Welcome To India Squelching T Essay Research

Welcome To India. Squelching T Essay, Research Paper

“It’s frustrating to pick up the phone to call your customer, and the line is dead. Or your shipment is delayed in customs, and no one provides answers. However, 950 million people do live and conduct commerce and make profits in India, and you can, too.” (Agarwal, Alpa; 1996: pp. 6)

South-East Asia is the place to be in today’s world. Highly successful companies and new kinds of business methods make several Asian countries famous for their fast growing markets, except India. This country, counting the 2nd world largest population, has great potential but cannot turn it into reality. Between 1960 and 1990 India’s GDP lagged far behind average level of Asian countries, with an average growth of almost 4%. Over the same period Pakistan’s GDP grew by 5% a year, Indonesia’s by 6%, Thailand’s by 7%, Taiwan’s by 8% and South Korea’s by 9% (Collyns, Charles; 1997: pp. 3).

India is often compared with China because they have many similarities: a huge market, great needs of infrastructure, telecommunication, power, transportation and investment. But China is growing in all these areas, while India lags behind. The opening of the market in 1991 was a starting point to catch up with other Asian countries. Although progress is made, the door to India’s market is still not wide open.

The country faces too many problems as a result of their past. This paper highlights in particular the problem of energy supply, a serious necessity in a growing market. The need for Foreign Direct Investment in this sector is the anomaly which is point of discussion. The paradox of India’s needs and their political behaviour will be explained by their history of government policy and a power company that became famous as a model for political trouble in India.

History

India, independent since 1947, is ruled by central planning, government controls, subsidies, and a public sector known for its low productivity. The government kept the market closed from the outside world. India had limited import and hardly any foreign firms. Firms that tried to enter the Indian market cancelled their plans after several years of struggling with the huge amount of governmental agencies. This was the main obstacle of the whole economy: a huge bureaucracy that absorbed money, people and regulations. The latter because every business had to negotiate with many different administrative agencies on all kinds of state levels. Papers were passed through many hands and ended up with the most powerful ones. The whole system was complicated, responsibility and power were vague. Corruption was a normal feature in doing business. The public sector also employed millions of people who earned a higher salary than employees in the production sector.

All this led to a crisis in 1991: the country had a huge shortage of money, the economy was far behind world level and more than half of India’s population lived in absolute poverty. The Congress Party realised that their five year plans (setting unrealistic objectives and creating means for meeting those) were not sufficient to keep the country going. India needed a dramatical change in government policy. Reform programs containing private sector participation, public sector disinvestment, deregulation and lowering of trade barriers changed the Indian economic and market potential in an unprecedented manner (Kanwarpal, Vishvjeet; 1996: pp. 40-50).

The Power Sector

In 1991 overall power shortage seemed to be a bottleneck for future growth. The genesis of the crisis in the Indian power sector lies in India’s policies and objectives (Kanwarpal, Vishvjeet; 1996: pp. 40-50). Policies like rural electrification and subsidies to the agricultural and domestic sectors, but also use of the power industry as an employment scheme, like any other public species!

The power industry has been state-owned since the Industrial Policy of 1956. Until the end of the 1970s the power supply was sufficient. But today the growing economy has boosted electricity demand and India is experiencing acute shortage of electricity with average shortfall of 10% and peak shortfall of 20% (Kanwarpal, Vishvjeet; 1996: pp. 40-50). Unreliable power supply means that companies have to face several power losses each day, resulting in loss of production efficiency. This serious malfunctioning of energy supply is caused by lack of investment for decades by the Central Electricity Authority, which co-ordinates and develops policies for the power sector on government level. Also badly run and badly maintenance of the power stations cause huge production costs. So not only the supply of electricity is disastrous but also the financial situation of the Electricity Boards shows huge gaps. Examples of this inefficiency in public power supply: On local level, the State Electricity Boards (SEBs) are not allowed, by policy, to cut off non-paying customers. And the latter take advantage of this slowly grind of mills within government: They don’t even pretend to be a customer and clip wires to transmission cables (Economist p.23) Almost 75% of the population is rural. Agriculture consumes 30% of the power generated in the country, but pays only one-fifth because of subsidies. The SEBs attempt to cover their losses by charging much higher prices to industrial users, but these bigger revenues rarely find their way ba