Wednesday, April 15, 2015

End of reservation for small producers, but big business is here to destroy competition

First enacted in the 1960s, the policy reserving certain products to be manufactured in India exclusively by small producers has been brought to an end with the last 20 of such products being dereserved, says a report posted on Moneylife website on 14 April, citing a statement by the Ministry of Commerce and Industry.

"The union government has removed remaining 20 items like fireworks, safety matches, bread, wood and steel furniture and agarbatties, from the exclusive reserved category for micro, small and medium enterprises (MSMEs). This move will allow big players to manufacture these items.

The 20 items include pickles & chutneys, mustard oil (except solvent extracted), groundnut oil (except solvent extracted), wooden fixtures, exercise books and registers, wax candles, laundry soap, glass bangles, steel almirah, rolling shutters, steel chairs and tables, padlocks, stainless steel and aluminium utensils," says the report linked below.

I think the move is based on an obviously fraudulent assumption and is a further blow to open competition and free market.

It is small scale production (i.e. the so called 'informal economy'), not big companies, that make up the free market and open competition, making available a wide variety of products at every street market across the length and breadth of India at competitive and highly flexible prices.

The long existence, spread and depth of small-scale production also attests to the quality of products that it makes available.

Small producers can do that because they have no power to manipulate the market in their favour and so they play fair and square, keeping low their cost of production and what they expect to charge their customers.

Small production thus works self-regulatedly and has little power to hold the society hostage.

The big companies, on the other hand, will be there not to actually make those products, but to act as capitalistic middlemen in the market in order to extract ever increasing profits.

They will be able to do that either by buying the products in bulk or contract manufacturing or by taking over a number of small producers.

Either way, they will damage competition and the interests of both small producers as well as consumers.

So "greater investment"  that the new "policy initiative" promises is only notional. Even if some of the "investment" promised is realized, it will be far exceeded by the anti-competitive profits extracted by the bigger players.

Why would anyone make investment in "better technologies, standard and branch building" (as the government statement phrases it) when they can make profits by acting as a powerful middlemen?

Competition and free market is already being damaged by the so called "organized retailers" whose shelves are stuffed with big brands and private labels (supplied by big businesses), leaving little space for commodities produced by more efficient and low-cost local producers.

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