(The Gist of PIB) Promoting Pro-Business Policy Critical for India to become a $5 trillion Economy [FEBRUARY-2020]

(The Gist of PIB) Promoting Pro-Business Policy Critical for India to become a $5 trillion Economy

The Economic Survey 2019-20 says India’s aspiration to become a $5 trillion economy depends critically on promoting “pro-business” policy and weaning away from “pro-crony” policy.

Survey says that India’s aspiration of becoming a $5 trillion economy depends critically on:
Promoting ‘pro-business’ policy that unleashes the power of competitive markets to generate wealth.
Weaning away from ‘pro-crony’ policy that may favour specific private interests, especially powerful incumbents.
Viewed from the lens of the Stock market, creative destruction increased significantly post-liberalisation:
Before liberalisation, a Sensex firm expected to stay in it for 60 years, which decreased to only 12 years after liberalisation.
Every five years, one-third of Sensex firms are churned out, reflecting the continuous influx of new firms, products and technologies into the economy.
Despite impressive progress in enabling competitive markets, pro-crony policies destroyed value in the economy:
An equity index of connected firms significantly outperformed the market by 7 % a year from 2007 to 2010, reflecting abnormal profits extracted at common citizens’ expense.
In contrast, the index underperforms the market by 7.5 % from 2011, reflecting inefficiency and value destruction inherent in such firms.
Similarly, crony lending that led to wilful default, wherein promoters collectively siphoned off wealth from banks, led to losses that dwarf subsidies for rural development.