Reading India's pink papers suggests incontrovertibly that the country is paying a high price for pervasive ignorance, that is, the innate beliefs/prejudices of: (a) its political and administrative class; as well as (b) an uninformed public brought up on a diet of propagandised falsehoods for over six decades. Those beliefs are a deadweight drag on continuing with reform.

Typical false beliefs: A mixed economy with large-scale state intervention is in the interests (for growth and equity) of as ethnically diverse, poor and inequitable a country as India. Nehruvian socialism rather than a free-market economy is the right model to follow. Prices are guided better by bureaucrats than by markets. Price subsidies are quintessential to make basic commodities affordable for the common man. Government has a natural duty to control prices because markets get them wrong. Consumers in India have a basic right to be protected against the laws of global supply/demand and against droughts/floods and climate change. State intervention in the economy works in the interests of the dispossessed; it ensures greater access, equality and opportunity. [If so, why has it not delivered for 60 years?]

Markets work to private not public advantage, and that of the rich. Sophisticated market instruments increase systemic risk. Sarcastically condemning bright young people, who know far more than former chief economic advisers do, averts systemic risk!! Closing the capital account will enable us to deal with India's openness and integration with the world economy! STT and CTT will make securities and commodities markets less volatile. Manipulating exchange rates through RBI fiat will help us control better our internal and external account imbalances. It will enable us to grow our exports, contain imports and manage inflation more efficiently than letting markets work!

Their implications: Too large an embedded role for the state in the economy as an enterprise owner and manager, as well as regulator/referee. This leads to profound conflicts of interest, structural inefficiencies, and perverse incentives. The result: chronic and endemic fiscal incontinence. Yet central and state governments are unable to undertake basic asset/liability management (that is, sell public assets and reduce public liabilities) in the public interest. The present government acts like the proverbial rat trapped in a maze of its own construction from which it cannot exit by application of reason! Bureaucrats have managed the past so well that no one else is capable of managing the present and future; they are particularly allergic to analysts who strip their arguments bare and show them to be absurd.

Too large a public debt and debt-servicing burden at all levels of government. That pre-empts government from acting in the interests of the poor. A runaway price subsidy budget (for energy, food, fertiliser and so on) which is financed off-budget (through things like oil bonds) that favours the rich and middle classes but penalises the poor. A GoI/RBI-dominated financial system pivoting around state-owned banks (ostensibly to protect the deposits of the poor) that is deliberately retarded and kept primitive.

Apparently, primitivism protects India from financial crises. Hence proper insurance, risk management, and derivatives markets are not allowed to develop. Banning futures markets is believed to reduce commodity prices! That is like the Aztec belief that daily blood sacrifice is necessary for the sun to rise every morning!

The perverse reasoning applied by our ‘leaders' has prevented India from having: proper overall economic and financial management, proper internal and external account management, public debt and asset/liability management, proper sovereign, sub-sovereign and corporate debt markets, derivative markets, micro-finance markets, commodity markets as well as simple instruments like interest rate and currency futures for the last 20 years! Instead we have a continuing legacy of belief in state ownership that palpably does not work (and we use terms like navratnas to justify it) when we have more than enough post-1992 reform evidence to confirm that what the state really ought to do is get out of the way, and stick to improving competition through more privatisation and better regulation.

The belief prevails that attempting to manage risk will exacerbate it because the tools involved are double-edged. To be sure, a sharp knife can be used to murder people. So should it be banned? We could always cut onions with our fingers, toes or teeth! That is the practical equivalent of what we are doing now in the world of Indian finance. If the thermometer gives you a reading you don't like (like prices being signalled by futures markets), then break or discard it!

Our leaders and former functionnaires believe in a unique Indian heterodoxy, confident in the knowledge that India is so different from any other country that general principles that apply everywhere else do not apply in India. Our policymakers believe that using the prefix ‘development' converts bad economics into good. They cannot see that the post-independence formula of ‘meddle-and-muddle' — for example, with fiscal, monetary, inflation and exchange rate mismanagement — is disabling India from progressing further, faster.

The dilemma boils down to a chronic inability on the part of India's leaders, indoctrinated in socialism, to understand the contours of the present, accept markets, and gird for the future. Goaded by commentaries of retired CEAs and RBI executives also living in the past, but unfamiliar with the problems of today (or of how similar problems are addressed elsewhere) the counterproductive beliefs of our ignorant leaders are bolstered. There seems to be a fundamental reluctance to accept a self-evident (inconvenient?) truth in 21st century India, that is, the socialist mixed-economy paradigm they have grown up with is bankrupt. It does not work. It never did; not at macro-, meso- or micro-levels. It was rooted in bad theory and good intention — the same combination and dynamic that paved the road to hell.

With India's inexorable move to a market economy, that old paradigm is dysfunctional. Its inherent intellectual contradictions need to be openly recognised and decisively discarded. The agenda that India confronts for continued reform is so deep, so wide and so urgent that we cannot afford to keep going round in lazy circles, wasting time with useless argument. We cannot keep using the excuse that our democracy perforce requires us to waste time in this fashion. As we approach the next elections, it should be obvious to everyone that we need to cut through the crap and get on with reality. That's what elections should be about.