Multiple controls distort Indian market: Assocham

By Our Special Correspondent

NEW DELHI, MAY 16. Artificial barriers to domestic trade have distorted the locational balance of industries in this country, raised production costs relative to foreign producers and reduced the country's attractiveness as a destination for direct investment, according to the Associated Chambers of Commerce and Industry of India (Assocham).

In a paper on `Regionalisation of the Indian market', the Assocham says the unification of India as a single national economy is hindered by the diversity of controls by multiple authorities at different levels, restrictions on inter-State (sometimes even inter-district) movement of goods, non-uniformity in standards laid down by different authorities and agencies, and taxes imposed at different rates in different States. These restrictions and controls have served to break up the vast Indian market into a large number of small regional markets.

It maintains the paper-work involved in complying with the various controls, regulations and licences, the cost in terms of time and resources, and the corruption and malpractices inevitable in implementing (and evading) controls has acted as a big drag on the efficiency of trading operations in the country. The cost to lakhs of traders and ultimately to the consumers adds up to a stupendous amount of loss for the economy as a whole.

The Assocham says the whole of Europe is moving towards an integrated ``One Europe'' with national boundaries of nations offering minimal restrictions on movement of goods. It is as if Europe is becoming a single country. By contrast, in India even the single national economy has been fragmented into many markets - a tendency opposite to what is happening in Europe, and to varying degrees in several other regional free trading arrangements such as NAFTA or ASEAN. The Assocham has noted that if regional sentiment has to give way to the feeling of being an ``Indian'', there should not be any discrimination between Indians living in different parts of the country regarding the price and availability of goods and services. Free flow of goods and services through removal of redundant controls on production and trade and uniformity in taxes all over the country would serve to achieve this goal.

Moreover, investors contemplating setting up production facilities would feel inhibited if they are not sure of having access to the entire Indian market. Even if the Indian market is potentially big, its fragmented nature and myriad restrictions on the free flow of goods reduces the attractiveness of India as a destination of direct investment.

According to the paper, uniformity in rules, procedures, standards and taxes all over India would serve to locate a particular industry or firm in the region where the real cost of production from the national point of view is the lowest. Otherwise, artificial barriers would dictate the location of industries within India which would not be according to the true comparative advantage within the country. That would be a source of national loss, even if certain regions may prosper at the expense of other regions.

The cost of holding inventories increases if the producers or the traders cannot quickly move the inputs or the outputs. Though many developed countries are switching to the concept of `just-in-time' inventories, it is simply not feasible in present- day India. This puts Indian producers at a cost disadvantage relative to producers abroad whose inventory costs are lower. It impedes the operation of the `level playing field' for Indian players vis-a-vis import of goods from foreign producers abroad, the Assocham concludes.

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