Freedom from arbitrary authority. Even a six-year-old understands its appeal, worded or unworded, articulate or inarticulate, expressed or repressed, vivified or blurred.

At the start of the 1990s, as the Indian Businessman stood at the crossroads, it was a time of hope and high vision-again.

India had been wise enough and brave enough to confound the world's sceptics by prioritising democracy. But the protective cocoon of Socialist Statism was rupturing, and it was time to confront almost half a century's worth of accumulated economic reality.

It was grim. Grim enough for a national rethink. At the ground level, the question was cast as a simple matter of liberty: why don't we, as 'free citizens', have the right to make a living any way we choose so long as we don't injure anybody else? At the rarefied level of state policy, it was time to acknowledge that perhaps the Market-and the dynamic price-setting mechanism of freely competitive interactions-does do a better job of putting the country's resources to work, spurring growth and raising our quality of life. Better, at least, than the state planners, who, for all their high-tabled good intentions, were too broke to satisfy supplicants asking for their one paisa.

The case for freeing business from state control was clear. Intervention was flawed. Isolationism equally so. For the sake of its own efficiency, India Inc needed the stimulus of global competition and the discipline of global capital markets.

Yet, the trick, as it turns out, is in the doing. As Deepak Nayyar, eminent economist and Vice Chancellor of Delhi University, complains, instead of a clear transition to the market, what India has seen is a series of ad hoc measures. That too, in fits and starts. Bureaucratese has muddled the picture in so many fields that it doesn't seem any less arbitrary than the bad old days.

Still, the reforms mural painted so far has much to gratify the business freedom fighter. As the state has stepped back, private business has soared. Market entry is no longer barred. Competitors have multiplied. The borders are open to trade, though import barriers remain. Currency clamps have loosened, though capital account convertibility is still far away. Extortionary taxes are gone. Savings-eroding inflation is dead.

Domestic prices-a key test- are set by market forces in most sectors. And these forces appear to be doing fine. In general, demand is no longer subject to market-subverting distortions (such as subsidies), and supply constraints have been eased by and large. And so even in so-called 'factor markets', particularly the market for capital, the efficiency of which is critical to the performance of business on the whole. Access to capital is no longer the exclusive privilege of a few.

The business upshot: India Inc has spent considerable energy since 1991 orienting itself to the market (and the fulfillment of customer needs), instead of the closed era's chief profit-source (the favour of the state, that is).

The economic upshot: India's GDP growth has accelerated-to an annual average 6.5 per cent, a whole point higher than the 1980s' rate. The proportion of Indians below the poverty line has fallen from 36 per cent in 1993-94 to about 26 in 1999-2000. And with $85 billion in forex reserves, India can slouch without any fear of a 1991-style near-default on its external debt.

The problem is that India has taken that a little too seriously. GDP growth has slumped in the past two fiscal years, even as the fiscal deficit has widened alarmingly. And while stockmarkets may be exuberant, the factor market for labour still lies unaddressed. Shutting a business is still a nightmare. Taxation is still rather messy. Tariffs remain high, and the government retains quite some authority over business through simple ownership-not just of PSUs, but also equity held by its network of financial institutions.

According to Jagdish Sheth, the Charles Kellstadt professor of marketing at the Goizueta Business School at Emory University, Atlanta, Indian businesses are living under a false sense of security. Reforms have merely begun, and are nowhere near complete.

The real thing, by way of the Free Market, is still to come.

K.V. Kamath, MD & CEO, ICICI Bank: Banking on efficiency

FINANCE

» In 1992, Indian companies were given access to foreign funds. » In 1993 and 1994, private entrants were allowed into banking and mutual funds. » In 1994, FII investment was permitted in Indian debt and equity. » In 1995, the RBI freed interest rates charged by banks. » In 2000, insurance was opened up to the private sector.

