October 30, 2008

Bollywood in the Post-reform Era

The success of reforms in stimulating growth has inclined the audience more favourably towards entrepreneurs and corporations.

Though the film industry rarely comes to mind when we think of reforms, its transformation in the post-reform era has been remarkable. Total revenues of the industry have grown from Rs 60 billion in 2004 to Rs 96 billion in 2007. This represents an annual growth of 17% in nominal terms. Today, India produces more films than either the US or EU. While Bollywood accounts for the bulk of the revenues, surprisingly, it produces only one-fifth of India's total. Tollywood (Telugu film industry) produces more films than Bollywood.

To be sure, pre-reform policy regime proved lesser of a handicap for the film industry than for manufacturing. Being generally outside the ambit of the licence raj, the former could respond more freely to market forces than such sectors as automobile, cement and steel. Nevertheless, progress was hampered by super-high entertainment taxes that limited the growth of the market; import controls that denied the industry access to the state-of-the-art equipment; foreign exchange controls that limited its freedom to shoot in foreign locations; and lack of recognition as an industry that led banks and other financial institutions to deny credit to it. The last of these factors contributed to increasing dependence of the industry on black-market, including underworld for credit.