Market Making Vs Demand Balancing: An Analysis of Governance in India

By: Amit Bhushan Date: 18 Feb 2014

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Market Making: The term Market Making is used to refer to those acts of Government underneath which they evolves policies and procedure that help to stimulate the demand for various widgets by people of the country. The demand may be a natural need of the people like food, healthcare, sufficient & secured dwellings, self improvement (looks, qualification), energy to keep warm or illumination etc. or may be a derived need like computer education to meet necessary job criteria; Cars for travel to work or to tour- in style, air conditioners to control temperature/whether etc. and so on. The government may achieve this through cumulative effort of a myriad of measures and mechanisms which may lie across various ministries/departments or Special Purpose Vehicles and may or may not be a special focus area of the Head of Government or other similar bodies. For Example: The government develops common infrastructure like roads, railways for public use and this stimulates demand for transportation equipment, railway equipment, tourism etc. The government creates policy measure to support companies put up Telephone towers to evolve mobile communication/data services etc. The government may also regulate or put out-right ban of certain goods such as psychotropic substances so that any demand in market remains unfulfilled or unmet under regulations. The government may also creates special conditions regarding Agents/Organizations/ Entrepreneurs involved with fulfillment of a demand such as need for special status organization for a specific job like Education or Nucleus Energy or Ordinance Factory. The organizations and individuals may be levied with various taxes to meet the expenses of government for its efforts to provide services. In certain cases user service charges may be levied. The government may also come up with Capitalization conditions, recommendation for paperwork and accounting needs for organization, Technical standards for goods to be offered in market, commercial/contract rules etc. to guide transactions between sellers and buyers. The government may also need to play a facilitator role in thrashing out compromise between various interest groups to freeze requirements or standards regarding various products and services which may also include techno-commercial-environmental standards for various industries which is so necessary to kick-start mass production. In all the above endeavours, the objective of government is to ensure that its people reach a higher state of perceived well being in a sustainable manner. It also needs to ensure that its people are able t o trade what they have or can produce easily - to acquire widgets needed by them to improve their well being. Sustainable market making in a country like India may entail analyzing domestically available/produced resources like land, minerals, manpower are utilized to hilt to produce manufactures, housing and engineering and services needed by people to improve their well being and also there is a surplus production of goods and services where the country has competitive advantage so that these can be exported in adequate quantity to meet the need to pay for imports required by the people. As culmination of government efforts, entrepreneurial activities and innovation by people of

the country, its economy evolves which then needs to be constantly propelled or directed so that people reach a higher level of satisfaction. Demand Balancing: The term Demand Balancing/Management role of government is used to refer to those acts of government which is undertakes to intervene in markets so that the consumption or production of goods is affected. This includes tweaking with Tax rates on an industry/widget, or with income in hands of (a section of) consumers or both. This may also fiscal support to spur demand such as Cash for Clunkers or subsidized solar cookware, solar lamps etc. Ensuring easy availability of finance (priority sector lending); or discounts on interests (interest subvention); availability of funds from foreign lender etc. also fall in the ambit of this role of governance.

Tweaking of direct and indirect taxation by government in India is part of our annual budget ritual wherein the government also makes provisions for various plans and projects under different Ministries, Departments and Special Purpose Vehicles/ Institutions etc. However planned expenditure which can possibly be used by such bodies for Market Making is on decline in terms of percentage of overall budget as well as has grown at exceptionally slow pace in terms of overall size. The other arena by which government can perform Market Making role is through Laws and regulation. By its own admission, the government has not been very successful in Legislature to get new Laws enacted which can possible create new dimensions of growth and allow government to fulfill its Market Making role. It has also not been able to get rid of the stigma of being indecisive; meaning that it has been slow in evolving executive level rules and policies that could help in Market Making. Then there is off course their dalliance with sanction f or Projects related to Infrastructure or Public Private Partnership. Here the present government is being targeted for being unfair to people (due to Rules framed to support development of such project) or being not so fair selection of the private partners. Of course the government on its part shows development of infrastructure being highest over the last few years and claims this as criteria that its expertise on Rule making for projects is acceptable to markets. The government also wants people to be assured that enough has been done for Market Making since the infra created by it is a huge stimulus for demand. The mandarins in government are convinced that continuance of these policies is way forward to take the country to be amongst the 3 largest economies in next 30 years. Doubts are being raised if reading dissatisfaction amongst people is just media hype. Over the years, the actual Market Making role has declined while its intervention

