For several years now economists with a clear head and no political sense have been trying to convince the Indian government of a simple economic truth: firms that have been making losses consistently and are unlikely to turn around ever should be closed down. The main or only reason they have cited in support is that this will enhance economic efficiency, which is true.
The government, however, has not been convinced that this is a good enough reason. It has cited social reasons in support. The economists, in turn, have not been able to come up with conclusive evidence in support of the efficiency argument, largely because they have not bothered to prove their proposition. Empirical work in India on really important matters is like that only
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
