Key theme of Economic Survey: Wealth creation and policy that enables it

Document bats for “invisible hand of the market”, says sectors that were liberalized have grown significantly faster than the rest

GN Bureau | January 31, 2020


#growth   #parliament   #Nirmala Sitharaman   #finance ministry   #Economic Survey   #market   #wealth creation  
(Illustration: Ashish Asthana)
(Illustration: Ashish Asthana)

For more than three-fourths of known economic history, India has been the dominant financial power globally. During much of this dominance, the economy relied on the invisible hand of the market for wealth creation with the support of the hand of trust, notes the Economic Survey tabled in parliament Friday.

Specifically, the invisible hand of markets, as reflected in openness in economic transactions, was combined with the hand of trust by appealing to ethical and philosophical dimensions, said the Survey, which was presented by minister for finance and corporate affairs Nirmala Sitharaman.

The Survey shows that contemporary evidence following the liberalisation of the Indian economy supports the economic model advocated in our traditional thinking. The exponential rise in India’s GDP and GDP per capita post liberalisation coincides with wealth generation in the stock market. Similarly, the evidence across various sectors of the economy illustrates the enormous benefits that accrue from enabling the invisible hand of the market. Indeed, the Survey shows clearly that sectors that were liberalized grew significantly faster than those that remain closed. The events in the financial sector during 2011-13 and the consequences that followed from the same illustrate the second pillar – the need for the hand of trust to support the invisible hand.

The Survey posits that India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets. The invisible hand needs to be strengthened by promoting pro-business policies to (i) provide equal opportunities for new entrants, enable fair competition and ease doing business, (ii) eliminate policies that undermine markets through government intervention even where it is not necessary, (iii) enable trade for job creation, and (iv) efficiently scale up the banking sector to be proportionate to the size of the Indian economy. Introducing the idea of “trust as a public good that gets enhanced with greater use”, the Survey suggests that policies must empower transparency and effective enforcement using data and technology to enhance this public good.

As wealth creation happens by design, the overarching theme of Economic survey 2019-20 is wealth creation and the policy choices that enable the same. At its core, policies seek to maximize social welfare under a set of resource constraints. Resource constraints force policymakers to focus on efficiency, which more output to be produced from given resources such as land, human resources and capital or, the same output for less resource use.

The evidence since 1991 shows that enabling the invisible hand of markets, i.e., increasing economic openness, has a huge impact in enhancing wealth both in the aggregate and within sectors. Government intervention hurts more that it helps in the efficient functioning of markets. For instance, in the pharmaceutical industry, government regulated formulation prices increase more than unregulated formulations. Moreover, the supply of unregulated formulations is more than that of regulated formulations. Government interventions often lead to unintended consequences such as price increases, when compared to markets that are unregulated.

The ease of doing business has increased substantially in the last five years from reforms that provided greater economic freedom. India made a substantial leap forward in The World Bank’s Doing Business rankings from 142 in 2014 to 63 in 2019. The Doing Business 2020 report has recognised India as one of the ten economies that have improved the most.

Yet, the pace reforms in enabling ease of doing business need to be enhanced so that India can be ranked within the top 50 economies on this metric. India continues to trail in parameters such as Ease of Starting Business, Registering Property, Paying Taxes, and Enforcing Contracts. The Surveys identifies the most crucial issues plaguing India’s performance beyond the approach taken by the World Bank’s survey.

The analysis in this chapter reveals that key financial indicators such as net worth, net profit and return on assets of the privatised CPSEs (central public sector enterprises), on an average, have increased significantly in the post-privatisation period compared to the peer firms. This improved performance holds true for each CPSE taken individually as well.

Wealth creation in the economy must ultimately enhance the livelihood of the common person by providing him/her greater purchasing power to buy goods and services. A plate of nutritious food for the common man – a Thali – is a basic item that every person encounters every day. Therefore, there cannot be a better way to communicate whether or not economic policies make the common man better off that qualifying what he/she pays for a Thali every day. The survey presents evidence that a Thali- a nourishing plate of food has become more affordable for a common man now.

Comments

 

Other News

Making sense of the ‘crisis of political representation’

Imprints of the Populist Time By Ranabir Samaddar Orient BlackSwan, 352 pages, Rs. 1105 The crisis of liberal democracy in the neoliberal world—marked by massive l

Budget: Highlights

Union minister of finance and corporate affairs Nirmala Sitharaman presented the Union Budget 2023-24 in Parliament on Wednesday. The highlights of the Budget are as follows: PART A     Per capita income has more than doubled to Rs 1.97 lakh in around

Budget presents vision for Amrit Kaal: A blueprint for empowered, inclusive economy

Union Budget 2023-24, presented by finance minister Nirmala Sitharaman in the Parliament on Wednesday, outlined the vision of Amrit Kaal which shall reflect an empowered and inclusive economy.  “We envision a prosperous and inclusive India, in which the fruits of development reach all regions an

Soumya Swaminathan to head M S Swaminathan Research Foundation

Former World Health Organisation (WHO) chief scientist Soumya Swaminathan takes charge as chairperson of M S Swaminathan Research Foundation (MSSRF) from February 1.   Founded by her father, the legendary agricultural scientist M S Swaminathan, MSSRF was set up to accelerate the use of m

m-Governance: Key to Digital India

The digital revolution is being led by India. Digital governance is a key component of the government's ambition to transform India into a society where everyone has access to the internet. It includes both M-governance and E-governance, which are major methods for the delivery of services via mobile devic

A sacred offering of the beauty of ‘Saundarya Lahari’ – in English

Saundarya Lahari: Wave of Beauty Translated from the Sanskrit by Mani Rao HarperCollins, 218 pages, Rs 399 ‘Saundarya Lahari’, usually ascribed to Adi Shankaracharya, has a unique status among the religious-spiritual works of Hinduism.

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now



Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter