Saturday, 7 June 2008

Politicised markets

The Economic Logician gives an nice example of why politicised markets are just bad. He writes
India is facing rising crude oil costs like other nations, but very differently. Indeed, the retail price of gas is set by the government, and as this price has been adjusted only once in 20 months, refineries that have to pay the market costs for their input face big losses. And the fact that the government is postponing meetings to solve the issue makes the problem just worse and worse. The longer it waits, the more brutal the price increase will be, and the more people will revolt. Because there, people have a reason to blame the government for price changes as the latter sets them...
Having an politicised economy is always a bad thing and India offers many examples of why. One example being that lobbies have been successfully managed to gain protection for small manufacturers which prevents big plants from establishing. The Economic Logician notes
This has especially hurt India in the textile sector, for which it is perfectly suited but has abandoned the world market to others to preserve inefficient mom and pop operations.
In the recent past the government in India has been actively deregulating which has been one factor in India achieving growth rates similar to China. But the current government, dominated by Congress Party, does not seem keen to continue with such polices.

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