{"id":180362,"date":"2022-04-20T20:17:41","date_gmt":"2022-04-20T14:47:41","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=180362"},"modified":"2022-04-20T20:17:41","modified_gmt":"2022-04-20T14:47:41","slug":"time-to-set-price-distortions-right","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/time-to-set-price-distortions-right\/","title":{"rendered":"Time to set price distortions right\u00a0"},"content":{"rendered":"\n

Context<\/span><\/b>: Since 1991, India has undergone <\/span>economic liberalisation<\/span><\/b>, openness to <\/span>international trade<\/span><\/b> and <\/span>investment,<\/span><\/b> resulting into an open free market economy in India. The government\u2019s major priority since then has always been to improve the <\/span>ease of doing business<\/span><\/b>. <\/span><\/p>\n

However, it has failed to improve the <\/span>cost of doing business, <\/span><\/b>which been very high due to the <\/span>government policy-induced pricing distortions<\/span><\/b>.\u00a0<\/span>\u00a0<\/span><\/p>\n

Some Cases of Pricing distortion in India<\/span><\/b>\u00a0<\/span><\/h5>\n

Petrol and diesel pricing distortion:<\/span><\/b> Earlier, the diesel was subsidized. Therefore, diesel car\u2019s demand surged. Later, the government removed diesel subsidy. Now, it is levying high taxes on fuels to raise revenues to moderate the fiscal impact from COVID. This has given an inflationary impetus.\u00a0<\/span>\u00a0<\/span><\/p>\n

Electricity pricing distortion<\/span><\/b>: A cess of <\/span>\u20b9400 per tonne<\/span><\/b> is levied on coal. Earlier, it was levied to generate resources for promotion of renewable energy and decarbonisation of the economy. Now it is used to meet shortfalls in tax receipts.<\/span>\u00a0<\/span><\/p>\n

In Indian railways, there’s a <\/span>cross subsidisation<\/span><\/b> of passenger and freight fare. The high freight fare increases transportation cost of commodities. For example, transportation cost of coal becomes high. It also distorts the pricing of electricity for the distribution companies. It leads to <\/span>loss of competitiveness<\/span><\/b>, lower manufacturing growth and the creation of fewer jobs in India.<\/span> \u00a0<\/span><\/p>\n

In India, it is difficult to get land for business enterprises. The land prices are distorted due to a <\/span>real estate asset price bubble<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n

What factors have led to government policy induced pricing distortions?<\/span><\/b>\u00a0<\/span><\/h5>\n

One factor is the<\/span> political need<\/span><\/b> to find a way out for a <\/span>cash-strapped government<\/span><\/b> to raise resources, OR\u00a0<\/span>\u00a0<\/span><\/p>\n

To provide affordable<\/span> goods<\/span><\/b> and <\/span>services<\/span><\/b> to those in need. It is provided through a <\/span>cross subsidy<\/span><\/b> within the sector.\u00a0<\/span>\u00a0<\/span><\/p>\n

Why are the pricing distortions dangerous for the Indian economy?<\/span><\/b>\u00a0<\/span><\/h5>\n

These pricing distortions lead to <\/span>competitive disadvantage<\/span><\/b> to domestic value addition and job creation in an <\/span>open economy<\/span><\/b>. <\/span><\/p>\n

–<\/strong> For example, energy is the basic requirement of the <\/span>modern industrial economy<\/span><\/b>. But energy prices distortion reduces competitiveness in the market.<\/span>\u00a0<\/span><\/p>\n

It has led to India\u2019s <\/span>relative lack of success<\/span><\/b> in manufacturing and employment generation.<\/span>\u00a0<\/span><\/p>\n

Ways Forward<\/span><\/b>\u00a0<\/span><\/h5>\n

There is a need for <\/span>political leadership<\/span><\/b> and investment of <\/span>political capital<\/span><\/b> in generating a consensus and steering change in addressing pricing distortions.<\/span>\u00a0<\/span><\/p>\n

Petrol and diesel should be brought into the ambit of GST. For instance, If the highest rate of 28% is levied on petrol. The pricing of petrol would be around \u20b960 per litre.\u00a0<\/span>\u00a0<\/span><\/p>\n

Land use conversion<\/span><\/b> and r<\/span>edevelopment processes <\/span><\/b>need to be made user-friendly.<\/span>\u00a0<\/span><\/p>\n

There is a need to improve <\/span>public provision <\/span><\/b>and <\/span>upgradation<\/span><\/b> of quality infrastructure. It would reduce s<\/span>upply side constraints<\/span><\/b> and <\/span>lower price<\/span><\/b>s in real terms.<\/span>\u00a0<\/span><\/p>\n

There is a requirement of reducing the cost of doing business. In addition, <\/span>private investment<\/span><\/b> needs to be promoted. It will create better jobs.<\/span>\u00a0<\/span><\/p>\n

Source<\/span><\/b>: The post is based on an article \u201cTime to set price distortions right<\/strong>\u201d published in The Hindu<\/strong> on 20<\/strong><\/span>th<\/strong> April 2022<\/strong>.<\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Context: Since 1991, India has undergone economic liberalisation, openness to international trade and investment, resulting into an open free market economy in India. The government\u2019s major priority since then has always been to improve the ease of doing business. However, it has failed to improve the cost of doing business, which been very high due… Continue reading Time to set price distortions right\u00a0<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10498],"class_list":["post-180362","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704823151},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/180362","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=180362"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/180362\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=180362"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=180362"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=180362"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}