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Meeting the global challenge

P. Jegadish Gandhi

Economy and Organisation

Indian Institutions Under the Neo-Liberal Regime

Ed by Amiya Kumar Bagchi

Publishers: Sage, New Delhi

Price: Rs. 495 (Cloth)

THE dialects and dynamics of economic organisations are fast changing in its moorings and in its contextual challenges. Theories about the behavioural dimensions of economic structures are scanty and scattered over the past centuries. But systematic effo rts in formalisation were started only in 1930s which gained momentum in the last two decades under the neo-liberal competitive environment.

In his edited volume, A.K. Bagchi presents original essays by some of India's leading economists which study the types of organisations that have evolved in India over the last 100 years or so. It explores two interrelated issues: How do Indian economic organisations/institutions relate to the economic constructs of industrial organisation, and how these organisations may change in response to liberalisation.

Utilising empirical data, and a conceptual grid, the contributors analyse three principal forms of organisations in India -- Indian industrial clusters, principal subcontractor relations, and family firms and conglomerates.

The book contains 10 chapters focussing on Indian economic organisations in a comparative perspective, industrial organisation theory in the context of developing countries, case studies, and analysis of Indian oligopoly in relation to state, deregulatio n in the corporate sector, mergers and takeovers and social partnership.

The introductory essay by Amiya Kumar Bagchi goes beyond the neo-classical theories of firm behaviour to take account of the amazing variety of economic organisations in India -- from conventional joint-stock firms to organisations not normally considere d in the literature on industrial organisation, such as, firms employing family labour, networks of families and firms and labour market organisations. The introduction then discusses the intended and actual results of the new economic policies pursued i n India since 1991.

In order to capture some of the essential distinguishing features of Indian economic organisations, he has characterised Indian capitalism, as `bungalow-chawl-haveli' or BCH capitalism. This characterisation is used partly as a mnemonic, and partly to re mind ourselves of the necessity to distinguish Indian capitalism from other, better-analysed varieties, such as those of 19th Britain, 20th US and post-war Japan, whose typical modes of organisation have been styled as `proprietary capitalism', `manageri al capitalism', and `collective capitalism' respectively.

These organisations may either be capable of supporting human development in all the different groups of society -- households, private firms, co-operatives, R&D institutions, public enterprises, and educational and cultural institutions -- or, may work in such a way that most workers will continue to live in chawls or chawl-like structures while their masters live in bungalows or havelis.

Indeed, developments in theoretical industrial organisation have proceeded in tandem with parallel developments in pure economic theory and game theory, with implications potentially extending far beyond the immediate problems of western industries. Dili p Mookherjee's essay offers a theoretical analysis of the peculiarities of economics organisations of developing countries, with a sharp focus on India, when put into a principal -- agent framework.

The growth of Indian apparel exports in recent years is largely due to the growing demand for both cotton-based garments and knit garments in the advanced capitalist economies. Knitwear has come to occupy a place of pride in India's burgeoning apparel ex ports particularly since the last decade. And in this overall gamut, the small town of Tirupur in Tamil Nadu has played a stellar role. Padmini Swaminathan and J. Jeyarajan focus on the knitwear cluster of Tirupur and uses the model of the `industrial di strict', as formulated by Marshall. In Tirupur, what facilitates production networks is the structure of the overall network of relations that characterise its local community. The Tirupur community, is not a `closed one'; on the contrary, there is a con tinuous in-migration of population into the district. Trippur now has a visible presence on the international knitwear market. It is essentially a buyer-driven cluster. Its main strength lies in its internal structure that enables it to convert external challenges into opportunities, despite poor infrastructure and very low levels of support from public authorities.

Uttam Kumar Battacharya in his paper remarks that the Tirupur industrial organisation can hardly be accepted as a model to be emulated and applied to other parts of India. The labour standards, the standard of workplaces and the quality of life of the wo rkers, as well as the degree of flexibility, adaptability and innovativeness shown by the entrepreneurs leave a lot to be desired. Moreover, the activities of the `big houses' and `footloose' multinational corporations could pose a threat to such a small -firm district. He also focuses on the point that Tirupur has a large potential for further growth as an industrial district. But along with this growth, certain self-destructive features have also crept in. The region could soon reach a saturation level if the present institutional system continues without major changes. Local entrepreneurs would lag behind in terms of modernisation and would miss out on competitiveness, particularly when the neighbouring countries (Bangladesh, Pakistan and China, not to speak of South Korea) are gradually becoming acute competitors.

