Business Standard

Pro-business, not pro-crony policies, to help achieve USD 5 trn GDP milestone: Survey

Image

Press Trust of India New Delhi
Promotion of pro-business policies and weaning away from 'pro-crony' norms will help India achieve the target of USD 5 trillion economy, according to the Economic Survey tabled in Parliament on Friday.
"India's aspiration to become a USD 5-trillion economy depends critically on promoting 'probusiness' policy that unleashes the power of competitive markets to generate wealth, on the one hand, and weaning away from 'pro-crony' policy that may favour specific private interests, especially powerful incumbents, on the other hand," it said.
It said that economic events since 1991 provide powerful evidence supporting this crucial distinction.
Viewed from the lens of the stock market, which captures the pulse of any economy, creative destruction has increased significantly after reform.
It said that "despite impressive progress in enabling competitive markets, pro-crony has destroyed value in the economy".
It said pro-crony policies as reflected in discretionary allocation of natural resources till 2011 led to rent-seeking by beneficiaries while competitive allocation of the same resources after 2014 have put an end to such rent extraction.
Similarly, it added that crony lending that led to wilful default, wherein promoters have collectively siphoned off wealth from banks, led to losses that dwarf subsidies directed towards rural development.
"Pro-crony policies, in contrast to probusiness ones, erode wealth in the economy as cronyism fosters inefficiencies by inhibiting the process of creative destruction," it said.
Explaining further, the Survey said pro-crony policies, when compared to pro-business, can create various indirect costs as well.
"When opportunities for crony rent-seeking exist, firms shift their focus away from growth through competition and innovation towards building political relationships, thus undermining the economy's capacity for wealth creation," it said.
Further, the rents sought by cronies are paid for by genuine businesses and citizens who are not receiving any preferential treatment, it added.
"Such a transfer of wealth exacerbates income inequality in the economy, as crony firms leverage their connections to extract a larger share of existing wealth instead of expanding the available wealth," the Survey said.
It also said that while pro-business policies increase competition, correct market failures, or enforce business accountability, pro-crony policies hurt markets.
"Such policies may promote narrow business interests and may hurt social welfare because what crony businesses may want may be at odds with the same," it said.
Citing an example, it said crony businesses may lobby the government to limit competition in their industry, restrict imports of competing goods or reduce regulatory oversight.
"These initiatives enhance the lobbying group's income but undermine markets and reduce aggregate welfare. Thus, pro-crony policy can inadvertently end up being hurtful to businesses in general," it said.
It added that pro-crony policies as reflected in discretionary allocation of natural resources till 2011 led to rent-seeking by beneficiaries, while competitive allocation of the same resources after 2014 have put an end to such rent extraction.
"Similarly crony lending that led to wilful default, wherein promoters have collectively siphoned off wealth from banks, led to losses that dwarf subsidies directed towards rural development," it said.

Disclaimer: No Business Standard Journalist was involved in creation of this content

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jan 31 2020 | 6:40 PM IST

Explore News