India Uncut
This blog has moved to its own domain. Please visit IndiaUncut.com for the all-new India
Uncut and bookmark it. The new site has much more content and some new sections, and you can read about them here and here. You can subscribe to full RSS feeds of all the sections from here.
This blogspot site will no longer be updated, except in case of emergencies, if the main site suffers a prolonged outage. Thanks - Amit.
Friday, February 25, 2005
Let the market, not the government, fix prices
Gautam Chikermane writes in an excellent piece in the Indian Express:
Chikermane feels that "[t]his whole business of influencing the government to create artificial prices is an old-world legacy that must end". Only the market should set prices, he says.
Read the full thing, it's a lucid and wonderfully argued piece, though I fear that P Chidambaram, our finance minister, will go nowhere near what Chikermane recommends.
Sunk in the swish five star hotel sofa, the builder says: “Service tax on construction companies and transporters is a big burden, it must be removed. Since June 2003, the prices of steel and cement have risen by 80 per cent, the government should control them.” So, should then the government fix building prices so that home buyers are also not too out of pocket? At this unexpected backhand delivery, the builder is quick to defend his right to charge market prices, even as he lobbies hard for concessions.
Death is the only way — this thinking, this attitude, this whole approach has to die. Come budget time and for decades now, we have been seeing one private interest group after another approach the finance ministry with its list of demands — demands that help that industry become more profitable, either at the cost of another industry or consumers. For decades, the finance ministry has been accepting, rejecting, modifying these demands.
Chikermane feels that "[t]his whole business of influencing the government to create artificial prices is an old-world legacy that must end". Only the market should set prices, he says.
In any living school of economic thought, the one entity that does have all the information all the time to be able to take the right decisions most of the time is the market. Critics may term the market an “abstraction”, “operator driven”, “manipulable” and so on. But like democracy in which you can’t fool all the people all the time, the scope for market manipulation too is limited. At the smallest opportunity of arbitrage, new players will come and collect excess profits, bringing the market, and hence prices, back to equilibrium. Most important, one person or group is vulnerable to lobbying pressures; a whole market is not.
Read the full thing, it's a lucid and wonderfully argued piece, though I fear that P Chidambaram, our finance minister, will go nowhere near what Chikermane recommends.
