Chapter 1- Wealth Creation- Economic Survey 2020 Analysis

Chapter 1: Wealth Creation: The Invisible Hand Supported by the Hand of Trust

 

Importance of Wealth creation:

  • It lead to efficient and more utilisation of raw material.
  • It lead to increase in the aggregate demand in the economy.
  • Increase in the Direct tax flows
  • Increase in the salaries of employees working in an ecosystem with expanding wealth.
  • Increase in foreign exchange survey.
  • Increase in the return on investment.

 

Wealth creation through the Invisible hands of the market How and examples to prove that:

  • Formulation of right policies and schemes.
  • Commerceand the pursuit of prosperity is an intrinsicpart of Indian civilizational ethos. Just follow that instinct.
  • The evidence since 1991 showsthat enabling the invisible hand of markets,i.e., increasing economic openness, has huge impact in enhancing wealth both inthe aggregate and within sectors.
  • Liberalised sector have performed better than the closed sector. Ex: Steel and cement performed better than coal sector, Credit/ GDP increased drastically for Private sector banks as compared to Public sector banks, Growth of Mutual fund sector post 2003( opening up of sector) . All these examples make a strong case for regulated privatisation and hence the wealth creation.

 

 

 

 

Instrument of Wealth creation and creation of hand of Trust:

  • Equal opportunity for new entrants is important, a 10% rise in new firms at district level yields 1.8% increase in gross domestic product.

Equal opportunity needs to be provided by the government through fair means.

  • Do away with the pro crony economy and Regulatory relics
    • Pro crony economy: Policies favouring few big tycoons
    • Regulatory relics: Overhang of socialist phase between 1950-1991
  • Providing efficient financial sector. Indian banking sector is poorly developed.
  • Efficient management of data repository of the consumers in banks. This centralised repository will cation banks in advance against the habitual defaulter and thus preventing NPA.
    • Central repository of information on large corporates will help to identify willful and genuine defaulter.

 

  • Government should strengthen its role as referee. The Resource scarcity need to be addressed in SEBI, CCI etc.
  • Use of Artificial Intelligence and Machine learning to flag mall practice.
  • Creation of wealth shall be on ethical lines. Intrinsic motivation need to be strengthen. For example: Banks should recognised the ethical corporates and they should be felicitated.

 

Example to show importance of trust:

Just as farmers burning the stubble create negative externalities for all citizens through the contaminated air, when a corporate intentionally misreports financial information, it harms investors by creatinga negative externality of low trust for all domestic and international investors in the financials of firms in the economy.

 

 

To conclude,

Introducing the idea of “trust as a public good that gets enhanced with greater use”, the Survey suggests that policies must empower transparency and effective enforcement using data and technology to enhance this public good.

 

 

 

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