Financial Freedom

Equity-issue pricing has been freed. The state MFs monopoly has ended. FIIs have been granted entry. Indian businesses have been given access to funds overseas. Private Indian banks have opened doors. Since 1991, the market for capital has been nothing if not dynamic.

The big relief: state-directed lending has had its day. Banking competition is intense, and services better. The RBI has turned interest rates over to market forces. The result: easier access to capital. Investment banker Amit Chandra of DSP Merrill Lynch puts it succinctly, "The corporate is king of the borrowings market."

Meanwhile, the government has reduced its equity holding in most public sector banks, but it still runs them, and bad loans are a problem even though businesses can no longer default with impunity.

The state monopoly in insurance has ended too, with minority-stake foreign insurers allowed in as well. MFs have proliferated too, ever since the end of UTI's monopoly in 1987. Yet, UTI remains the weightiest. In fact, overall, the state remains dominant in banking and finance, and few businesses are accountable to investors at large.

Mukesh Ambani, CMD, Reliance Industries: Big is beautiful

PETROLEUM

» In 1992, oil exploration and refining were opened up to foreign investment. » In 1993, Oil and National Gas Commission was corporatised » In 1993, LPG distribution was opened to the private sector. » In 1998, petroleum distribution was thrown open to private players. » In 2002, the Administered Price Mechanism (APM) for oil was dismantled.

Petroleum Perplexity

That India would never be self-sufficient in oil was apparent even in 1947. So it's quite ironic that it took so long for the country to quit trying to be an economic island unto itself. Fuel was seen as a primary need, and so obsessively controlled.

Till recently, that is. Take prices. It was on April 1, 2002, that the government marked the dismantling of the Administered Price Mechanism (APM). Prices, it was said, would henceforth be market rather than ministry determined.

Well, it hasn't really happened, because the state-owned players ONGC, IOC, HPCL and BPCL are still to be privatised, and thus 'free' only from a regulatory standpoint.

The good news is that several private players are already in the exploration game. As a rival to the state oil firms, Reliance runs India's largest refinery, and is preparing to retail petrol. This is a market the Petroleum Ministry has opened to players who commit at least Rs 2,000 crore to oil infrastructure. Genuine competition, however, will not materialise until there are at least three independent players striving to outdo one another.

Y.C. Deveshwar, Chairman, ITC: Betting big on agri-business

FARMS

» In 1992, subsidies on major fertilisers were abolished. » In 1993, an ad hoc fertilizer subsidy was reintroduced. » In 1998, the fertiliser subsidy was hiked, raising the bill once again. » In 2001, the FCI's 'buffer stock' of foodgrains reached absurd levels. » In 2002, strictures on foodgrain movement were eased.

Forgotten Farms

The Indian agriculture sector, unlike China's, is in a time warp. Farmers have no clue about the battles to be waged at the WTO against the West's subsidies. Even if they did, it wouldn't matter, so resigned are they to their monsoon-managed lives.

What's wrong? The price mechanism, that's what. It's just not there. The signals that reach farmers-in the form of minimum support prices (MSPs) issued by Food Corporation of India (FCI), the monopoly buyer-have no link with market offtake (or with reality).

Inputs are grossly subsidised, and if rice gets marked up, that's what gets grown-often in absurd quantities. FCI adds its own costs. Tonnes of foodgrain simply rot, as the intended beneficiary-the hungry Indian-cannot afford the grain even at subsidised prices.

Recent attempts to devolve food security to federal states, and to dilute the more surreal strictures of the Essential Commodities Act, which impedes the free movement of foodgrains by private players, have achieved little. "These restrictions disincentivise the production and distribution of essential commodities by organised companies that can exploit economies of scale and modernise the sector,'' sighs Arvind Virmani, CEO, Indian Council for Research on International Economic Relations (ICRIER).

For real freedom, nothing short of a revolution will do-one in which the FCI reduces its role to that of a buffer player, the feeder of last resort ('the RBI') of a market in which thousands of free participants determine prices.

