It was a little more than a year ago, but it feels like aeons have passed, that Indian industry was complaining about the government?s zeal for ?micro-management? of elements of the economy that should be autonomous decisions of private manufacturers. For example, cement prices. It feels like a long time ago because similar admonishment is now being directed at the steel industry, but there is precious little protest from private companies this time. Steel prices are to be held steady for two-three months, as Tata Steel has assured the government and other private producers are reported to have agreed (state-owned Sail had little choice but to comply). Price restraints have been urged by the PM, accusations of ?cartelisation? have been levelled by the FM, and anti-trust action threatened by the deputy chairman of the Planning Commission. Such coordinated finger-wagging is supposed to have gone with the licence raj, but instead of raising a fuss over it, industry is acquiescent. What explains this?
The easiest answer is that when all three members of the ?dream team of reformers?, as Manmohan Singh, P Chidambaram and Montek Singh Ahluwalia were collectively hailed on their assumption of office in 2004, start speaking in one voice, it pays not to argue back. But surely this doesn?t speak well of the state of market freedom in India. A more charitable explanation is that the larger economic context today is very different from a year ago. Private producers are aware that inflation is a less manageable threat now, and the long-term interests of their shareholders lie in a stable macroeconomic environment that would be conducive to sustainable profitability. In this view, there is an overlap of public and private interests. If this were the case, however, the threat of action against steelmakers by the Competition Commission would be unnecessary. Yet, it is this kind of admonishment package that could have lasting impact. What India needs is an institutionalised mechanism to deal with situations of suspected market failure (which is what cartel formation represents). This requires a renewed dialogue among all stakeholders on the susceptibility of nominally open markets to monopolistic tendencies and deliberate distortion. If there is a wider understanding of justice in such matters, it would ease the Indian acceptance of market reforms?to everyone?s benefit.
