-The Hindu
The credibility of the RBI, the CSO and the Niti Aayog has taken a beating in recent times due to political interference
Nobel laureate Oliver Williamson pondered over an important question, around 25 years ago: “Why are the ambitions of economic development practitioners and reformers so often disappointed?” According to him, “one answer is that development policymakers and reformers are congenital optimists. Another answer is that good plans are regularly defeated by those who occupy strategic positions. An intermediate answer is that institutions are important, yet are persistently neglected in the planning process.”
The question and all the three answers assume relevance in the context of India’s recent economic performance. The slowdown in GDP growth rate has been dissected, digressed and disowned by analysts, commentators and policymakers. However, the diagnosis is far from complete and the growth engine is running out of fuel. Both the demand- and supply-side factors have been central in all the analyses, but the crucial role of institutions in shaping the outcomes of both the factors in this episode of slowdown has been neglected. This has resulted in a series of banal policy measures for reviving growth.
A market-centred economic model necessitates creating and sustaining credible institutions that further the efficiency of market mechanism. Given the possibility of ‘market failures’, such institutions assume a larger role in the economy in shaping expectations and decisions. Journalist Henry Hazlitt grouped the pillars of market economy into private property, free markets, competition, division and combination of labour and social cooperation. Institutions are needed to strengthen these foundational pillars are a prerequisite for markets to work.
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