Price controls will strangle economy

 

Giving the lie to its own motto, ‘maximum government-minimum government,’ the Narendra Modi regime seems to be adopting another retrograde practice of the Nehruvian system—price control. This time the targets are the Rs 5,000-crore cotton seed business and coronary or cardiac stents in the healthcare sector.

Mahyco-Monsanto Biotech (India) Private Limited (MMBL)—a 50:50 joint venture of US biotech giant Monsanto—produces genetically modified BT cotton seeds. In the healthcare sector, the government intends to cap the maximum retail price (MRP) of bare metal stents at around Rs 20,000 and of drug-eluting stents at Rs 28,000.

The rhetoric and the phraseology is the same though—“exploitation of our farmers,” monopoly situation, profiteering by big companies at the expense of agriculturists and patients, and so on.

Indulging in dangerous populism, Agriculture Minister Radha Mohan Singh told Hindustan Times (December 26, 2015: “Cotton farmers are going through distress. Just look at cotton seed prices. Why should they vary so widely from state to state? This is exploitation of our farmers.”

He has made a dubious debut, with his Ministry ordering a price cap on cotton seeds from March. Other government organs are working to place price controls on coronary or cardiac stents. The proposal reportedly enjoys strong support from the Ministries of Health and Commerce and the Department of Pharmaceuticals. Evidently, a large section of the Modi government believes that price controls are good—a most dangerous socialist idea. An idea that has failed spectacularly in India and elsewhere; whose failure is well-known to all save intellectuals, and which has been thoroughly documented.

At least, Arvind Panagariya, Vice-Chairman, National Institution for Transforming India (NITI) Aayog, knows about the perversity of price controls. Delivering the Sixth R.K. Talwar Memorial Lecture on July 17, 2015, on ‘Growth, Poverty and Economic Transformation of India,’ Panagariya said, “Strict investment licensing, reinforced by protection against imports, promised guaranteed monopoly profits, which were anathema under the prevailing socialist norms. Therefore, the government came to fix the prices of many of the products such as cement, steel, scooters and automobiles at levels that would rule out obscene profits. Price controls in turn produced shortages and had to be complemented by controls on distribution through permits. So, queues and corruption emerged as natural responses. If you wanted an automobile, you had the option to either wait in a years-long queue or pay a bribe to jump the queue. And even then you received a vehicle of quality that no customer today would buy.”

The facts that the NITI Aayog is headed by the Prime Minister and Panagariya was handpicked by the PMO imply that the guy has Modi’s ear. The organization, which replaced the Planning Commission, was created for this purpose only. It has been mandated to, among other things, “evolve a shared vision of national development priorities, sectors and strategies with the active involvement of States in the light of national objectives.”

Are the Agriculture, Health, and Commerce Ministers even aware of the opinion of the NITI Aayog head? Or they believe that the opinion, certainly not the good opinion, should be heeded to, as it invariably militates against the imperatives of Indian politics?

It is indisputable that Indian politics reeks of socialism, and our leaders wallow in the socialist slush; this is the reason that they increasingly take recourse to statist measures. These measures have proved futile; it was expected of Modi to charter a course out of statism. Unfortunately, his government remains mired in the policy bog that has been the bane of India.