Towards a meaningful market economy

O
ver time, India has attempted to move from cannot be achieved more economically. There is important that the government corrects for negative
creating a planned to a meaningful market- scope for privatisation at a fair price to the right buy- externalities from sectors like agriculture, transport
oriented economy. We are quite familiar ers, and not just disinvestment. and industry.
with what the government should not do. What is We do need policies for macroeconomic and It is important to improve regulation and to sub-
less familiar is what the government should still financial stability. And, this stability should be stantially raise the tax-gross domestic product ratio,
do, or do more emphatically. That is the main con- with minimal costs to the taxpayers and with min- as the so-called capitalist nations in the West have
cern here. imal financial repression. For example, real interest done. This should be without harassment and with-
Contract enforcement and respect for property rates should not be kept low, for long, in attempts out creating uncertainty about the tax rules. The
rights are crucial in a market economy. However, to deal with an economic slowdown, which may emphasis should be on reducing tax exemptions
this is possible only if we have considerable expan- not even be cyclical in India. and on meaningfully spending on technology and
sion of and improvement in institu- Sometimes protection for the public administration that can keep a check on tax
tions like the judiciary in India. At domestic industries is justified on evasion. It is also important to bring back taxes like
present, there are serious weakness- the grounds that we should make the wealth and inheritance tax on large fortunes,
es on that front. Also, there is a need use of unused or under-utilised and do so with respect. And, of course, the public
for consistent rule of law, not select- resources within the economy. money should not be spent on freebies, which are
ed rule of law. The government However, it is important to draw not merit goods or public goods, in order to “buy”
needs to change all this. appropriate lessons from three dif- votes in elections.
At present, there is a major ferent fields — macroeconomics, Though licensing was abolished in the manu-
emphasis on a variety of govern- development economics and inter- facturing sector in the early 1990s, effectively it is
ment schemes and projects. national economics. This is a chal- still present in parts of the economy like the real
However, there is a need to shift lenging task indeed, but we need estate sector. This needs to go. Relatedly, the gov-
focus towards enabling policies. GURBACHAN SINGH to keep the basic principles in mind ernment needs to provide, or enable the private sec-
While capitalism has its impor- while attempting second best solu- tor to provide, the infrastructure that is much-need-
tance, there is a need to keep a check tions in the real world. Relatedly, ed for real estate development on a huge scale in a
on crony capitalism. Relatedly to some extent, the Customs duties and other barriers should not be less urbanised country like India. All this can even
ease of doing business has improved in India. But increased beyond a point just because these are act as an engine of growth and employment. It can
the same cannot be said for the ease of entering busi- not violating the letter of the World Trade reduce the price of homes, which can, in turn,
ness. It is the free entry that provides more mean- Organization rules. reduce, if not obviate, the need for a government
ingful competition; the success on start-ups is some- While it is important to weed out the anti-worker scheme like the Pradhan Mantri Awas Yojana.
what limited to tech-related businesses. The labour laws, there is a need to retain pro-worker laws To conclude, it is, in fact, not always clear that
government needs to meaningfully enable entry in and policies. For example, it should be possible to we are moving unambiguously towards a market
business. This may even pave the way for the gov- fire employees in distressed or dynamic industries economy. To the extent that we are, we need to move
ernment to substantially reduce its current budget but if a worker gets injured at work, it should be pos- towards a meaningful and sustainable market econ-
of around ~2 trillion for just the production-linked sible to get meaningful and immediate compensa- omy, and not just a market economy. There is a long
incentive (PLI) scheme. tion from the employer. journey ahead.
We still have a large public sector and many parts Often the market mechanism does not pay atten-
are inefficient. It is not even clear if much of it is tion to the environment (think of the air quality in The writer is visiting professor, Ashoka University.
helping in achieving some social objectives, which Delhi particularly in the winter months). So, it is gurbachan.arti@gmail.com