INDIAN ECONOMIC POLICY – SOME ISSUES

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INDIAN ECONOMIC POLICY – SOME ISSUES

Journal Title: International Journal of Marketing and Technology - Year 2011, Vol 1, Issue 5

Abstract

As economists we have come a long way. In the early days of planning, allocation of resources seemed to be the most important intellectual problem, planning commission‟s various Five Year Plans and the publications of the perspective planning division, also planning commission (1984). The planning models of the 1950s and 1960s addressed this question. Optimal allocation seemed to be insufficient to realize the plan targets. The need to define policies that can lead to the targets became obvious. Thus the optimal control models are the pioneering effort in India. Behind these approaches was the belief that government is powerful and knowledgeable. It knows enough and that it can realize whatever targets it sets. However we soon realized that particularly in a mixed economy such as ours, the reactions of millions of economic agents to government policy could affect the outcome of policy. In fact the outcome may even be perverse. The need to incorporate the behavioral responses of economic agents in analytical models became obvious. This led to computable general equilibrium modeling in the 1970s. Soon however, it was felt that with a general equilibrium model you could get any result that you want by a suitable choice of parameters. Of course the choice of parameters is not the modeler‟s prerogative. The parameters have to describe the economy under consideration. Thus emphasis shifted to what some people call applied or empirical general equilibrium models (Narayana, Parikh and Srinivasan, 1991). The policy insights obtained from such models were richer and more credible. Yet these were not acceptable to politicians. The trouble was with the political economy of the situations. For the political economy of India‟s development experience see Kelegama and Parikh (2003). Vested interests made these policy suggestions seem too theoretical, impracticable or irrelevant. What we need is to incorporate the political economy dimension in the empirical general equilibrium modeling framework. This I call a descriptive general equilibrium model. What would this involve? We will need to have many more actors including groups of people. We will need to recognize the multiple objectives of economic agents. Collective action groups or political pressure groups will have to be modeled. The outcome of the political market place in terms of choice of policy will have to be endogenized. Transaction costs and costs of collective action will need to be included. We will need to make models dynamic with uncertainty / and expectations. This may seem a tall order but considering how far we have come it is not beyond attainment. If physicists can hope to have a theory of everything, economists should aspire to a theory of everyone. While constructing such a descriptive general equilibrium model may take time, we can be pragmatic and proceed in partial equilibrium approach but with this larger framework in mind. We can look at a problem from the perspective of various stakeholders, integrate them and design policies that are acceptable to as many stakeholders as possible. This I call policy engineering and describe some examples. Would such an approach lead to a solution that is acceptable to all? It is not always that one can find a win-win solution. One can however clarify whose interests are not guarded and often one does not want to protect all interests. In fact policy reform involves some loss of money or power for some group or other. Making these transparent and protecting the interest of innocent bystanders will be of value.

Authors and Affiliations

Dr. M. Sugunatha Reddy and Dr. B. Rama Bhupal Reddy

Keywords

Indian Economic Policy Some Issues

EP ID EP19283
DOI -
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