The Jaitley doctrine PDF Print E-mail
Tuesday, 26 July 2016 08:32
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Govt must resist the urge to control everything


Many of his colleagues in the government would do well to read finance minister Arun Jaitley’s Justice Konda Madhva Reddy memorial lecture where he compares the pre- and post-1991 period. All governments, the finance minister said, have ‘an urge to control…an urge to regulate … an urge to become overbearing”. That, he said, was inconsistent with the post-reforms mindset where governments had to become facilitators. Had this advice by the finance minister been followed by his colleagues, many of the missteps of the last two years could have been avoided, furthering the government’s claim of being fully reformist. Had the government realised that the kind of regulation it did created its own set of distortions, it would never have come up with a price-control order on cotton seeds, last year for example. Since there was enough competition in the market, there was no need for the price-control order; indeed, all it did was to make suppliers that much more hesitant to enter the market. This was followed by an even more restrictive order which capped royalty rates—since this affected the US seed-tech firm Monsanto and the prime minister was going to the US, the government then said the order was actually just a discussion paper! Had the Jaitley doctrine been followed, similarly, the government would not have capped airfares for poorly connected areas in the new aviation policy. And instead of raiding ‘hoarders’ of pulses, the government would have realised it was the supply shortage that was causing prices to rise. Similarly, there would be no talk of imposing caps on surge-pricing by Ola/Uber or of framing a law that allowed state governments to do so.

Jaitley’s statement on PSUs—“the state monopoly was considered to be in the larger interest of the public”—is even more interesting. The finance minister talked of how, in the days of the PSU monopoly, less than 1% of Indians had phones. The same example can be repeated in the case of airlines and many other sectors where PSUs have been allowed to dominate for decades—it took just a few years, for instance, for Cairn India to emerge as India’s second-largest oil producer. Whether this leads to some meaningful privatisation remains to be seen—the NITI Aayog’s first report on this, though, suggests it may—but it is worth keeping in mind that giving PSUs truckloads of public money to stay afloat is also akin to stifling the private sector.



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