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.
|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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