Eliminate needless government intervention to spur growth: Economic Survey

New Delhi: Eliminate instances of needless government intervention to enable competitive markets and thereby spur investments and economic growth, the Economic Survey 2019-20 said on Friday.

According to the Survey, each government ministry must systematically “examine areas where the Government needlessly intervenes and undermines”.

However, it did not argue that there should be no Government intervention.

“Instead, interventions that were apt in a different economic setting may have lost their relevance in a transformed economy. Eliminating such instances will enable competitive markets and thereby spur investments and economic growth,” it said.

“Competitive markets are effective in allocating resources in an economy. However, while the ideal of a completely efficient market is rare, the costs of Government intervention may outweigh the benefits when ‘market failures’ – a term that economists use to denote situations where markets may not work very well in allocating resources -are not severe. Of course, governments play a crucial role by intervening in situations where ‘market failures’ are acute,” the Survey said.

As low-hanging fruit to begin with, the Survey outlined certain Acts which “have outlived their use and need to be repealed by one ‘stroke-of-the-pen’ as was done post-1990s or amended to enable functioning of competitive markets.”

Accordingly, the survey described the Essential Commodities Act (ECA) as anachronistic and irrelevant in today’s India as the Act was passed in 1955 in an India worried about famines and shortages.

It observes that frequent and unpredictable imposition of blanket stock limits on commodities under the ECA distorts the incentives for creation of storage infrastructure by the private sector.

Further, the survey noted that government policies in the food grain markets have led to the emergence of government as the largest procurer and hoarder of rice and wheat which has led to burgeoning food subsidy burden and inefficiencies in the markets affecting in the long run growth of agricultural sector and adversely affecting competition in these markets.

As per the survey, this has led to overflowing of buffer stocks with the Food Corporation of India (FCI), burgeoning food subsidy burden and divergence between demand and supply of cereals. It also acted as a disincentive towards crop diversification.

The Survey also suggests that the foodgrains policy needs to be dynamic and allow switching from physical handling and distribution of foodgrains to cash transfers, food coupons and smart cards. 

In addition, it expressed concern over the regulation of drug prices through the National Pharmaceutical Pricing Authority (NPPA) and Drug Price Control Order (DPCO) as it often leads to an increase in the prices of the regulated drug vis-a-vis that of a similar unregulated drug which is counter-productive and leads to a suboptimal outcome.

Image courtesy of ians.in

Share this post