Macro Economy

Pro-crony nomination policy can hurt businesses

Our Bureau New Delhi | Updated on January 31, 2020 Published on January 31, 2020

The Economic Survey has taken a stern view against the nomination regime for allocating natural resources.

The nomination regime may promote narrow business interests and hurt social welfare at the cost of crony businesses that gain from these regulations, the Survey said.

In a dedicated chapter, the Survey argues that crony businesses may lobby with the government to limit competition in their industry, restrict imports of competing goods or reduce regulatory oversight. To substantiate this position, the Survey cites research on bidding data for rural roads built under the Pradhan Mantri Gram Sadak Yojana (PMGSY). This study found that after close election victories, contractors affiliated to the winning politician are more likely to be awarded road projects.

These initiatives enhance the lobbying group’s income but undermine markets and reduce aggregate welfare. Thus, pro-crony policy can inadvertently end up hurting businesses in general, the survey said.

Making a case in favour of pro-market policies, the Survey said that economic events since 1991 give evidence to support the case of providing equal opportunity for new entrants to unleash the power of competitive markets to generate wealth. India’s aspiration to become a $5-trillion economy depends critically on promoting pro-business policies that provide equal opportunities for new entrants, the Survey argues.

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Published on January 31, 2020
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