in DemandBalancing/Management role has grown. To be fair Globalization of economy with Multi-lateral/WTO rules limit the scope of increase the complexity for the government to take action to develop markets. The need to grow the level of sophistication required in the bureaucracy to buoy markets and demand i.e. via methods prevalent in other/developed countries have not be understood or evolved. The leaders in bureaucracy prefer to involve themselves to nurture Projects since the quid pro quo there under is lucrative compared to mundane Rule Making especially if it does not give them any commanding position to lead organizations that would monitor the implementation of such rules. As far as political leaders are concerned, their arena of interest is more about self -

fulfillment whichever way it comes. So Rules shall be evolved when their sufficient requisition for the same from noted interest groups. Similarly, Projects are also regularly awarded to entities under circumstances which may not be transparent. A dysfunctional legislature with less than enthusiastic leaders ensures that the state of affairs can be easily manipulated by wily politicians and businesses. We have ensured that there are no activist Academies of Learning or Think Tank Institutions where such proposals can be debated say be tween experts and students and who could put forth arguments on behalf of larger public. Such Academies should be able to argue basis in depth study on behalf of people since they would have would need to compete with other similar academies for talent as well as acceptability of students as well as that of industry. This should have served students interest of learning early on regarding evolving rules and projects as well as need of being acceptable to people/consumers. To take an example of how the lack of focus on Market Making role has retarded growth one can quote a proposal to have a new category of four-wheeler where engineering and safety standards are needed to be different from existing four wheelers. The technology is more than 25 years old. So, if our rule were also frame 25 years ago, it could have been possible to have this industry earlier. Similarly, innovators have lined up several innovative transportation vehicles primarily for rural areas which need a support system so that a large market can be opened up. However existing rules and players seem not ready to move to facilitate opening of such markets. (Note: The Author claims no expertise regarding suitability or desirability of having such products in our market and is taking these examples only for academic discussion). We have been unable to push market development for domestically produced energy efficient illumination systems even though energy efficiency is a burning need due to our dependence on imports of energy as well as our need to improve productivity. We have continued with a small market which relies on imports even though the country claims to be largely competitive in electrical engineering space; however maker making for the same has lacked focus. Same is true for domestically produced telephones/computing/electronics where rules are framed for Global producers rather than basis domestic circumstances to promote local manufacturing where we have diverse languages which need to be supported. Another problem is that the standards are and continue to be a National level management issue. Like any change or relaxation should be for the whole nation and ideally be permanent in nature. This leaves no room for experimentation at the State level. For Example: if a state is convinced about the transportation innovation (mentioned in above paragraph) having a great public utility for people of his state, then he cannot get the relaxation required in the techno-commercial standards for his state. Also, such relaxation cannot be for a defined time period with customer protection clauses and also for protection of larger society (through suitable liabilities or guarantees to be provided by the entrepreneurs). This leads to the need for experimentation to be large in size beyond the capacity of a small fry. It may also lead to large scale failure or disenchantment with existing businesses as well as banks as they feel threatened about their market getting affected or the credit going to existing businesses going bad due to new rules and competition. Examples could be like Aadhar Card which is taking forever to be put to any substantive use or change in flying rules for airlines. While the issue of mineral resources being up of the loot from Sand to coal to Natrual Gas is a hot topic with individuals and companies being hammered almost routinely, the government decision to resist technology advances like Internet Telephony and push Aam Admi to consume mobile and fixed line is not being discussed at all. Who do these business rules benefit and if all discussions should be reserved about spectrum alone?

There is need for mechanism to empower state governments and develop necessary capability at state level to support innovators so that the domestic innovators come out with solutions that are relevant to local population and enhance perceived satisfaction to society. This should be done in a harmonious manner with existing players as well as should be smooth and well defined as well as achievable process for innovators in the society. The fall out of the lack of continuous dialogue is quite evident. It is basically in taking 3 shapes. First, the government stands accused of failed leadership. Second, it is all about Corruption to the point that even the leaders within it do not defend corruption but counter that it is a global phenomenon. Third, we have political parties and political career being sole nurtured on talk of corruption and parties feel little need to speak about anything else. Quite a few leaders, who would otherwise be unable to identify what is wrong and how it went wrong are busy campaigning for the fixes required to increase the growth rate or inclusive growth. The Aam Admi is doing what it does best, watching with amusement I am sure that the Aam Admi wants the electio ns to be something for him rather than something against someone