Deregulation Begins at Home
Deregulation Begins at Home Deregulation Begins at Home Shanmuganathan Nagasundaram February 21, 2025 Economic Reforms, Indian Economy, Indian Liberals CEA Dr. Anantha Nageswaran eloquently distinguished between digitization and deregulation, emphasizing that digitization does not necessarily imply deregulation Our Chief Economic Advisor (CEA), Dr.Anantha Nageswaran, has made a dispassionate plea for Deregulation. He was eloquent enough to distinguish between digitization and deregulation, indicating that the former need not imply the latter. The memo to bureaucrats- Eliminate, Not Automate. Kudos indeed. If I were to add something specific on this front, it would reinforce the urgency and importance of Deregulation. The poster boy of “Free Market Economics,” Javier Milei, did not set up a committee to study Deregulation but just started on day 1 with a “Department of Deregulation”. It’s been just about a year that Milei has been in office, and they have eliminated, on average, about 5 regulations/day—and Argentina started with far fewer regulations than India has. Milei is not even a career politician. He is an Economics Professor turned President who overcame the formal collegial indoctrination on Economics by reading Rothbard and Mises. The world indeed has a role model and a roadmap to adopt. This article is about the most important Deregulation that our CEA has entirely skipped. In fact, on this aspect, we are doing the exact opposite of Deregulation and no matter what happens in all other departments/functions of the Government, unless this is fixed, nothing else will matter. I am, of course, talking about the elephant in the room, i.e. the fiscal deficit or the Deregulation equivalent in this case of running “balanced budgets”. The distortions and malinvestments caused by our deficit spending for decades (practically since 1947) has kept Indians poor. Forget Austrian Economics; even if one studies history, it will be very easy to observe that no nation has ever managed to become prosperous by continually debasing the currency. It is indeed very amusing (if not for the tragic consequences) to see a deficit-to-GDP ratio of 4%+ described as “fiscal consolidation” by economists and supposedly independent market observers. If this is the definition of consolidation, I shudder to think what expansion would look like. What is Deregulation about? Deregulation refers to removing or reducing government controls on a country’s economic functioning. It is based on the fundamental premise that market regulations offer the best protection to consumers. All transactions in the market occur ONLY because of a consensual agreement between two parties, and hence, there is no need for the Government to impose its wisdom on such issues. At a more generic level, I would look at Deregulation as the process of handing over economic control to the citizens and away from the hands of the bureaucrats and politicians. It’s not that the markets are a utopia; it’s just that Government regulations worsen the situation. Let me take the example of a universally accepted regulation, “Minimum Wages,” and how it hurts the workers it is supposed to help. At the outset, Wages are the “price of labor”. In much the same way that we don’t want the government to determine the price of tomatoes and cars, we shouldn’t have the government determine the price of labour. The market forces of supply and demand determine wages. An employer has a choice from the labour pool of potential employees, and the employee chooses from the pool of potential employers. A “Free Market” is a voluntary transaction between two consenting parties. Nobody is forcing—neither does the employee have to work below what he thinks is his correct wage, nor does the employer have to overpay compared to what is available in the open market for that particular skill. Now, let us take the case where the “Minimum Wage” is kept above what the market would pay for that activity. Just to make the case more realistic, we will use Cognizant’s Rs.20,000 per month (that’s less than $250/month at current exchange rates) salary offer to engineering graduates. Thankfully, no minimum wage laws apply to the software industry at this point, and so despite the expected uproar of comrades, there was little traction in the market for such protests. But let us suppose that the Indian Government stipulates that the software industry’s minimum wage should be Rs.30,000 per month. How would that affect engineering graduates? Would it not improve their lives? Firstly, let us put the market size in perspective and understand the limited role that Cognizant would have in affecting the outcomes of engineering graduates. The total worldwide employee count of Cognizant is about 3.5 lakhs, and perhaps the maximum they can recruit at the entry level would be about 10% of the workforce or about 35,000. The total number of engineering graduates produced annually in India is about 15,00,000 (15 lakhs). So even if the top 10 software companies in India colluded on this Rs.20,000 pm offer, the number of potential employees it would affect is less than 25% of the workforce. Realistically, it is likely to be less than 10%. The point is that no company is large enough to affect the outcome of the industry. So, if Cognizant is offering Rs.20,000, these are indeed the prices at which these individuals can be utilized to add value for their clients in a profitable manner. So, if the government had intervened to fix the minimum wage at a higher level, then most of these graduates would have remained unemployed. Instead of recruiting X number of people at a salary of Rs.20,000, Cognizant would have recruited only a fraction at Rs.30,000 per month. But the point is not the Rs.20,000 per month lost to those unemployed due to the wage restriction. An entry-level position’s most important value to an employee is the skills they acquire in the starting years, which provide upward mobility in the industry. With their restrictions, the Government unintentionally ensures the lack of skills development that would permit a higher market wage in the future. I have used the software industry as
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