Anil Ambani, Vice Chairman & MD, Reliance Industries: Power play

POWER

» In 1993, the first set of 'fast track' projects was approved. » In 1994, the central government offered 'counter guarantees' for payment. » In 1997, the government set up the Central Electricity Regulatory Commission. » In 1998, private players were allowed in functions other than generation of power. » In 2003, private players are granted direct access to the power market.

Power Problem

In the information age, what India needs least is a dysfunctional power sector. Retail recovery of charges is the big hold-up here. The power utilities, those hapless SEBs, are under federal state governments, and are sitting on accumulated losses of Rs 33,000 crore-with more power vanishing into the night (there ought to be 'live leads' from the grid to trace, but why bother).

Of late, some states have separated generation, transmission and distribution from each other, and partly privatised the front and back ends. But the broad tariff structure remains the old one: with industrial units heavily subsidising retail users. So this June saw the "second generation of reforms'' with the enactment of the Central Electricity Act, 2003, which aims to grant private participants access to the Indian power arena.

Best of all, without having to depend on the SEBs for bill payments. Access to the SEBs' transmission lines is meant to be free and non-discriminatory-though telecom-style 'bandwidth issues' are bound to crop up, be warned. "The devil is in the details," says Anthony Bird, Managing Director, ABN AMRO Rothschild, a utility specialist, "and the success of the Electricity Act will depend largely on implementation.''

Arvind Lalbhai, Chairman, Arvind Mills: Ready for the world

TEXTILES

» In 1991, the government took note of 'sick' industries. » In 1994, export-oriented apparel projects were given the go-ahead. » In 2000, large-scale players were allowed into the apparel industry. » In 2000, the tax structure was rationalised to level the field for all. » In 2001, import duties on textile machinery were cut.

Textile Turnaround

India's textile sector has remained hostage to sentimental associations of handspun cloth with India's freedom struggle and old notions of hut self-sufficiency. The handloom and small-scale textile sector has been grossly regulated, protected, tax-insulated, subsidised and thus strapped to the past as some museum curiosity. Sniffle if you will, but into a khadi handkerchief.

The sector's inefficiency became apparent in the 1980s, when mill after mill went 'sick'. Over-regulation has kept capital away. Says S.P. Oswal, Chairman, Vardhaman Spinning and General Mills Limited, "Different excise duty exemptions at various stages of textile manufacture, reportedly resulted in evasion of excise duties by several parties, resulting in the poor performance of large organised mills. This resulted in very little investment by the corporate sector in the weaving and apparel sector.'' The few large-scale apparel projects permitted in the mid-1990s (on stringent export conditions) have done little other than deliver quality to branded apparel for the well-off.

Thankfully, the New Textile Policy of 2000, aimed at enhancing Indian textile competitiveness towards achieving $50 billion in exports by 2010, might just save India the embarrassment of missing its second biggest export opportunity (post 2005). Apparel is open to large-scale investment at last. Taxation imbalances have been fixed, and imported textile machinery is cheaper. With some perseverance, India can yet crack the global apparel market.

Anji Reddy, Chairman, Dr. Reddy's Laboratories: Generics all the way

PHARMA

» In 1994, most pharma products were freed from industrial licensing. » In 1994, foreign investment of up to 51 per cent was allowed in. » In 1994, the list of price-controlled drugs was slashed drastically. » In 2000, the foreign investment limit was raised to 100 per cent. » In 2002, the price-controlled list was reduced to just 38 drugs.

Pharma Future

Regulation is a common feature of the pharma industry worldwide. But India has been almost unique in its control of drug prices. Barricades to entering the market were torn down in the early 1990s, and price controls junked by and by. Prices have not soared, thanks to the self-regulatory effect of competition-and the desire of firms to convey a caring image.

