India Uncut

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Monday, November 28, 2005

Bad economics can kill

In an excellent Op-Ed in the Indian Express titled "Who killed Manjunath?" Ila Patnaik writes:
It is well understood that the structure of economic incentives is a far stronger force than policing. It is easy to blame the law and order situation for the murder. But the real blame lies with the petroleum price policy that created incentives for adulteration. When diesel costs Rs 35 per litre and kerosene is available in PDS shops for Rs 11 per litre, there is a very powerful incentive for petrol pump owners to adulterate diesel with kerosene. If a mafia has arisen, it is a creation of government policy. In the same way that the smuggler gangs of the 70s were the inevitable consequence of restrictions on imports, the mafia that murdered S. Manjunath is the by-product of the pricing distortions in the petroleum sector.
Dead right. And here's a question for my readers: can you give other examples of similarly bad economic policy in India, and prescriptions for how to fix them?

Cross-posted on The Indian Economy Blog, where comments are open.

Update: Ravikiran Rao poses another question.
amit varma, 5:25 PM| write to me | permalink | homepage

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