Please explain the concept of "state monopolies" as they exist in India.

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kipling2448 | (Level 3) Educator Emeritus

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Many countries, including India, protect specific industries from international competition, either for national security reasons (e.g., certain industries the survival of which are essential for the manufacture of high-technology weapons systems), for economic/political reasons (many industries employ thousands or hundreds of thousands of people and are therefore protected from competition to protect those domestic jobs), or for cultural reasons (certain countries protect specific industries because those industries are synonymous with those countries' development and with their sense of cultural uniqueness (e.g., France protects the Dannon yogurt company because of its historical association with France, just as it seeks to prevent non-French companies from calling "champaign" by that name, which has its origins in the region of France where it was first produced). Often, certain industries are protected for a combination of these reasons. Many countries, including the United States, Russia, China, and Japan all try to protect their domestic steel industries both because of the number of manufacturing and mining jobs those industries support and because of the importance of steel to national security, as it is vital to the production of naval vessels, tanks, and so on.

With this as background, the government of India, as with other nations, has sought to protect certain industries for a variety of reasons, including national security and economic stability. Energy sectors are frequently nationalized by governments to ensure they are protected from competition, that rates can be arbitrarily determined according to circumstances, and to simply ensure they survive despite not being profitable. Airlines and railroads similarly are often nationalized and operated as state monopolies for reasons of national prestige, the lack of a viable competitive environment, and to ensure they continue to exist absent a profit motive. In India, Indian Railways, the BSNL telecommunications firm, the nuclear power sector, aircraft manufacturing, and other economic sectors are all operated as state monopolies to ensure government control over decisions and processes. Often, these monopolies continue to exist solely to appease powerful political constituencies like miners, farmers, and steel workers. Just as often, these industries are deemed essential for national and economic security and are therefore protected from foreign competition.

While state monopolies remain prevalent throughout much of the world, such entities increasingly face legal challenges in international forums like the World Trade Organization because they do impede competition. Foreign businesses want to compete in large markets like India and China, and those two countries' state monopolies prevent such competition, which would inevitably lower consumer prices but at the risk of the viability of the domestic industry. By retaining total control over certain industries through the retention of state monopolies, however, the government in India can ensure those industries survive in perpetuity, albeit at the expense of the benefits that usually accompany competition, like product reliability and technological innovation, and lower prices.

An exception to the rule regarding the price implications of competition is the tendency among countries with socialist economic principles to use state monopolies to artificially depress consumer prices. In India, this has historically been the case with regard to agricultural production, an economically and politically important sector of the national economy. Indian governments over the years have maintained control of agricultural production and prices to ensure the latter remains low enough to prevent social instability that occurs when the prices of basic staples like flour and rice climb beyond the ability of the huge populations of lower-income families to afford. [See with respect to India Role of State-Owned Enterprises in India's Economic Development, http://www.oecd.org/daf/ca/workshop_soesdevelopmentprocess_india.pdf]

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