The Indian Government in its current situation amidst the Covid-19 crisis and the already slowing down economy needs to ensure that only effective intervention takes place. This is not to say that there is not a case for intervention in the economy, but excessive intervention that tries to enhance citizens’ welfare and stifling economic freedom shouldn’t get encouraged. Usually, governments try to combat the inequalities of the market through regulation, taxation and subsidies, and this is to promote economic fairness in the economy.
Governments should only intervene in the economy so as to maximise social welfare as businesses tend to produce negative externalities without consequences. Hence, the Indian government needs to allow for more market independence and only regulate to maximise social welfare. Moreover, in the current Covid-19 crisis, public goods are at an all-time high, for which public goods need to be provided. However, under normal circumstances, the government needs to control the allocation and use of public goods. Hence, the Indian government needs to only intervene in the economy in specific situations where regulation is required, otherwise, the market needs to be given more independence.
Moreover, governments need to intervene to combat and control various macro-economic factors. Governments also need to intervene to minimise the damage that can be caused by a pandemic or natural disaster. So, in today’s day and age, the government might as well intervene so as to limit the damages and the after-effects of such a threatening event. The Indian Government can intervene by giving stimulus packages, subsidies and even controlling the money supply. The Indian Government may also intervene for having greater economic fairness through economic welfare and even reallocation of financial resources so as to promote greater economic growth and equality.
Additionally, there can be some price floors and price ceilings as a form of government intervention. However, this should only be used by the government in specific situations and not every time as there are after-effects that ultimately cause negative externalities in the market. Price floors can lead to surplus and price ceilings often lead to shortages and black markets. This often promotes wastage of resources and illegal activities such as smuggling of goods and can cause market failure. Hence, the government needs to ensure that price controls are well designed, otherwise, they need not be implemented in markets such as India where negative externalities are already high.