It is no news to anyone that India fares poorly in giving economic freedom to its citizens and business firms. Two key indexes in this regard establish the poor standing of India.
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]
In the Index of Economic Freedom brought out by The Heritage Foundation, Indian economy ranked 129th among 186 countries. In the Index of Global Economic Freedom by Fraser Institute, India ranks 79th among 162 countries with 108th rank in business regulation.
The Indian state is not only involved in running businesses that it has no business running but also intervenes in markets quite frequently. Though the intentions are honest and good, more often than not, the interventions succeed in making matters worse.
2019-20 economic survey lists four such interventions by the government of India which has done more harm than good and hurt the ability of the markets to support wealth creation, and has led to outcomes opposite to those intended.
First is frequent and unpredictable imposition of blanket stock limits on commodities under Essential Commodities Act (ECA). The survey notes that such steps neither bring down prices nor reduce price volatility. Rather, they enable opportunities for rent-seeking and harassment.
The survey takes three examples for consideration — a) imposition of stock limits on dal in 2006-Q3; b) sugar in 2009-Q1 and; c) onions in September 2019. In each of these cases, the intervention spiked up the volatility of the wholesale and retail prices whereas the objective was to ease pressure on prices.
The act is anachronistic as it was passed in 1955 in an India worried about famines and shortages; it is irrelevant in today’s India and must be jettisoned, the survey argues.
Due to ECA, four distortions take place in the agriculture market —
a) It weakens development of agricultural value chain;
b) reduces producer’s profit;
c) Inhibits development of vibrant commodity derivative markets;
d) reduces incentive to invest in storage.
All these increase price volatility in the market thereby reducing consumer welfare.
Second is the regulation of prices of drugs through the Drug Price Control Order (DPCO) 2013. The survey notes that this led to the increase in the price of a regulated pharmaceutical drug compared to that of a similar drug the price of which was not regulated.
While the DPCO aimed at making drugs affordable, it ended up achieving the opposite. “The prices increased for more expensive formulations than for cheaper ones and those sold in hospitals rather than retail shops,” shows the survey’s analysis. The very objective of the DPCO stood destroyed.
The survey’s analysis show that the prices of drugs that came under DPCO, 2013 increased on average by Rs 71 per miligram (mg) of the active ingredient, but, for drugs that were unaffected by DPCO, 2013, the prices increased by only Rs 13 per mg of the active ingredient.
For drugs sold at hospital and which came under DPCO regulation, price increased by Rs 99 per mg but for drugs not under DPCO, price increase was only Rs 25 per mg. As far as drugs sold at retail outlets are concerned, for those under DPCO, prices increased by only Rs 0.23 per mg while for those not under DPCO, prices decreased (yes, decreased!) by Rs 1.49 per mg.
Basically the act helped achieve the opposite. As the survey concludes, DPCO “increased prices by about 21 percent for the cheaper formulations (i.e, those that were in the 25th percentile of the price distribution). However, in the case of costly formulations (i.e., those that were in the 99th percentile), the increase was about 2.4 times.”
Third bad intervention is government policies in the foodgrain markets. The survey says that this has led to the “emergence of Government as the largest procurer and hoarder of foodgrains – adversely affecting competition in these markets.”
The Food Corporation of India (FCI) has overflowing buffer supply — more than it needs, and it has to pay up for this humongous food subsidy burden and what does it achieve? It only helped create divergence between demand and supply of cereals.
Moreover, this is the reason why crop diversification remains a dud because farmers keep producing crops that the FCI pays good monies for rather than growing what the market needs.
Currently, we are at a stage where the consumption of cereals (in both rural and urban areas) has been constantly declining since the last two-and-a-half decade due to rise in incomes, the production of wheat and rice (constitute more than 80 per cent of cereals) is constantly increasing and the biggest incentive for this has been continuous increase in their minimum support price).
The survey recommends that everyone will be better off if the government gives direct investment subsidies and cash transfers to farmers which do not interfere with their crop pattern decisions.
Fourth bad intervention has been debt waivers. The survey analysis 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,” the survey notes.
As action points for policy-makers, the survey has listed various acts which have the potential to create distortions in the markets and thus need to be amended and repealed. These are Factories Act, 1948, ECA, 1955, FCI Act of 1965, Land Acquisition Act of 2013, etc.
Recent Posts
- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)