Economy

Economic Survey 2020: Govt intervention in market hurting more than it helps

Updated : January 31, 2020 01:30 PM IST

India’s economic survey said intervention by the government, though well-intended, often ends up undermining the ability of markets to create wealth and leads to outcomes that are the opposite of the intentions.

The survey, which forecasts growth of 6-6.5 percent in the next financial year starting April 1, gave the examples of commodities, drugs, foodgrain and debt waivers to buttress this point.

First, the frequent and blanket imposition of blanket stock limits on commodities under essential commodities neither brings down prices nor reduces price volatility.

Second, the regulation of drug prices has led to an increase in the price of a particular drug under government lens than one that is not, according to the survey.

Third, government policies in the foodgrain markets have led to the emergence of Government as the largest producer and hoarder of foodgrains - adversely affecting competition in these markets. This has led to overflowing of buffer stocks with FCI, burgeoning food subsidy burden, divergence between demand and supply of cereals and acted as a disincentive towards crop diversification.

Fourth, analysis of debt waivers given by the States/Centre shows that full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver when compared to the partial beneficiaries. The share of formal credit decreases for full beneficiaries when compared to partial beneficiaries, thereby defeating the very purpose of the debt waiver provided to farmers.

Economic Survey 2020: Govt intervention in market hurting more than it helps

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