But how free are pharma companies really? The government still retains a say in how they allocate their funds. The promotion of certain critical drugs, for example, is still frowned upon, as if healthcare customers are somehow cheated by any corporate spending on fighting the information battle (a cola competence). The official limit on 'post manufacturing expenses' for controlled drugs has been raised to 100 per cent, but is still a limit.

Foreign investment has been allowed in, but Indian firms-having learnt all the tricks of low-cost reverse engineering-are under no threat. In fact, the drugs going off patent in the US market has presented them a huge generics export opportunity. Pharma exports are around $1.5 billion, and rising.

More freedom could mean better performance. "The price controls are not in line with liberalisation. The list should be reduced further to contain only life saving drugs," says Paras Adenwala, Head of Equity, Birla Sunlife Mutual Fund.

Ratan Tata, Chairman, Tata Group: Indigenous success in a global field

AUTOMOBILES

» In 1983, foreign investors were allowed 40-per cent equity in JVs to make 100-CC mobikes. » In 1993, the sector was opened to licence-free investment, both Indian and foreign. » In 2001, indigenisation stipulations on foreign companies were axed. » In 2002, control of Maruti Udyog was handed over to Suzuki of Japan. » In 2003, the government sells a quarter of MUL stake to the public.

Automobile Action

India's automobile industry offers a splendid example of the transformative power of liberated business. All the more because the very sight of an old Ambassador seemed to signify all that was anachronistic about India. From a sellers' market to a buyer's market-it happened in a flash. By the simple act of allowing anybody from anywhere in the world into the arena.

The car market's makeover has been dramatic: witness the new gleamers on the streets. India has some 16 new ventures to serve the car market alone. Arguably, though, the auto action began in the early 1980s, when the Maruti-Suzuki partnership was formed, and the 100-cc segment of the Indian motorcycle market was thrown open to competition amongst local firms with foreign collaborations (the Indo-Jap joint ventures).

In all, two-wheeler marketers in India have become quite customer-oriented, driven by competitive pressures. The major improvements, according to Rahul Bajaj, Chairman and Managing Director, Bajaj Auto, came only after 1992-93. "With the Licence Raj's going, I can expand or diversify according to market conditions. As imports are freed, I don't have to run around for import licence either," he says.

Today, India allows fully-foreign owned companies to operate in the automobiles sector. The last remaining stipulations, such as those requiring all manufacturers to indigenise their components within a time-frame, have been trashed in 2001. Yet, the excise duties on vehicles remain unreasonably high, and the sector remains shielded from import competition.

Sunil Mittal, CMD, Bharati Group: Leading the telecom revolution

TELECOM

» In 1994, private operators were given licences for cellphone and landline services. » In 1998, private ISPs ended VSNL's net monopoly. » In 1999, cell licencees switched over to revenue-sharing. » In 2001, landline operators were allowed to offer 'limited' mobile services. » In 2003, the regulator proposed a switch to a 'unified licence'.

Telecom Transition

Whizzle-crackle-snap. Remember the days when crackling phone lines were a luxury? It was barely a decade ago. Given all the cellphones buzzing around, one might even be tempted to think tele-nirvana is nigh. Too bad things are not that simple. The reality is that the telecom industry has become a litigous cacophony of shouts and claims.

Telecom businesses have no escape from the rulings of the Telecom Regulatory Authority of India (TRAI). To the extent that scarce airwaves need to be shared, telecom regulation is indispensable. The issue is one of maximising freedom under that contraint, and flip-flop policies are no help. The National Telecom Policy of 1994 brought in domestic private cell service operators-on stipulated GSM technology. Having overbid for licences, most operators bled like crazy. The New Telecom Policy of 1999 has scrapped the old arrangement in favour of a revenue-sharing deal, and allowed the state's own monopolies, BSNL and MTNL, to enter the arena. Private companies, meanwhile, have been granted entry to fixed line services, and since 2001, have even been allowed to offer 'limited' mobile services using CDMA technology-to the alarm of cellular operators.

