Balancing Markets Needs Objectives: Lessons for Indian Polity

DNA, November 1, 2015

Balancing their dual duty of enabling a free market economy on one hand and promoting public welfare in society on the other, is a formidable task for developing country policymakers. Indian policymakers have balanced this tightrope stunt with some level of success in a few sectors, as presented below. These examples not only offer valuable lessons and insights for Indian sectors,but also for other developing countries as well.

Firstly, let us look at the Indian pharmaceuticals market. The Indian pharma market is segregated into two parts. The first segment is a relatively smaller group of essential medicines defined as the ‘National List of Essential Medicines’ or NLEM. The NLEM comprises of drugs to treat most commonly occurrin g diseases in the country. The government exercises price regulation in this segment to ensure that these medicines are available at relatively low cost without affecting its quality/efficacy. This helps fulfil a key societal need. The second segment is of branded medicines, which is one of the biggest of its kind in the world. The government only supervises the quality of drugs in this segment (through Central Drugs Standard Control Organisation) but does not regulate prices. The argument is that in such a fiercely competitive environment, market forces would determine demand and therefore prices.

The Indian telecom sector provides a second ‘good example’. This sector underwent economic liberalisation in the late ’90s. In this sector, the balancing act has been done through the principle of ‘Universal Service’, which was incorporated in the National Telecom Policy of 1999. One of the objectives of the National Telecom Policy was to create a balance between the provisions of ‘universal service’ to all uncovered areas including remote rural areas on one hand and provision of highlevel service capable of meeting the needs of the country’s economic progress, on the other. The policy provided that resources for meeting the USO were to be generated through a ‘Universal Access Levy’, at a prescribed percentage of the revenue earned by the telecom licensees and decided in consultation with the Telecom Regulatory Authority of India (TRAI). So, while the new telecom policy met the need of an expanding and fast modernising telecommunications sector in the country – the incorporation of ‘Universal Service’ ensured that the goal of linking remote and otherwise ‘disconnected’ communities was fulfilled.

There are a few other sectors in the country where lessons from the above sectors can provide considerable benefits. One of them is the passenger transport sector, specifically the bus transport market. Historically, this has been a sector where national and state (government) policy has favoured the public sector. This is in spite of the fact that private operators provide an estimated 80% share of bus transport services across the country, as asserted by industry observers. Many states are now contemplating engagement of private sector in a bigger way, as also provided under the Road Transport & Safety Authority Bill, 2015.

The bus transport market is segregated broadly into two components: (i) city transport and (ii) intercity transport (both within a state and between two states). If one could take a leaf out of the above examples, then an analogy would be to have the public sector (State Road Transport Corporation) dominate city transport service and or connect suburban areas with main cities (thereby satisfying societal needs). The private sector can be given to play an upper hand in providing intercity bus transport services. This would offer greater choice of quality and price on these routes, depending on the demand of commuters.

The other market where this principle can be applied is of agriculture outputs (procurement). This market should be bifurcated into two segments: (i) procurement of small/medium farmers’ produce and (ii) procurement of large farmers’ produce. The definition of small, medium and large farmers should be done by each state depending on the demography of the farming community. State and national level policy should ensure that the government procures all agriculture produce from small and medium farmers such that they receive payment on the spot at Minimum Support Price (MSP) level, without any hassle. Also, standards for procurement should be set such that it does not prevent these farmers from meeting these requirements. This would help state policymakers from fulfilling the societal need of protecting the interest of the small and medium farmers. On the other hand, the state should ensure that the produce of large farmers is procured by private entities. This would enable large farmers to choose the private firms of their choice. State level policies should enable easy licensing of these private firms and ensure that contractual obligations are met by both parties.

Such careful bifurcation of sectors (segmentation) and its accommodation in state or national level policy would help policymakers to effectively allocate scarce resources to ensure that interest of society is protected while pursuing the needs of a marketled economy in a country like India. It would also enable the private sector to effectively engage in certain markets, where they can get maximum returns on their investments.

However, this calls for considerable strengthening of government regulatory institutions whose supervisory role in markets would need to be much more effective and timebound.

The writer is Director, CUTS International. Views expressed are his own.

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