Indian Financial Markets

The Economy 15

under a framework of sound regulation. This has been a difficult path to take,

an observation that has been found in numerous other countries. There are

subtle difficulties in finding the right policy mix, the right “rules of the game”

which provide sound incentives to private firms to produce adequate quantities

of these goods, while at the same time avoiding monopolistic profit rates. As an

example, electricity generation in California has been bedeviled by problems,

lurching between blackouts on the one hand and supernormal profits by utilities

on the other.

For many years, there was universal pessimism about Indian infrastructure.

From 1991 onward, State investment in infrastructure slowed down consid-

erably, but the new policy framework ...