Chapter 2: CHAKRAVYUHA

Introduction

Chakravyuha refers to Indian economy and policy making. In this firms can enter with ease but cant exit due to legislations, political compulsions. The market economy requires unrestricted entry for new ideas, firms so that resources can be allocated to efficient uses and at the same time exit should also be allowed so that resources can be taken away from inefficient firms.

India has moved from socialism with restricted entry to marketism without exit.

Problem of exit in India is demonstrated from the fact that the most successful plants are only 1.5 times larger than newer plants. This number is worrying as the most successful plants would have competed longer and dominated their peers and gained a market share. In the US this is 40 times and in Mexico 2 times.

Also there are many sick and inefficient firms in India that should not survive are run due to more number of employees in them.

Cost of impeded exit:

1.      Fiscal costs: The government provides subsidies like bailouts and loans for inefficient firms so that they can continue. This puts a cost on the exchequer.

2.      Economic costs: the allocation of resources to inefficient firms leads to economic cost in a capital starved country like India. The bad assets continue on the books of banks and reduce flow to new investment dampening growth.

3.      Political costs: the benefits given to inefficient industries go to the rich who own them. The willful defaulters too are aided by this and it can cost the economy.

Improving policy making by enabling public servants to decide freely and without fear:

1. Oversight mechanisms like CBI, CVC and courts impede decision making
2. Training and capacity building needed for imparting specialized knowledge to make decisions.
3. Draconian provisions in the Anti corruption act viz. if a public servant through his decision causes gain to another party it is an offence. Hence even honest mistakes can be prosecuted.
4. There is a need to examine whether the vigilance officers to are able to achieve the objective.

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Quiz

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