Price controls and dual mindsets (editorial)

  • 12/02/2008

  • Financial Express

For a reforming Economy, India is letting a lot of things occur in the marketplace that evokes for it the adjective "dysfunctional'. They serve neither social purpose nor make any economic sense, and smack mostly of arbitrary political interventionism. On a larger plane, the economic policy framework is now avowedly market-based and opposed to any form of strategic intervention. Weaving social objectives into economic policies is frowned upon. The agenda of economic reform does not include social interventions like the NAC's employment guarantee scheme and so on. So, when Politics intervenes in what should be strictly the realm of economic policy, we are caught unprepared. Remember the finance ministry's passion for dual pricing in the cement sector? Initially, it was given a cloak of anti-monopoly action, but has ended up as expected, with state governments dictating discriminatory prices for favoured users. Tamil cement honchos had no option but to fall in line. From cement, the argument has gone to housing. Hapless industrialists, it seems, are falling in line on price control. Just recently, a Mumbai real estate businessman argued meekly against threats of quantitative intervention, and was reduced to pleading for discriminatory prices through discount condominium offers. Intervention can be costly. Once we let it take place, in competitive coalition Politics, the quantities that are politically determined will keep rising, as also the price differentials. To add insult to injury, policymakers will deliver lecture after lecture on the virtues of purely market-oriented liberalisation. Dual pricing regimes are not new in India. They were once advocated as a measure to ease the transition from a closed Economy to a market one. In sectors such as cement, fertilisers, sugar, textiles and so on, price decontrol was phased with a low "ration' price and a higher market price. But the former was tuned to a normatively determined long-term marginal cost figure that was worked out transparently to ensure supply efficiency. Some of the best economists