By By Prasanth NarayananPrasanth NarayananPriyanka GaikwadPriyanka Gaikwad

OBJECTIVES OF INTERVENTION TYPES OF INTERVENTION IMPACT OF INTERVENTION (-’ves) CONCLUSION

Respond to market failures Limit market power abuse Improve economic efficiency Provide for “Public Goods” Intervention on “Public Interest”

Behavioural–Modify the economic demeanor–Price Regulation–Prohibition orders

Structural–Intervention with Structure of organisation–Prevention of mergers–Forced Separation/splitting of organizations

INTERVENTION AND ECONOMIC GROWTH Govt usually intervenes to provide “public

goods” But with more of intervention, agenda is no

longer economically driven Tax money is diverted to inefficient

industries Diminishing returns to investment “LAG” of government policies

The initial aim might have been good Government treats PSUs as investments Disinvestment is mostly feasible for profit

making units Loss making units are generally kept alive

on life-support Privatisation of profit and Nationalising

losses

70% of requirements importedPrices of crude oil spiralling upPolicies->complex web around petro-sectorRetail trade in shamblesApparent ‘strain’ on government finances

Large amount from the oil sector-> indirect taxes

Total revenue Rs 1,10,000 crore in 2003-’04 Paid by public India's levies on oil are high Additional ‘cess’ on indigenously produced crude

State-run PSUs make considerable profits due to monopolistic practices

Changes in food habits Shortage of edible oils resulting in imports

Pulse deficit – reflected in imports and increase in domestic prices

Declining cereal availability =>Due to accretion to stock of cereals held by government agencies

Policies not been changed to adjust to new situations

Accumulation of huge grain stocks Increase in food subsidy bill Neglect of efficiency and quality Setback to private trade Strong regional bias in government support to agriculture

Set up if general social welfare increases

Modus measurement of welfare is flawed

PSU’s are generally not the most efficient institutions

Huge influx of money

Very Very Limited intervention Only respond to

◦Market failures◦Restriction of monopoly◦Other such situations

In all other cases leave the economy alone!