Free Essay: Government Intervention and Regional Economic Integration

Published: 2022-03-18
Free Essay: Government Intervention and Regional Economic Integration
Type of paper:  Critical thinking
Categories:  Economics Government India
Pages: 7
Wordcount: 1736 words
15 min read

India is an economic powerhouse in Asia. Its current present population is around 1.3 billion people. Both international and local companies perceive this as the perfect market for their goods and products. There is a handful of bottle-neck that hinder their trade activities. The retailing market in India has witnessed tremendous growth in last fifty years; it contributes around five percent to the GDP of Indian economy. The substantial increase of the Tigre economy is attributed mainly to the efficiency emanating from competition, tied to other economic factors. From global- commitments to social trade liberation. (Kim & Lee,2009).

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The founding fathers of India put a great emphasis on protecting and defending their industries. Still, the successive regimes have inherited that system amidst condemnation globally. Their primary objective was to attain even and equity in economic development in their country. The industrial policy of 1948 ensured the government had the monopoly in almost every sector. Private companies were marginalization as well as foreign firms. The government had an extreme right. The private sector was concerned mainly with producing goods. The government nationalized many institutions by coercing and working together with agencies to ensure public ownership. Control of pricing, foreign exchange, and manufacturing of products adopted from the Britons after independence.

The essential act of 1955 (with other successive actions), gave government more regulatory power in controlling price. By 1960, the government still enforced rate on a variety of commodities, exports and imports and flow of foreign exchange. The steps caused a lot of ripple within the market as it faced a fierce revolt from the market. Export progress was receiving a blind eye. It was discouraged due to the many bottlenecks. Strict regulations and weird licensing requirements that was just too much. The structural problems lamed market operations

Price ceiling was put into force at some instants, in some cases the moved proved expensive and counter-productive, it led to growth of black-market. It gave leeway for tax evasion by the participant leading to loss of revenue. The government viewed foreign firm with a cloud of dust and so many suspicions. Strict licensing of international business permits and terrible conditions for operations were inflicted. This was the case, especially in manufacturing and retailing industries. The acts restrained foreign investment as well as private investment.

This strict regulation led to the growth of the administrative setup of the central government. Form applications took a century when processing. There were many complaints from the market participants that they used more time in obtaining documents as opposed to operating their business premises. Critics pointed out corruption and secret dealings within the administration.

Trade liberation kicked off in 1985. The government abolished some of the licensing regulations and did away with factors that abhorred free competitions. Sound economic policies were put in place. The reforms that were being introduced included: low quantitative restrictions on those importing, fewer subsidies, reduced import duties, scrapping away with licensing for all industries, liberalized interest rate, selling of shares and having proper tax reform systems. The change was a welcome move for many, but it equally faced opposition from those who wanted the status quo to be maintained. A number of them believed the reforms would culminate into more problems than it could solve.

India has been worrisome and reluctant in allowing multi-brand such as Walmart, IKEA, Carrefour, etc. To penetrate the Indian market, a few years ago the market experienced disorganization within the organization. There were bulk issues that affected the market and needed to be dealt with adequately. To some degree, the local companies had success but lacked financial muscle to help them exploit to their full potential. There were challenges of logistics and supply chain. Indian were buying from small shop and kiosks. FDI could bring new technology, create jobs and introduce new retail formats. What restricted the entry of foreign firms includes the uncertainty of Market despite enjoying political stability. Also, there is the problem of the back-end restriction from the Indians authority, and this creates lack of faith in the investors.

The moves are made in the name of protecting the local industry from collapse. This move is open for discussion. What of the changing trade dynamics? The business industry is evolving so fast and what is new today could be ancient tomorrow. The evolution is robust. India has to rethink some of its approaches. Some of the fear exhibited by the state can't just hold water and is very out-dated and backward school of thought. If looked from another angle, a critic of Indian would ask: Do the Indian retailers need to access foreign capital. If that could be answered wholesomely then, India would have no cause to worry; instead, they will be at the forefront in creating better reforms policies that would invite more investor (local and foreign).

The retail industry in India is on the rise. Ten years ago, businesses were owned by small entrepreneurs. The entry of large firms, store, and supermarkets was a game changer in the industry. The Indian central government did not take it in a positive light. It came up with raft measures, hard policies and regulation that would limit Direct Foreign Investment(FDI) of the supposed international companies. (Rao,2013). The single retail brand was limited to fifty-one percent ownership in the bureaucratic move. These reforms sparked a lot of criticisms. The changes forbid global brands from setting base in the market forcing them to be innovative in their retailing and also be competitive in the market. The proponents of the reforms advocated for it while the opponents of the changes vehemently opposed it with zeal. The government came under so much pressure from those who oppose the reforms. The government gave in, it halted the plan of implementing the changes and postponed it to a later date till the consensus was achieved.

