New Delhi: The Economic Survey 2019-20 has said that excessive intervention by the government in the market may stifle economic freedom and create “deadweight loss”.
The survey said that while there is a case for government intervention when markets do not function properly, excessive intervention, especially when the market can do the job of enhancing citizens' welfare perfectly well, stifles economic freedom and creates deadweight loss.
This loss is created by the wasted chance of creating a consumer and producer surplus and reduces wealth creation by not allowing efficient allocation of entrepreneurial resources and energy to productive activities, thereby promoting economic dynamism.
It observed that frequent and unpredictable imposition of blanket stock limits on commodities, under the ECA, distorts the incentives for creation of storage infrastructure by the private sector.
Further, the Survey also said that government policies in the foodgrain markets have led to the emergence of government as the largest procurer and hoarder of rice and wheat, which has led to burgeoning food subsidy burden and inefficiencies in the markets. This affects the long run growth of agricultural sector, adversely affecting competition in these markets.
The 2020 survey forecasts GDP growth at 6-6.5 percent for FY21.
With challenges on the economic front expected in FY21, the survey said the government may need to relax the fiscal gap target for FY20 to revive growth. It added that there is a need for counter-cyclical fiscal steps to boost demand.
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