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Monday, 15 August 2016 00:00
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This is the most critical for India's future


On India’s 69th anniversary, perhaps the most important freedom we need is that from government processes in a more general sense but, more specifically, the freedom to participate in markets. With his emphasis on improving India’s ease of doing business indicators, prime minister Narendra Modi is sharply focused on improving the former—do we really need government permission to shut down businesses as long as all dues, including to workers, have been met? Modi, however, is not so focused on the freedom to participate in markets because, historically, politicians have got away with interfering in markets.

If an Ola or an Uber, however, decide to quit the Indian market because of the bizarre conditionalities being imposed on them, the political class might learn a lesson. But since they will probably continue to operate, politicians will feel they have won an important battle—except, what the new rules will ensure is that only existing taxis will ply with Ola/Uber but private cars that add to the fleet at various points in the day will no longer be able to do so because of the requirement to have meters; the anti-surge order may also reduce the number of taxis. In the case of pharmaceuticals, politicians feel they are doing a great job in keeping prices low. What they don’t see is the reduction in production—a recent study by two IIM professors has chilling details—that takes place as a result; several quality manufacturers stopping production of some drugs also gives a boost to spurious production.

The only time, in recent memory, that the political class has woken up to the reality of its action has been that of natural gas production. Though the contracts signed with the government, and the policy document, very clearly state that gas producers will get market prices, the government regulates prices, as a result of which exploration started getting affected. While the UPA realised its folly and worked on freeing prices, the NDA stopped this. It was only when all exploration ground to a halt, and Reliance announced it was going to work in Mexico that the NDA decided to change its policy—it remains to be seen if this will work since, with oil prices at all-time lows now, every fresh investment has to pass a higher hurdle rate now. Similarly, if a Monsanto continues to market its current generation of Bt Cotton, politicians will declare their price/royalty cap policy a success, but what happens if—as likely—this stops new variants/technology from coming into the country?

The worst-affected group, and sadly not in a position to leave the country, are farmers who face all manner of restrictions ranging from sudden export bans—think of the millions of tonnes of wheat and rice that couldn’t be exported due to the 2008-11 ban—to minimum export prices and duties that are imposed from time to time. A 20% sugar export duty was imposed last year and a $360 per tonne minimum export price was imposed on potatoes last month; farm produce is subject to all manner of state taxes and cannot be freely moved either. Given how, later today, Modi will swear his loyalty to farmers, he needs to answer how he expects them to flourish if markets are closed to them.


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