The renowned economists have suggested that true policy-making is required to address market failure, improve efficiency and equity in the society in the quest of improving policy reforms for the growth of the country.
“The State is most powerful actor in any modern society and it can potentially pursue many objectives. In liberal democracies, the main purpose of economic policies is to address market failures, in increasing the growth of efficiency and to improve equity or distributional outcomes,” former Finance Secretary and economist Vijay Kelkar said, while addressing the fifth CD Deshmukh lecture on Friday night here.
Defining the failures, Kelkar said that there are four kinds of failures - externalities (for example, pollution from vehicle emissions), asymmetric information (the buyers of medicine cannot know if the medicine is substandard quality), market power (a few private firms create a cartel) and public goods (the criminal justice system).
Besides, Kelkar also focussed on taxation including Goods and Service Tax (GST), incentives, subsidy and many other issues in his deliberations. With regard to taxation Kelkar said, it should be stable and simple which gives investors confidence to invest. He also advocated a single GST rate as it is simple to administer.
“So simplicity is the first mantra of policy making and right sequencing is another important pillar of policy-making. For example, exchange rate reform preceded trade reforms during the liberalisation and it succeeded,” he said.
Citing another example of policy-making, he said that it is impossible to get any estimate of the magnitude and type of skill gaps that need to be addressed by policy. "Appropriate and timely data will encourage research and creation of knowledge that can be used to develop contextual policy prescriptions,” he said, adding that data poverty is particularly accurate when it comes to policymaking at the state or local levels.
Former RBI Governor and well-known economist Bimal Jalan, who was present in the lecture, also threw the light on the recent note ban issue, saying that demonetisation in-principle was a good move of the Government to eliminate black money, but in terms of consequences it did not work.
“Demonetisation, in terms of the principle of it, nobody can object to black money being tapped, or if demonetisation is being done to make sure that black money hoarders declare their money. But in terms of the consequences, you can see that it didn’t work,” he said at the event, adding that now if it didn’t work, then we have to make sure what is it that we can do in its place which can actually work.
Noting that there is a structural issue in policymaking, Jalan said, policy is made by politicians and executed by the administrative system and policymaking should be flexible and respond to change in circumstances.