On Campus

The power of market competition

VIGNESH KARTHIK RAJAHMANI CORNELL D?SOUZA | Updated on June 19, 2013 Published on June 19, 2013

REFORMS lead to greater self-reliance, but slowly. — G. P. Sampath Kumar

Socialism failed because it wasn't possible to sustain it for long without the required quantities of business activity and private participation.

Scholars often criticise the move towards privatisation and reforms initiated during the time of P.V. Narasimha Rao for their poor impact on social service sectors such as health, sanitation, water supply and so on. What needs to be understood is that these ‘basic’ amenities are not ‘basic’ when it comes to providing them. For instance, socialism failed because it wasn't possible to sustain it for long without the required quantities of business activity and private participation.

Take a simple case: To have hospitals in every village in the country, every village needs to be well-connected in terms of transport, have medical resources, financial aid, and other infrastructure. All this is possible only when there is a lot of money. The way to make that money is trade. When the ‘trickle down’ effect is pulled down as being ineffective, it needs to be understood that accumulation has to go up for ‘trickle down’ to be effective.

Change takes time

Privatisation has been significant in terms of India’s growth, but what is interesting is that it did not do too much for the country just after implementation; the country’s GDP actually dipped. However, like all major socio-economic reform sets, results show up in stages, more importantly over a significant period of time. Accepting the shift at a time when the Indian economy was still massively dependent on the government made it very difficult, and the dependancy persists. The important question now is: How could you attribute a deviation of these indices and of this magnitude to the shift? The answer is that the new system introduced the average Indian to a concept they could barely rationalise. It was called a ‘market’.

What liberalisation and privatisation did was that it gave the power back to the people. It made the people realise that national revenue is something they need to contribute to. It also meant that the people could now participate in the rewards as well. It detached the government from the economy. This meant that people needed to mobilise capital jointly to initiate businesses and manufacturing.

competition factor



This led to multiple manufacturers catering to a single product thus introducing the second reforming factor in India’s growth story – competition.

With multiple suppliers thriving around a single product and competition being exploited this did nothing but create bigger markets. Thus this took care of things locally. With the help of globalisation the world became a smaller place to trade in and thus Indian manufacturers began to compete internationally.

Globalisation also opened up India to possibly importing essential items.

This not only led to price stabilisation but also motivated domestic manufacturers to compete globally. Among many other things, this also improved the standard of living.

As India learnt to mobilise its human capital to work competitively, a good share of the manual and automated operations of major MNCs have moved to India.

In this way, we can draw a direct connection from the shift of 1991 to India’s current economic success. But growth happens over a period of time and this is just the beginning.

If we keep an open mind, and if these reforms are realised to their potential, India can compete with the biggest economies.

Vignesh studied in King’s College, London, and Cornell in Loyola College, Chennai

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Published on June 19, 2013
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