Introduction:

The early 1990s was an era of intense changes in the Indian economic system. The torrent of international companies that we see today in India was born as a result of the economic transitions the country went through in 1991. It was the age of relaxation of a number of rules popularly known as “Liberalization”. With liberalization, there was an increase in competition and certain categories were facing competition for the first time. There could be no lackadaisical attitude on the part of the companies existing pre-liberalization as the whole economic system was overthrown to willingly accommodate more players. Liberalization had far reaching impacts. One are which it impacted significantly was the arena of advertising. Organizations couldn’t take their customers for granted as there were other organizations waiting to eat into their market share. Advertisements hence became a more incisive tool for organizations to make their presence felt and appeal to their target audience. It is this change in the pattern of advertising that this thesis wishes to track.

Literature Review

Exploring the Concept of Liberalization:

“…in July 1991… with the announcement of sweeping liberalization by the minority government of P.V. Narasimha Rao… opened the economy… dismantled import controls, lowered customs duties, and devalued the currency… virtually abolished licensing controls on private investment, dropped tax rates, and broke public sector monopolies…. We felt as though our second independence had arrived: we were going to be free from a rapacious and domineering state…” – Das (2000), on the reforms that originated with the July 1991 package announced by Manmohan Singh (Panagariya, 2004).

To ‘Liberalize’ means remove or loosen restrictions on (something typically an economic or political system).  Generally, Liberalization (Liberalisation) refers to removal or relaxation of restrictions imposed by the previous government usually in areas of economic or social policy.  In the area of social policy, liberalization refers to the relaxation of laws for example, laws on homosexuality, drugs, abortion, divorce etc.  In the area of economic policy, liberalization can either be privatized or be liberalized.  Like, India has liberalized various markets, instituting a system of competition, but still some of the departments like Gas and Energy remain partially or completely in government ownership.

The economic liberalization in India refers to the current reforms in India.  The Indian economy was liberalized in 1991.  That marked the end of “License Raj”.  License Raj, also known as Permit Raj, was the brainchild of Jawaharlal Nehru, India’s first Prime Minister.  It was the result of Nehru’s decision to have a planned economy in India where all the aspects of economy are controlled by the government (state).  License Raj refers to the elaborate licenses and regulations and the accompanying ‘red tape’, which was required to set up and run businesses in India between 1947 and 1990.                In the late 80s, the government led by Rajiv Gandhi eased restrictions; removed price controls and reduced corporate taxes. This did increase the rate of growth, but it in turn led to high fiscal deficits and a worsening current account. Soviet Union, India’s major trading partner collapsed at the same time and the first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India. The Gulf war also led to a reduction in repatriation from expatriate workers (an important source of foreign exchange at that time).  India asked for a $1.8 billion bailout loan from IMF, which in return demanded reforms.  In response to this, Prime Minister Narasimha Rao and the finance minister Manmohan Singh initiated the economic liberalization of 1991. The reforms did away with the License Raj and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. On licensing, the new policy explicitly stated, “industrial licensing will henceforth be abolished for all industries, except those specified, irrespective of levels of investment.” (Sivadasan, 2007)

Liberalization is about –

• Encouraging growth of private sector
• Simplification of policy, regulation, tax structure
• Facilitating Foreign Direct Investment
• Restructuring public sector for efficiencies
• Providing incentives for exports and allowing more imports
• Put emphasis on modernization of plants and equipment through liberalized imports of capital goods and technology (Sivadasan, 2007)
• Expose the Indian industry to competition by gradually reducing the import restrictions and tariffs
• Moving away from protection of small scale industries

Realization that economies of scale is necessary for economic growth (Singh & Shankar, 2008)

Life before 1991

Various rules were imposed on foreign companies operating in India, under the Foreign Exchange Regulation Act (1973).  Foreign ownership rates were restricted to below 40% in most industries. In addition, restrictions were placed on the use of foreign brand names, on remittances of dividends abroad and on the proportion of local content in output (under the Phased Manufacturing Program).   (Sivadasan, 2007)

• Very limited brands available on the supermarket shelves
• Upto 97% taxes on private players
• High-level corruption.  Frustrated Entrepreneurs
• State monopoly in many key sectors including TV broadcast.  Hence, the monopoly of Doordarshan. [Television and public policy: change and continuity in an era of global liberalization, David Ward, 2009]
• Legendary battle between the two textile magnates – Dhirubhai Ambani and Nusli Wadia in the latter part of 1986.  The battle between these 2 corporate rivals – Dhirubhai Ambani, Chairman Reliance Industries Ltd., is not the first in the history but the weapons such as the Press employed by them on the large scale is certainly without a parallel. This shattered the concept of objective journalism in a business controlled press (Aggarwal, 1989)
• Movies of that era – young man rebelling against the ‘system’ – a reflection of common man’s angst against a state-run, corrupt, bureaucratic machinery which slowed down the progress of India rather than facilitating it.

Life after 1991

• Foreign direct investors were now allowed up to 51% equity stakes in certain industries, under the “automatic approval route”. Further, restrictions relating to use of foreign brands, remittances of dividend and local content were relaxed. Following these reforms, there was a significant increase in amount of foreign direct investment into India(Sivadasan, 2007)
• Media Explosion
• Introduction of Cable TVs.  Since most of the Doordarshan’s programming was seen to be unimaginative and dull, large audiences switched to satellite television channels made available through cable.
• Influx of western ideas and lifestyle
• Conspicuous consumption
• Entry of foreign players and hence multiple players in each category.  Great increase in competition and hence, customer at the advantage
• Increase in challenges of Media Planning and Brand Building due to the widespread channels
• Emergence of TVR, GRPs, TAM ratings etc

· Much more buoyant and optimistic state of mind was reflected in Bollywood.  Hence, all soft, mushy, romantic blockbusters like ‘Hum Aapke Hai Kaun’,’Dilwale Dulhaniya Le Jaayenge’,’Kuch Kuch Hota Hai’ (Joshi, 2001)