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The changing business environment

Booklet Authored for The Week, June, 26th, 1994

The entire business environment in India is changing beyond recognition. Within the next 12 to 18 months the picture will be vastly different from what we all had resigned ourselves to. This is essentially due to the opening of the autarkic economy by the reforms of Dr Manmohan Singh and his team. The changes that we can expect (indeed, as we already are seeing) are as follows:

1. Increased competition: Since licensing and other entry barriers are on their way out, new entrants are swarming in. In virtually every industry we can spot new companies gearing up to offer differentiated products and services. A whole new class of entrepreneurs is emerging with ideas and skills very different from those of the big companies. Today, you do not have to be an Ambani or a Birla to set up a large manufacturing unit. In the pre reform days you could not match the established houses in their ability to raise funds or obtain licenses and permits. This in effect inhibited many would-be entrepreneurs with limited resources. But in the present circumstances, entrepreneurs can concentrate their resources on the project rather than on the corridors of power!

The result is a massive increase in competition. While the large-scale arrival of foreign companies is a foregone conclusion, the number of purely locally owned companies is also bound to soar. The impact of this is to create an upward pressure on the quality of goods and services produced in the economy. For the customer this translates into better value for money and far greater choice than ever before.

2. Access to better technology: Easing of import controls and the substantial reduction in tariffs enables businesses to now acquire the best technologies from around the world. Indian companies now have the opportunity to set up world-class facilities.

3. New sources of finance: Capital markets are developing rapidly all across the country. The widespread acceptance of the equity culture means that entrepreneurs now have the means to raise large amounts of capital. In addition they can also raise debt from a much wider array of sources. Foreign investment is an attractive option for not only capital but also technological and management resources.

4.Increased information: With the telecom, computer and media industries shifting to high gear, the information available on markets, opportunities and corporate performance is poised to explode. Credit records, business reputation and other sensitive information will also now be available (but with varying degrees of difficulty). Communication and data transfer will become easier and cheaper. Information technology based networks will no longer be the exclusive preserve of the large companies. Small businesses will also be able to afford computers and other information technology hardware and software.

5. Lower taxes, tighter enforcement: Direct taxes are already being pruned downward. The indirect tax system will soon shift to the value added tax. In either case the tax system will prove to be less of a disincentive than before. Improvements in the information technology and telecom industries will immediately result in the tax authorities being able to assess incomes more quickly and accurately. Enforcement of tax related laws will therefore be much easier and stricter. While tax planning can become more sophisticated, tax evasion will be harder.

6.Heightened environment consciousness: The Indian consumer has become more environment conscious. Pollution control and conservation are major areas for concern. Therefore, the laws relating to the protection of the environment are also bound to get tighter. Environment friendliness will play a significant part in the acceptance of products and services by the consumer. Environment standards will become more stringent.

7.More disposable income with more people: With prosperity gradually percolating into our economy, the size of the middle class is increasing significantly. Already, it is estimated to be in the neighborhood of around 250 million. Coupled with the prospect of reduced taxes, there is a vastly increased amount of disposable income spread among a much higher number of people now than even five years ago. An incredibly large quantum of purchasing power resides now in the Indian economy. It can safely be classified as a mega market! The emerging Indian business environment therefore presents many challenging opportunities. Businesses, which are able to adopt a change-oriented forward-looking philosophy, will attain spectacular success. For tradition-bound companies, however, this could well be end of the road.

8. More rights for the consumer: The long-suffering Indian consumer is already beginning to attain relief under the Consumer Protection Act. This trend will intensify. Restrictive trade practices, selling shoddy goods and plain old cheating will no longer be as easy as they were. Enforcement will be quicker and evaluation of claims will be more sophisticated. Whole new categories of activities will come within the purview of the consumer protection movement.

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