Economic Reforms and Institutions-Policy Implications for India

In the absence of necessary institutional conditions, market reforms in developing economies cause rent seeking and inequitable distribution of income. This, in turn, could stun economic growth and also thwart the emergence of the right institutions. It is important for government policy not only to minimise the short run costs of institutional failures but also to set the right initial conditions for the evolution of institutions in the right direction. This paper illustrates some of the costs of institutional failures and the policy implications in the present Indian context.