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Economic Survey 2019-20: Excessive govt intervention stifles economic freedom

The Economic Survey 2019-20 also said that government interventions may be needed if the markets do not function properly

Friday January 31, 2020 3:47 PM, IANS

Economic Survey 2019-20

New Delhi: Suggesting the government to do away with laws which interrupt market-driven operations, the Economic Survey 2019-20 on Friday said excessive government intervention in market stifles economic freedom.

It also said that government interventions may be needed if the markets do not function properly.

"The Economic Survey at the very onset says while there is a case for government intervention when markets do not function properly, excessive intervention especially when the market can do the job of enhancing citizens welfare perfectly well, stifles economic freedom".

This creates 'deadweight loss' -- the loss created by the wasted chance of creating a consumer and producer surplus and reducing wealth creation by not allowing efficient allocation of entrepreneurial resources and energy to productive activities thereby promoting economic dynamism, said an official statement.

The survey described the Essential Commodities Act (ECA) as irrelevant as the Act was passed in 1955 when India was concerned about famines and shortages.

It observes that frequent and unpredictable imposition of blanket stock limits on commodities under the ECA distorts the incentives for creation of storage infrastructure by the private sector.

"The Survey further notes that imposition of stock limits on 'dal' (pulses), sugar and onions had no effect on the volatility of retail and wholesale prices. The survey, providing clear evidence, suggests that the Act must be jettisoned in order to grant more economic freedom to the market and to facilitate the process of wealth creation in the economy.

The Survey further says that the ECA only seems to enable rent seeking and harassment, it said.

Further, the Survey also said that government policies in the foodgrain markets have led to the emergence of government as the largest procurer and hoarder of rice and wheat which has led to burgeoning food subsidy burden and inefficiencies in the markets affecting in the long run growth of agricultural sector and adversely affecting competition in these markets.

As per the survey, this has led to overflowing of buffer stocks with the Food Corporation of India (FCI), burgeoning food subsidy burden and divergence between demand and supply of cereals. It also acted as a disincentive towards crop diversification.

The survey also suggests that the foodgrains policy needs to be dynamic and allow switching from physical handling and distribution of foodgrains to cash transfers, food coupons and smart cards.

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