Governments should not try to fix prices—and if they insist, they would do well to know that price fixing will help some, but indirectly harm others. Yet, we have seen a flurry of attempts in recent weeks, as ministers have told airlines, realtors, hotels and others to cut the prices they charge buyers.
What has happened in cotton textiles is a sobering lesson. The minimum price at which the government buys raw cotton from farmers was increased by 46% in September, in an attempt to help around 4.5 million farmers, even as global cotton prices have dropped.
Downstream users have been hurt. Mint reported on Monday that cotton ginners —who deseed raw cotton— are planning to go on strike. They cannot compete with cheaper imports. And textile mills also say that high domestic cotton prices are adding to their troubles. These industries employ 50 million people, the largest outside agriculture.
Governments need to set rules, stabilize an economy and provide social security. But price discovery is best left to free markets.