In 2012, India signed the reforms of allowing foreign investors in single-brand business to operate in the innovative market in India. (Cavusgil, Knight & Riesenberger,2016). The single-business retailer is entitled to a hundred percent ownership of the company. However, he is restricted to sourcing thirty percent of his goods from the local Indian market. The reforms against multi-brand business are still on course. In late 2012, the government of India opened a Foreign Direct Investment (FDI) multi-brand retail, and it was dependent on the respective individual states. Economists lauded the move, and it caused a political rift within the central government of India. The FDI reforms were adopted in India, and its implementation kicked off.

Still, in 2012, the Federal Republic of India allowed the multi-brand store to have 51% stake in the industry. The government achieved this amidst stiff resistance from the opposition supporters and legislators. It motivated the FDI, although there still were myriad of challenges that acted as obstacles in their activities. The FDI saw the light at the end of the tunnel and were very much willing to explore the virgin opportunity at their disposal. India is among the top five largest retail market in the world and India has been endowed with so many natural resources that awaited exploitation.

The impact of government intervention has been felt directly or indirectly by businesses in India. The Indian government enacted laws that prohibited and of foreign goods, limited production of specific products, the sale of individual items as well as its consumption. From an economic point of view (may it be, market, communist or mixed economies) its core role is to ensure the betterment of thesociety. (Kleymenova, Rose & Wieladek,2016). Unfortunately, some of the markets does not encourage that. A free market is prone to monopoly, one firm becomes efficient and take control of the market. The government has an unwavering authority in controlling business activities. If the government deems a market a particular market unfair, the government may be forced to intervene and bring sanity in the business environs. In many cases, appropriate government intervention can spur excellent trade performance.

The government may come up with a mandatory frame that all business have to adhere to operate it within that setup. (Besley, & Burgess,2002). The policies and regulation put forward by the government to a significant degree affect how the industry handles its activities. It behooves the businesses to be evolutionary and adjustable so that they can fit in and be part of the change that the government effects. The enterprises, whether multi-brand stores or small business inability to react accordingly to these changes, could cost them dearly and deny them survival leading to their extinction. (Shao, Hernandez & Liu, 2015). The political system in India is very stable. It will ensure sufficient business transactions, albeit of foreign entities restriction, all factors that enhance stability should be implemented.

If the government increases the interest rate, this will discourage consumers from borrowing and limited spending among consumers. Low-interest rate attracts more consumers while high-interest rate dissuades investors, with low-interest rate, foreign investment gets motivated and enters the markets. (Chakraborty & Basu, 2002). In a nutshell, the Indian government should carefully examine its methodology on how it regulates foreign firms. They have to shed off the defensive mechanisms exhibited presently.


Cavusgil, S. T, Knight, G., & Riesenberger, J. (2016) International business: The new realities (4th ed.). Boston, MA: Pearson. ISBN: 9780134324838

Kleymenova, A., Rose, A. K., & Wieladek, T. (2016). Does government intervention affect banking globalization? Journal of the Japanese and International Economies, 40, 43-58.

Shao, Y., Hernandez, R., & Liu, P. (2015). Government intervention and corporate policies: Evidence from China. Journal of Business Research, 68(6), 1205-1215.

Goletti, F., Ahmed, R., & Farid, N. (1995). Structural determinants of market integration: The case of rice markets in Bangladesh. The Developing Economies, 33(2), 196-198.

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Chakraborty, C., &) Basu, P. (2002). Foreign direct investment and growth in India: A cointegration approach. Applied economics, 34(9), 1061-1073.

Kathuria, L. M., & Jain, S. (2013). Are small retailers ready for the onslaught of large organized retailers? Empirical evidence from India. International Journal of Logistics Systems and Management, 15(1), 47-67.


Kim, Y. J., & Lee, J. H. (2009). Doing Business in India. ASIA MARKETING JOURNAL, 11(2), 21-35.Rao, G. U. K. (2013). 8. RETAIL SERVICES SECTOR IN INDIA. EMERGING TRENDS IN SERVICES SECTOR, 103.

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