Government intervention in economy must stop

Government intervention in economy must stop

By Ravi Shanker Kapoor | 16 December, 2017
Private enterprise is viewed with suspicion and the official instinct is to control wealth creators.
While Prime Minister Narendra Modi is keen to project himself as pro-development and business-friendly, various organs of his government don’t reflect the same enthusiasm. Ministries, departments, and other government bodies keep coming up with proposals that tend to augment the scale and scope of state intervention in the economy.

The most recent instance of the anti-business attitude was highlighted on Tuesday, with the Supreme Court rejecting the government assertion that hotels and restaurants should sell bottled mineral water by the maximum retail price (MRP). “Sale of packaged water over MRP by hotels and restaurants may have implications regarding tax evasion as a bottle purchased by a hotel at cost price, which should be sold at MRP or less, is being sold at much higher prices, leading to possible loss of additional revenue to the government in the form of service tax or excise duty etc.,” the Ministry of Consumer Affairs had argued in the court.

Why on earth should a Union ministry be bothered about this trivial issue? The fact that the Federation of Hotel & Restaurant Associations of India got relief from the highest court speaks volumes about the entrenchment of statist mindset. Private enterprise is viewed with suspicion, the businessperson is regarded as potential crook, and the official instinct is to control wealth creators, rather than let them flourish so long as they don’t breach the law.

The hospitality sector is often the target of unwarranted regulation, and not just by ministries; even the regulator can cause anxiety in the industry. Earlier this year, the Food Safety and Standards Authority of India (FSSAI) came up with the idea that restaurants should disclose nutritive and calorific value of the food they serve.

In May, the food regulator went after the FMCG companies, recommending that all packaged food items should clearly mention what percentage of your recommended daily nutrients intake is met in a single serving of that particular item. Thankfully, the proposals didn’t translate into policy.

Other sectors have been less fortunate—pharmaceuticals and healthcare, for instance. Last month, the National Pharmaceutical Pricing Authority (NPPA) capped prices of 51 essential medicines, including those used to treat cancer, heart conditions, and skin problems. This brought down the prices from 6% to 53%. Thus was not the first time that the government exercised controlled drug prices. Earlier this year, the National Pharmaceutical Pricing Authority (NPPA) had also imposed price caps on cardiac stents. The pretext has always been the same—checking “profiteering”.

On the face of it, these measures are very good as they provide affordable healthcare. A closer scrutiny would, however, show that price controls act as a disincentive to manufacturers. For innovation and new discoveries cost a lot of money to companies, and if they are not sure about profit in case of success, they are unlikely to invest in research and development. After all, there were no stents a few decades ago; it was the enterprise of scientists that brought the devices into being in the first place; and somebody must have compensated the scientists for their endeavour.

Further, if stent makers are not allowed to get the prices they want, they may not sell stents in India. This is what Abbott decided to do some time ago. In the wake of price caps, it withdrew two types of stents from the Indian market.

While an iota of justification may be possible for price controls in healthcare on humanitarian grounds, there is none whatsoever for the monstrosity called the National Anti-profiteering Authority (NAA). Last month, the Cabinet approved the creation of the posts of chairman and technical members of the NAA under the Goods & Services Tax, or GST. The rationale was, as an official press release said, the government would “ensure that the full benefits of input tax credits and reduced GST rates on supply of goods or services flow to the consumers”.

This is not just reprehensible statism, but also the height of hypocrisy: the government goes through the rigmarole of setting up an authority to penalise businessmen who pocket the meagre GST benefits, maybe 10% of the price; but it doesn’t do anything to check the country’s biggest profiteer—itself. Petroleum products, on which Central and state governments are fattening at the expense of the consumer, with the incidence of taxation in excess of 100%, are beyond the purview of GST and, therefore, the NAA.

In general, there is not much abatement in the statist attitude. This is not to say that there is no desire or effort in any quarters. Not for nothing has India jumped 30 notches in the ease of doing business index. This may be seen as the yin and yang of India’s political economy. It is undeniable, however, that interventionist impulses and proclivities have survived for 26 years of liberalisation; and they are not going anywhere anytime soon. They are here to make their obnoxious presence felt.

Add new comment

CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.