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Governance and Regulatory Challenges – Lessons from India’s growth story

Governance and Regulatory Challenges – Lessons from India’s growth story. Suman Bery PMEAC and IGC, India April 20, 2011. Case for Regulation. Alternative perspectives: Competition is wasteful. Competition is desirable. Politics must always be sovereign.

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Governance and Regulatory Challenges – Lessons from India’s growth story

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  1. Governance and Regulatory Challenges – Lessons from India’s growth story SumanBery PMEAC and IGC, India April 20, 2011

  2. Case for Regulation • Alternative perspectives: • Competition is wasteful. • Competition is desirable. • Politics must always be sovereign. • Political arbitrariness damages investment • State is a benign, neutral, rational actor • State is partisan and rapacious, strong likelihood of capture

  3. Cycles of Regulation • In 20th century, advanced countries have oscillated between regulation and deregulation • Responds to economic performance, income distribution. • In US, regulatory phases 1900-1920; 1930-1960; followed by deregulation, dynamism, income inequality. Tide turning again

  4. What of India? • Dynamic similar. • Intervention in 1950s motivated by anti-colonial view that open economy had been bad for both growth and distribution, and that India’s age-old divisions could not be healed by the market alone. • Deregulation impulse of 1980s a response to relative stagnation in 1970s.

  5. Where are we now? • Deregulation partial, cautious, largely successful. • Has raised investment share of private sector. • Productivity data suggest that in general this has been relatively efficient investment. • Domestic environment increasingly reflects international relative prices.

  6. What are the issues? • Freedom of entry with unresolved issues of exit is storing up problems for the future. • M&A regime, diverse financial system both critical for hostile take-overs, market-driven consolidation. • Increased concentration of wealth is largely unavoidable but points to large rents available for distribution, likely to generate backlash.

  7. What are the issues? • Interface of regulatory framework with political system, bureaucracy still being worked out. • Regulators not adequately shielded from political capriciousness.

  8. Way ahead • Regulation (and regulators) succeed if there is broad political consensus that contentious issues are best handled at one remove from daily administration and politics. • We are some distance from achieving the necessary professional capacity and jurisprudence. • Will ultimately be driven by the need of the private sector for stability and predictability.

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