An enabling state

The finance minister has tabled a refreshingly written and brilliantly argued Economic Survey 2009-10 in Parliament. On the one hand,the Economic Survey,the chief economic advisors view of the performance of the economy over the previous year,highlights the good aspects of government policy and attributes last years growth to the fiscal stimulus. While private investment,the engine of growth in the previous decade,fell by two percentage points,the governments final consumption expenditure grew rapidly,making up for the fall and providing a growth stimulus to the economy. On the other hand,the Survey is critical of the governments management of food prices and suggests that government policy is part of the problem and needs change.

While optimistic on the growth prospects of the Indian economy,the Survey appears unduly concerned about a rise in capital inflows. While India may witness higher capital flows than last year,it seems a bit too early to worry that these may be excessive. Recommending a slow and calibrated withdrawal of the fiscal stimulus,the Survey suggests that growth has been broad based and provides the grounds for a rollback. Considering that full recovery is likely to take place over the next two years,the need for a slow withdrawal of the stimulus

is underlined.

This year the Survey carries the distinct imprint of Professor Kaushik Basu,the new chief

economic advisor. A new chapter on micro-foundations of inclusive growth has been carefully written,bringing on the table the logic for reform based on first principles of economics. The Survey discusses several policy ideas and suggests policies that are incentive compatible. It suggests a design of an enabling state versus an intrusive state that bans this or that activity in an attempt to control it. It lays down a move towards a coupons system that is,food/ fertiliser and fuel stamps to target subsidies to the poor,replacing the price control system. The UID is expected to lay down the infrastructural foundations of these changes. This newspaper has supported these positions for some time now but this is the first time that they have been so clearly and carefully argued in a Government of India document. The progress towards the proposed way of providing subsidies will,no doubt,be slow but the contribution of a well laid out and clear design is extremely useful in laying the foundations for change.