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  • The Chakravyuha Challenge - Ease To Enter, Barriers To Exit

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    Jayakar Sodagiri
    45 visualizzazioni2 pagine
    Indian Economy has made great strides in removing barriers to entry for firms, talent, and technology but less progress has been made in relation to exit. India seems to have a disproportionately large share of inefficient firms with very low productivity and with little exit. This lack of exit generates externalities that hurt the economy.

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    The Chakravyuha Challenge_ Ease to Enter, Barriers to Exit

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    Indian Economy has made great strides in removing barriers to entry for firms, talent, and technology but less progress has been made in relation to exit. India seems to have a disproportionately large share of inefficient firms with very low productivity and with little exit. This lack of exit generates externalities that hurt the economy.

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    © All Rights Reserved
    Scarica in formato PDF, TXT o leggi online su Scribd
    Segnala contenuti inappropriati
    45 visualizzazioni2 pagine

    The Chakravyuha Challenge - Ease To Enter, Barriers To Exit

    Caricato da

    Jayakar Sodagiri
    Indian Economy has made great strides in removing barriers to entry for firms, talent, and technology but less progress has been made in relation to exit. India seems to have a disproportionately large share of inefficient firms with very low productivity and with little exit. This lack of exit generates externalities that hurt the economy.

    Copyright:

    © All Rights Reserved
    Scarica in formato PDF, TXT o leggi online su Scribd
    Segnala contenuti inappropriati
    di 2

    4/22/2016

    TheChakravyuhaChallenge:Easetoenter,barrierstoexit

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    PressInformationBureau
    GovernmentofIndia
    MinistryofFinance
    26February201612:17IST

    TheChakravyuhaChallenge:Easetoenter,barrierstoexit
    IndianEconomymakinggreatstridesinremovingbarrierstoentryforfirms,talent,andtechnologybutlessin
    relationtoexit

    TheEconomicSurvey201516presentedheretodayintheParliamentbytheUnionFinanceMinisterShriArunJaitley
    invokesthelegendoftheCharkravyuhafromtheMahabharatadescribingtheabilitytoenterbutnotexit,withseriously
    adverseconsequences.TheIndianeconomyhasmadegreatstridesinremovingbarrierstoentryforfirms,talent,and
    technologybutlessprogresshasbeenmadeinrelationtoexit.Thus,overthecourseofsixdecades,theIndianeconomyhas
    movedfromsocialismwithlimitedentrytomarketismwithoutexit.

    The Economic Survey 201516 states that the case studies suggest that the challenge is more a feature of the relatively
    traditionalsectorsoftheeconomy.Itisnotrestrictedtothepublicsectorbutisincreasinglybeingseenintheprivatesector.
    Indiaseemstohaveadisproportionatelylargeshareofinefficientfirmswithverylowproductivityandwithlittleexit.This
    lackofexitgeneratesexternalitiesthathurttheeconomy.

    Impededexithassubstantialfiscal,economic,andpoliticalcosts.
    FiscalCosts: Inefficient firms often require government support in the form of explicit subsidies (for example
    bailouts)orimplicitsubsidies(tariffs,loansfromstatebanks).
    Economic Costs: Misallocation of scarce resources and factors of production in unproductive uses including
    overhangofstressedassetsoncorporateandbankbalancesheets.
    Politicalcosts:Governmentsupporttosickfirmscangivetheimpressionthatgovernmentfavorslargecorporates,
    whichpoliticallylimitsitsabilitytoundertakemeasuresthatwillbenefittheeconomybutmightbeseenasfurther
    benefittingbusinesses.

    TheEconomicSurveyanalysesthisexitproblemwiththehelpofthethreeIs:
    Interests:The power of vested interests confers greater power on concentrated producer interests in relation to
    diffusedconsumerinterests.Asaresultitbecomesdifficulttophaseoutschemesandtheybecomeinstrumentsof
    grantingfavors.Forexample,50percentofCentralSectorSchemesthatwereallocatedmoneyintheUnionBudget
    201516were25yearsold.Thus,extravigilanceisrequiredtoensurethatschemesremainrelevantandusefulover
    time.
    Institutions:Weakinstitutionsincreasethetimeandfinancialcostsofexit.Forexample,withrisingnonperforming
    assets,recoursetodebtrecoverytribunals(DRTs)hasincreased.Theshareofsettledcasesisbecomingsmalland
    decliningandtheaccumulatedbacklogofunsettledcaseshasincreasedmanifold.Furthermore,inabilitytopunish
    wilfuldefaultersquestionsthelegitimacyofallinstitutions.

    http://pib.nic.in/newsite/PrintRelease.aspx?relid=136862&utm_source=twitterfeed&utm_medium=twitter#

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    4/22/2016

    TheChakravyuhaChallenge:Easetoenter,barrierstoexit

    On the other hand,


    strong but inflexible
    institutions are unable to make risky decisions when departures from strict principles may be necessary for the
    economy.
    Ideas/Ideology: The founding ideology of stateled development and socialism makes it difficult to phase out
    entitlementsevenasthoseintendedforthepoorendupaccruingtotherelativelybetteroff.

    TheEconomicSurvey201516suggestsfivepossiblewaystoaddressthisproblem.Thefirstispromotingcompetitionvia
    private sector entry rather than change of ownership from public to private. Secondly, direct policy action through better
    laws like the Insolvency and Bankruptcy Code 2015 will expedite exit. Also institutions need to be made stronger but
    flexible by empowering bureaucrats and reducing their vulnerability. Thirdly, increase the use of technology to remove
    persistentdistortionsbybringingdownhumandiscretionandlayersofintermediaries.Thefourthisincreasingtransparency
    andhighlightingsocialcostsandbenefitsofvariousschemesandentitlements.Finally,showcasingexitasanopportunity
    towardsanewerandbettertomorrow.

    ***************

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