Why Nirmala Sitharaman is wrong in chiding the corporate sector

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Editor's note: Recently, Union finance minister Nirmala Sitharaman asked Indian capitalists: “...since 2019, I have been hearing that industry doesn’t find [conditions] conducive, so I brought the corporation tax rate down… I would want to know from the Indian industry why they are hesitant [to invest]… I want to hear from India Inc., what’s stopping you when countries and industries abroad think this is the place to be now?” When I heard Sitharaman’s question, I was reminded of the infamous Say’s law. In the late 19th and early 20th centuries, Say’s law was the hegemonic economic philosophy. French economist Jean-Baptiste Say (1767-1832) argued that supply creates its own demand, and governments need not play any role in intervening or investing in the economy to take it close to full employment. Consequently, governments refrained from investing in the economy even when growth was slowing. However, Say’s law was confined to the dustbin of history by the Great Depression of 1929, which showed that supply may not create its own demand and governments may need to step in and pump-prime the economy to generate …