Nirmala Banerjee and Millie Nihila examine the nature and causes of the contrast between the performance of Tamil Nadu and West Bengal in the leather and footwear Industry. They found out that even when market conditions favour its rapid expansion, the a gents who have historically been associated with it do not always have the capacity to alter their production organisations, technologies or marketing practices in the Feared direction. Since there are no alternative work opportunities available to them, they try hard to hold on to their existing niche in this industry. The combined resistance offered by these various agencies can act as a major hindrance in achieving what are otherwise bright prospects for growth of the industry.

Debashis Ray Chaudhury in his inter-firm industrial linkages study examines the pattern of economic relationship between large and small industrial units, particularly in industrial areas in the eastern region of the country in order to find out how the SSI (small-scale industry) sector has been influenced by the operation of large firms. It first examines the nature of the relationship of local SSI units with the large public sector undertakings (PSUs) operating in Durgapur (West Bengal), and contrasts the pattern of inter-firm linkage in Durgapur with that prevailing in Jamshedpur (Bihar), another prominent industrial centre in the eastern part of the country. This study highlights the main aspects of the subcontracting process and its impact on the growth of small-scale enterprises in Durgapur and Jamshedpur.

The last group of essays examines the oligopolistic nature of large businesses, their behaviour, and their response to the recently introduced economic reforms, principal subcontractor relations, and the interface between industry and CSIR laboratories. The broad trends of mergers and acquisitions, one of the most fascinating themes in Indian industry today, are also analysed. C.P. Chandresekhar presents the dynamics of the Indian oligopolistic industrial structure in terms of firms, markets and state r elationship. He analyses the evidence of challenge focussing on three Indian corporate companies. The Reliance Group of companies epitomises the challenge that were posed to the existing oligopolistic structure by relatively new business groups that init ially accumulated capital outside the terrain of traditional monopoly. The RIL's path dependent strategy was such that it could successfully establish large capacities that were internationally competitive for production which was largely aimed at the do mestic market where profits were higher. This goes contrary to the conventional notion that the high margins that protection generates, result in investment in plants with uneconomic scales, that are incapable of competing at international prices.

Bombay Dyeing and Manufacturing Company (BDML) and the Nusli Wadia group to which it belongs, are part of the traditional oligopolistic structure, having been established in 1879 in the textiles area. The company evolved over time into a leading textile manufacturer, mainly of cotton textiles. Till 1985, when the company entered into the manufacture of DMT, diversification was restricted to the textiles area, in terms of product mix and retail distribution. The dominance of a traditional area of busines s in the current structure of activity of Bombay Dyeing points to a crucial strand of BDML's growth strategy that has allowed it to face up to competition, namely, continuous modernisation of its textile operations, which accounts for its persistent posi tion of leadership in a sector with few barriers to entry. Most of BDML's domestic sales is made through a nation wide network of franchised, exclusive, retail outlets characteristic of few textile firms in India. This allows marketing to include a promo tional campaign jointly financed by the company and its retailers.

The limited success of Bombay Dyeing stands out, however, when compared with the experience of the Delhi Cloth Mills group, which virtually disintegrated in the face of the new competition. Unlike the typical Indian business group, DCM is a company that opted for a strategy of diversification largely within the legal limits of a single corporate entity, rather than resort to the strategy of proliferating legally independent firms that were controlled by a central decision-making authority. But in many o ther respects, the DGM group is similar to the typical large industrial unit capital.

The three corporate experiences illustrate the restructuring process of Indian oligopoly that resulted from its own inner dynamic. The force driving the process was the contradiction between the strategic behaviour of the business group, and the ability of the state to sustain the interventionist framework that provided the external barriers to entry which justified the strategy.

With a drastic change in policy stance as a result of liberalisation, came the threat of competition, specially from foreign multinationals. The surge in mergers and takeovers can safely by considered a response to such a threat. Mergers and takeovers ar e being used by business groups to consolidate enterprises in a few chosen areas of operation. Malabika Roy attempts to analyse a particular trend that has become visible in the industrial scenario, viz., an increase in mergers and takeovers since 1980-9 0. In the case of India, the sudden surge in takeovers/mergers following recent policy changes shows certain common patterns, even though the reason behind each individual merger/takeover can be different.

The book is a valuable compendium on the emerging Indian industrial organisational dynamics. The contributions are incisive, insightful and interesting in its scope of inquiry. It frees old theoretical shackles and focusses on new analytical economic org anisation tools; A useful referral to industrial analysts, management professionals, economists and sociologists and researchers in organisational behaviour.

The reviewer is Professor of Economics, Voorhees College, Vellore.