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A Quarter Century and a Half Full Glass

Twenty Five Years of India's economic reforms have achieved a great deal for individual savers and investors

A Quarter Century and a Half Full Glass

It's almost self-evident that the twenty five year history of economic reforms is a glass that's either half full or half empty. If you start from where we were in June 1991, then a great deal has gotten done, but if you start with where we could have been today, then the glass looks quite empty.

From the point of view of individuals who are investing their savings, the glass is decidedly full. Back in 1991, it was difficult and unsafe for the ordinary saver to do anything but deposit money in banks, post offices or other government schemes. In other words, we had access only to fixed income returns. There was UTI and a handful of schemes from government banks that were called mutual funds, but there was no regulatory framework, no transparency and little resemblance to anything like a modern mutual fund. The only really popular product was the original Unit Scheme 64, in which investor' income and returns had little relation to how the scheme was actually performing.

Transparency was so bad that NAVs for mutual fund would be calculated barely once a quarter and would not be revealed to anyone without a great deal of effort. As the country's first mutual fund analyst, I can vouch for the fact that in the early 90s, one often had to physically visit funds' offices to wheedle the NAV out of someone. My craziest experience was when an official in the mutual fund department of a Delhi-based bank gave me the asset register and said that if I wanted to know the NAV so badly, then I would have to calculate it myself.

Over these 25 years, mutual fund investing has come a long way. The regulatory framework was created, transparency and clarity was brought to the products and the industry was opened up to private and foreign players. Open-ended funds became the norm, and fixed income funds became possible. Some of this became possible because the underlying asset markets like the stock exchanges underwent revolutionary reform. Dematerialisation brought about the end of physical stock certificates and distributed electronic trading brought about speed and transparency. The opening of the markets to foreign players brought volumes, and a whole host of factors cleaned up India equity investing and the brokerage industry. Here too, the glass is only half full yet but the trustworthiness of Indian corporates' financial statements has improved out of all recognition over these years.

From the standpoint of the individual saver, there are two major disappointments--one being insurance and the other public sector disinvestments. Despite private and foreign insurers coming in, insurance has stayed mostly within the circle of the same kind of anti-customer, agent-friendly products that LIC had championed. It's only recently that low-cost, directly sold term insurance has started gaining some ground but we're still probably long years away from being an adequately insured.

Unfortunately, in the case of public sector disinvestment, the glass just has a few droplets of stale water in it. It all started out with great promise in 1991. In fact, I started Value Research in 1991 with a PSU disinvestment research project that was published in this newspaper. Various governments have tried everything--bundling, cross-sales to other PSUs, periodically extracting cash from LIC, a special Exchange Traded Fund and many other tricks. However, apart from a few outright sales during the NDA-1 regime, there's been almost no activity on the government getting out of running businesses.

Instead, the entire focus has been on extracting some money to help with the Union Budget. This hasn't gone anywhere, and is not going to. In fact, PSUs that compete with private companies are all much worse off now than they used to. In the case of some, Air India and BSNL being the biggest examples, there's much suspicion that they were deliberately hobbled to benefit domestic and foreign competitors. In the last two years, we've seen a huge push for a new generation of reforms. However, the litmus test will be getting the government out of businesses that it has no business being in.