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¹Amsterdam School for Social Science Research, Centre for Asian Studies Amsterdam (ASSR-CASA), University of Amsterdam, Kloveniersburgwal 48, 1012 CX, Amsterdam, The Netherlands. E-mail: bekkers@pscw.uva.nl

In 1991, India liberalized its regulatory market system, the 'License Raj', and opened up to global competition. This eliminated the chronic supply gap characterizing the Indian market and introduced efficiency, quality and innovation to a competitiveness previously based on political 'connectivity'. However, the largely nationalized banking sector has been unable to change in tune with the market environment. Pre-liberalization, banks mainly served as a credit distribution infrastructure, since investment approval was in government hands. Liberalization shifted this responsibility to banks; but lacking the infrastructure, professionals and tools to analyse market developments, to manage market risk, they paradoxically rely on consultants with reliable reputations. This paper explores two issues. Firstly, it shows that market liberalization requires an infrastructure of professional business services to analyse the market forces unleashed and to equip market parties with appropriate tools. Indian banks have so far failed to change from 'credit administrators' into market analysts. Secondly, the paper discusses the implications of this failure for other professional business services and industry generally. The banks' inability to distinguish between sophisticated business plans and frauds corrupts the market for business consultancy, while lending unguided by market analysis facilitates cut-throat competition in a saturated market.

Asian Business & Management (2003) 2, 239-266. doi:10.1057/palgrave.abm.9200044

globalization; banking; small-scale industries; risk management; knowledge system; business consultancy