Forgotten lessons of Economics

Pranab Mukherjee, the finance minister, last evening again repeated a falsehood in the hope that if you repeat a false statement enough times, it will appear to be true – he mentioned that if inflation were to be tamed, growth would have to come down.

This reflects the lack of ideas that the government has in increasing production. Supply side issues abound. Complex land laws prevent quick transactions relating to land, and create an artificial scarcity that raises land prices beyond what any legal economic activity can support. Poor legal administration increases the cost of all economic transactions, while raising the cost of credit. Bureaucratic delays and complex compliance prevent entrepreneurship from flourishing without flouting some arcane rule. Tax compliance is reliant on interpretation of officials empowered to harass the tax payer without adequate redressal mechanisms. All this leads to large scale unemployment, resulting in corruption and an environment where government appears to don the role of a “largess distributor” rather than that of a servant of society.

Other capacity building measures – good quality and high availability public health system, and education systems are conspicuous by their absence. Instead, the economic survey and planning commission – the economic “think tanks” of the government – continue to propagate irrelevant ideas of increasing foreign investment limits in health insurance, and in multi-brand retail.

One has to only look at the disaster that the USA is heading towards in its Medicare and Medicaid programs to see the problems that arise from unrestrained private sector growth in health insurance, and from a patent law that protects corporate profits over the need of human life. The economic rationale for foreign investment in multi-brand retail is even less obvious.

A government that is mired in corruption, increasingly dependent on the support of regional parties for its existence and devoid of any ideas on how to progress India’s aspirations is going to present challenges to India achieving its true potential. If India does well inspite of these challenges, one has to believe that there is a God somewhere – more importantly someone who has Indian citizenship!!