Day 65 – Q 1. Can a market driven economy ensure the welfare of citizens, especially the poor populations, during times of distress? Critically comment. 

  • IASbaba
  • August 24, 2020
  • 0
GS 3, Indian Economy, TLP-UPSC Mains Answer Writing
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1. Can a market driven economy ensure the welfare of citizens, especially the poor populations, during times of distress? Critically comment. 

क्या बाजार संचालित अर्थव्यवस्था संकट के समय नागरिकों, विशेष रूप से गरीब आबादी के कल्याण को सुनिश्चित कर सकती है? समालोचनात्मक टिप्पणी करें।

Demand of the question – You need to comment on both sides of argument where in a market driven economy’s effectiveness in terms of welfare of citizens, especially the poor populations is highlighted during times of distress like the present times.


As the coronavirus continues its march around the world, governmental measures to stop the virus have severed the flow of goods and people, stalled economies, and in the process have raised questions on market economy’s role in welfare of citizens, especially the poor sections during such times of distress.


  • A market economy, also known as a free market or free enterprise, is a system in which economic decisions, such as the prices of goods and services, are determined by supply and demand.
  • The forces and the flaws that threaten the market economy arise within a complex and dynamic socio-political system which generates positive and negative feedback loops. 
  • This feedback loop is disrupted during times of distress like one’s induced by external factors to market economy like present Covid-19 crisis or like one’s induced by internal forces in market economy like the 2008 financial crisis.

A market driven economy can ensure the welfare of citizens, especially the poor populations, during times of distress in the following manner:

  1. Unlike other types of economies, a market economy increases the efficiency of government. Their limited role promotes increased efficiency of government in critical roles, especially during emergency situation. Eg- Governments focusing on basic essential services to citizens during lockdowns due to COVID pandemic.
  2. Increased productivity is also associated with a market economy. Such a phenomenon helps during times of distress as the surplus helps in fighting off the pressures of the situation. Eg- Increase in manufacture of PPE kits in India during the times of COVID.
  3. A country with a market economy also has increased innovation. Consequently, such an innovative attitude is essential during times of distress for improved ability to fight off the problem. Eg- Innovative new ways of manufacturing ventilators as well as new solutions to problems due to pandemic like work from home.
  4. Market economies also foster an environment of growth and innovation of wide ranging products which become effective tools in fighting a common global problem for welfare of citizens as well as poor populations. Eg- Cheaper tests during the ongoing pandemic.

But at the same time, market economies also become a hindrance in the measures towards welfare of citizens, especially poor populations, due to the following factors:

  1. Asymmetric information, also known as “information failure,” which typically manifests when the seller of a good or service possesses greater knowledge than the buyer. During times of distress, a market economy has comparatively lesser avenues towards tackling such issues where invariably the poor are worst affected.
  2. Wealth inequality is a recurring issue in market economies where workers don’t earn enough to save for a rainy day. Compounding the problem is that workers often need to work to earn the money necessary to survive and support themselves and their families. In times of distress like during the COVID pandemic, lockdown led to closing of all revenue earning sources for workers.
  3. Given the policy response of the national lockdown to arrest the spread of the virus, it is plausible to assert that children from the poorest strata will succumb to dietary shock both in terms of quantity as well as quality. These shocks can be possible weight-loss among children of the poorest households, including casual labourers
  4. Currently, it is estimated that the COVID-19 pandemic has created the largest disruption of education systems in history, affecting nearly 1.6 billion learners in more than 190 countries and all continents. Here, poor populations are most affected as they lack alternative tools for learning.

Way Forward- 

  • Directing the policy focus towards the poorest section is recommended as they are most vulnerable to these shocks and economic distress. 
  • Ensuring smooth and uninterrupted supply of nutritious meals and food supplements is particularly imperative to maintain the nutritional status of poor children. 
  • Measures such as direct cash benefits/transfers to those from the lowest economic strata, as done by the government a few months ago, may need to be extended. 
  • Enabling ground-level functionaries (ASHA, AWWs) to maintain their active participation in preserving ongoing nutrition efforts will also be critical.


Effective disaster risk financing instruments and strategies can be developed by joining hands with other market economies. Thus, a well-designed social insurance scheme can become a permanent feature in market economy which can assist the poor in times of distress, alleviating poverty and increasing prosperity by safeguarding development gains.

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