Balancing markets and welfare measures key to inclusive growth

markets vs welfare measures
The government must ensure that welfare measures do not lead to inefficiencies, and disincentives to work and invest, says a paper.

A paper published by EGROW Foundation argues that India’s economic growth and prosperity depend on a combination of market-oriented policies and welfare measures. The paper by NITI Aayog member Arvind Virmani says the Indian government needs to adopt a pragmatic approach to economic policy that recognises the importance of the right combination.

The paper, titled “Sabka Sath, Sabka Vikas, Sabka Prayas: Bharatiya Model of Inclusive Development”, suggests that the state has a crucial role to play in creating an enabling environment for businesses, promoting competition, and ensuring that markets function efficiently. At the same time, it emphasises the need for the government to provide social protection to vulnerable groups such as the poor, the elderly, and children. The paper says that welfare measures can help reduce inequality and improve social cohesion which can, in turn, boost economic growth.

The paper lavishes praise on the Modi government for what it calls “a pragmatic approach” to economic policy which has helped drive India’s recent growth. The paper notes that the government has implemented a number of market-oriented reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) which have helped boost business activity.

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Role of welfare measures

At the same time, the paper points out that the government has also introduced a number of welfare measures, such as the Pradhan Mantri Jan Dhan Yojana and the Ayushman Bharat scheme which provide financial support to poor and vulnerable groups.

The paper says, “the role of the state in the economy is to create an enabling environment for private sector-led growth. The state is expected to provide necessary infrastructure, legal framework, and social services to facilitate private sector investment and entrepreneurship. The state should also ensure that markets are competitive, transparent, and well-regulated, and that property rights are protected.

To ensure that the market functions well and contributes to growth, the state can take several measures, including facilitating free and fair competition in markets through anti-monopoly laws and other regulations. It should also strive to ensure transparency in government procurements to prevent corruption and promote fair competition.

It should also invest in infrastructure such as roads, ports, and telecommunications to improve connectivity and reduce transaction costs. Another focus area for the state should be providing education and training to improve the quality of human capital and increase productivity, Virmani writes.

The other priorities of the state should include supporting research and development to foster innovation and technological progress, providing a stable macroeconomic environment which has low inflation, sound fiscal policies, and a stable exchange rate.

The state should also ensure a stable legal and regulatory environment that protects property rights and enforces contracts. By taking these steps, the state can create an environment in which the market functions well and contributes to economic growth and development.

However, the paper warns that excessive welfarism can lead to inefficiencies, disincentives to work and invest, and ultimately hinder growth. Therefore, he suggests that welfare measures should be targeted towards the most vulnerable and marginalised sections of the society, and should be designed in a way that promotes human development, education, and skill development.

The paper says that the Narendra Modi government’s approach is characterised by pragmatism which is focused on achieving practical results in the short-term while pursuing long-term goals. The approach is based on a recognition of the need for balanced policy-making that addresses both immediate and long-term challenges, and which balances the interests of different stakeholders.

The paper says private initiative and competition drive growth and employment generation, and business has a significant role in producing and selling goods and services to create jobs. It emphasises antodaya empowerment that focuses on socio-economic development, income levels, and the welfare of the weakest sections of society.

(This article is written with artificial intelligence inputs.)