Arvind Subramanian on long term economic developments in India

For Discussion: We highly recommend the recent book Vijay Kelkar and Ajay Shah on Indian economic policy making, which goes to the basics of public policy making.

The three key steps in policy thinking are:

1.. Are we facing a market failure? If not, there is no role for the state.

2. Does the proposed intervention address this market failure? Sometimes, we see proposed solutions which do not address the claimed problem.

3. Do we have the ability to effectively implement the proposed intervention? Many times, an idea might be sound but, under present capacity constraints, the implementation of the proposed intervention may be infeasible.

There is a vast unfinished agenda, in India, of market failures where not enough work has been done. The justice system should be the first priority of civilization. This requires far-reaching work in rethinking laws, police, prisons, public prosecutors and courts. We have major new dimensions of health crises emanating from air quality, road safety, antibiotic resistance and substandard medicines. All these areas require subtle understanding of market failures, and commensurate state interventions. The competition perspective is required all across the working of economic policy, to address the problem of market power.

Numerous elements of state coercion present in India lack justification, insofar as there is no market failure that can justify the use of state power. Why does the state control the time at which a stock exchange opens and closes, or the objects that it trades in? Why does the state seek to imprison a farmer if her produce is not sold at a physical market specified by the state? Why does the state plan to put young people into jail if they trade in crypto-currencies? Why is the state forcing corporations to spend 2 per cent of their profit on good works? The list of erroneous interventions runs into thousands. India will obtain great progress by identifying and removing these interventions into the working of the economy.

Related:

India : 2019 Article IV Consultation