The new Narendra Modi-led government can hit the ground running to revitalise the Indian economy, engender growth and start bringing inflation down.
Here is the broad outline of a restructuring that could work:
* The Ministry of Consumer Affairs, Food and Public Distribution should be restructured. The Department of Food and Public Distribution should be attached to the Ministry of Agriculture, and the ministry renamed the Ministry of Food and Agriculture.
* The Department of Consumer Affairs of the Ministry of Consumer Affairs, Food and Public Distribution should be attached to the Ministry of Corporate Affairs. The new ministry should be renamed the Ministry of Consumer and Corporate Affairs.
* The new Ministry of Consumer and Corporate Affairs should have two departmentsDepartment of Consumer Affairs and Department of Corporate Affairs.
So, what is the logic behind combining Ministries of Agriculture and Food and Civil Supplies
The Ministry of Agriculture consists of the Departments of Agriculture and Cooperation, Agriculture Research and Education and Animal Husbandry, Dairy Development and Fisheries. It controls the production activities of all items making up food items consumed by Indians.
The Department of Food and Public Distribution controls the foodgrain procurement and distribution, warehousing, and the sugar and edible oil industries. It can be renamed the Department of Food and Civil Supplies and be brought back under the Ministry of Food and Agriculture. By attaching the Department of Food and Public Distribution to the Ministry of Agriculture, the reorganisation restores to one entity coordination of all activities of production, procurement and distribution of food items.
The function of coordinating consumer and marketing cooperatives, handled by the Department of Consumer Affairs, should be transferred to a new Department of Cooperation in the reconstituted Ministry of Food and Agriculture. Coordinating the producer cooperatives, done by the current Department of Agriculture and Cooperation, can be transferred to the new department. The coordination under one entity of production and distribution of all activities related to food consumables potentially brings inflation down, as all matters are handled by one senior political figure and an integrated team dealing with various aspects of operational phenomena in Indias food economy holistically.
This reorganisation leads to five departments in the Ministry of Food and Agriculture: (1) Department of Agriculture, (2) Department of Agriculture Research and Education, (3) Department of Animal Husbandry, Dairy Development and Fisheries, (4) Department of Food and Civil Supplies, and (5) Department of Cooperation.
And what is the reason behind combining the Departments of Consumer Affairs and Corporate Affairs in a Ministry of Consumer Affairs and Corporate Affairs
The management of internal trade and competitive processes is important for government departments. The two departments doing so are those of Consumer Affairs and Corporate Affairs. They have to be brought under one ministry. India is a free-market economy and is subject to substantial inflationary forces. The new Ministry of Consumer and Corporate Affairs should be the omnibus authority to implement competition policy across the economy.
Nobel laureates Finn Kydland and Edward Prescott show that in the absence of a competitive economy, despite monetary policies to contain inflation, prices rise as the activities of businessmen are not subject to constraints. The relationship between competition and inflation is negative. With more competition, there is lower inflation.
Therefore, the role of government departments in coordinating implementation of policies constraining egregious behaviour of firms is crucial for low inflation and growth. Market efficiency is the result of competition policies being implemented across the economy. Regulatory constraints on egregious behaviour of businessmen are crucial for welfare. Enforcement of laws, regulations and sanctions under different legislations should be done by one composite ministry.
The Department of Consumer Affairs implements rules, regulations and sanctions to enhance market efficiency in the unincorporated sector and for certain categories of goods and commodities brought under the Essential Commodities Act. The regulations implemented by the Department of Consumer Affairs constrain egregious trader behaviour via laws on fair trade and transactions.
Concurrently, the Department of Corporate Affairs enforces laws, regulations and sanctions for the corporate sector.
Economic activity concentration, leading to market imbalances, low competition, cartelisation, etc, impact consumers. The laws to deal with these fall under the competition policy rubric.
The Departments of Consumer Affairs and of Corporate Affairs develop and enforce laws, rules and regulations that define business behaviour. Both departments apply sanctions to enforce good conduct. These two should be placed under one ministry, which then becomes an important economic ministry. Their activities significantly impact the lives of Indias citizens.
Sumit K Majumdar
The author is professor of Technology Strategy, University of Texas at Dallas