production. In today's world, the focus has shifted to the "Market orientation" where firms study and analyze the market first and produce goods accordingly.
If you look at the growth of industrial areas like Tatisilwai, you'll see firms that were once small workshops now competing with global giants. This is because they adapted to Globalisation by upgrading their technology and focusing on Human Resource Development. The policy changes of 1991 provided the opportunity; the managers provided the will.
📝 Day 31: Policy Impact Check
1. Transfer of ownership and control of public sector enterprises to the private sector is known as:
a) Liberalisation
b) Privatisation
c) Globalisation
d) Demonetization
Click to view Answer
Correct Answer: (b) Privatisation.
Logic: Privatisation specifically refers to the reduction of the government's role in the management and ownership of enterprises.
2. Which impact describes the shift from a "Seller's Market" to a "Buyer's Market"?
a) Increasing competition
b) Rapidly changing technological environment
c) More demanding customers
d) Necessity for change
Click to view Answer
Correct Answer: (c) More demanding customers.
Logic: When customers have more choices and information, they become more demanding, shifting the power from sellers to buyers.
3. THE CASE STUDY:
1. Increasing Competition: The entry of global brands like Volvo and Scania represents increased competition due to liberalised policies.
"Bharat Motors Ltd." used to produce a standard truck model for 20 years with no changes. After the entry of global giants like Volvo and Scania in the Indian market, Bharat Motors found its sales dropping. The company had to hire foreign consultants to train their engineers and launched three new fuel-efficient models within two years.
Identify two impacts of government policy changes reflected in Bharat Motors' situation.
Click to view Master Solution
2. Need for Developing Human Resource: Hiring consultants to train their engineers highlights the necessity to develop competent human resources to survive in a competitive market.
Further Reading
- STUDY NOTE: Planning Process 2
- REVISION: Place Mix 2 - Strategic Overview
- DIRECT QUESTIONS: Numerical Analysis of Financial Markets
Teaser for Tomorrow: We have finished our exploration of the environment. But how do we prepare for it? Tomorrow, we start a brand new journey into the first function of management—Unit 4: Planning. We’ll look at the Concept and Importance of Planning and see how businesses in Patna and Siliguri "bridge the gap" between where they are and where they want to be!
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