Sure, competition has intensified, tariffs have crashed and the state monopoly on long-distance calls is history (VSNL has even been privatised). Private Internet Service Providers (ISPs) are roaring away too. But a lot of telecom business plans have been thrown in disarray, and policy issues remain a distraction. In retrospect, the sector should always have been defined in 'need' rather than 'technology' terms, and to put that straight, TRAI has recently floated the idea of a 'unified licence' for all services. "Once the unified licence policy is in place, things will move faster," says S.C. Khanna, Director General, Association of Basic Telecom Operators. That's poor consolation for cell operators.

Naresh Goyal, Chairman, Jet Airways: Soaring ever higher

AVIATION

» In 1992, the Open Sky Policy issued licences to 'air taxi operators' » In 1993, Indian Airlines was the only domestic carrier with a flight schedule. » In 1997, air taxi operators were granted the status of airlines. » In 1997, the Tata-Singapore Airlines combine quit trying to fly. » In 2002, Indian Airlines' disinvestment was put off.

Aviation Apathy

For more than a decade, Indian air travelers have been living under the joys of the Open Sky Policy of 1992 that finally ended Indian Airlines' monopoly on domestic air traffic. That this would be a dystopic sort of freedom was clear from the very fact that the licences granted to private carriers were as 'air taxi operators'-with no right to publish flight schedules, lest they be mistaken for airlines. Though fares were controlled, new players such as NEPC Airlines, Damania, ModiLuft, Archana Airlines, East-West Airlines, Sahara and Jet Airways were thrilled enough just to fly-even if assigned the crumbling old airport terminals to use while Indian Airline got spanking new ones. Service standards rose, and fierce fare competition ensued in the mid-1990s.

Things have changed since. In 1997, the air taxis were bestowed with 'airline' status by the New Air Corporation Act, and their fares freed. But there has been a major shake-out, leaving the skies to Jet, Sahara, Indian Airlines and lightweight carrier Jagson-with no new licences issued. The Tata group, which sought entry in alliance with Singapore Airlines, has given up. Private airlines have almost no control over lounge facilities and ground handling (state-run on the pretext of 'security').

Free market competition is nowhere in sight. And the proposed privatisation of Indian Airlines has been shelved for the moment.

N.R. Narayana Murthy, Chairman & Chief Mentor, Infosys: Trying harder

INFOTECH

» In 1991, software companies got a tax holiday on their export income » In 1992, the always licence-free IT industry welcomed the freeing of other industries. » In 1998, the government created an information technology ministry. » In 2000, government enacted cyberlaws to tackle cyber-crime. » In 2003, Infosys claimed to be the world's second most profitable software company.

Infotech Irony

India's most successful sector has a little dirty secret: it is a beneficiary of an arbitrary subsidy. Since 1991, software exports have enjoyed an income tax holiday.

But that's not the point. The point is that it is a new sector. So new, in fact, that it escaped the attention of all the state planners and regulators who gave India the iron framework of its command economy. So it has never had licencing.

The result is an industry that India can actually claim as globally competitive. Free market access has meant high competition, ever-falling prices, high efficiency, customer friendliness and a market-judged sorting of winners and losers.

This is an industry that actually lobbied to have import duties on software cut from a high of 114 per cent to zero. "World class efficiency can't go hand in hand with protectionism," explains Kiran Karnik, President, NASSCOM.

Meanwhile, some new sectors have started adopting it products. It's a direct correlation, observes Karnik. More freedom for business spells more business for India's it industry, and this gives it a huge stake in the liberation of India Inc.

The consumer, on the other hand, has a stake in expanding his choice set. Does the availability of choice do a good job of regulating business? The current cola crisis will tell us. The terms of the debate are still under formulation, but 'freedom' versus 'regulation' is certainly part of it.

Fair enough. If freedom is a concept as easy to grasp as bottle of fizz, there's no reason why it cannot be sold to millions.