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3.DifferentRolesofGovernmentinBusiness
Government performs many different roles in an economy. Conventionally, it was presumed that
roleofgovernmentistosustainthelawandorder,protectacountryfromexternalattacks,provide
social security, take care of public utilities and maintain peace within a nation. Government has
commandoverallresourcesinaneconomy.Overtimetheseroleshavetakenaconcreteshapeto
bring about development and growth of an economy as well business. The vision has been to
improve international competitiveness, rapid modernization and sustainable growth. For this
purpose the government of India decided to participate actively in the regulation, promotion and
planning of business activities. These roles are essential to provide the platform to excel the
competiveness of businesses domestically, to ensure the balanced regional growth, constitutional
framework, infrastructural improvement and public utilities. The following roles are played by the
governmentinbusiness.

a.RegulatoryRole

b.EntrepreneurialRole

c.PromotionalRole

d.PlanningRole

Figure2:RoleoftheGovernmentinBusiness

3.1.RegulatoryRole:

Generally, the government attempts to measure and control the limits of Private Sector. Listed
below are the major objectives from the governments end to regulate the business processing/
functioning:

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Inregulatoryrole,thegovernmentdirectsbusinessesfortheiractions.Thisisdonebystandardizing
thecodeofconduct,normsandregulationsindomesticenvironment.GovernmentofIndiahasthe
foremostobjectiveofsocialwelfare,hencetheycontrolthebusinessandeconomicactivitiesinsuch
awaythatitbenefitsthesocietyandbuyers.Regulatingitinvolvesceilingtheprices,rationingthe
goods, imposing taxation on excess profits, allocation of foreign exchange, adding restrictions on
foreigntrade,industriallicensingetc.Itismainlydonebytwoways:

DiscretionaryMeasures
NonDiscretionaryMeasures

Discretionary measures involve the direct measures by the discretion of administrative authority.
These include fixation of prices of commodities, quantitative restrictions on export or import,
rationingonsuppliesofgoods,distributionofscarerecoursesforoptimumutilizationofresources,
licensing the goods like hazardous chemicals, defense and railways. However, the current
governmentofIndiahasliberalizedtherestrictionsonrailwaysanddefensewith100percentand49
percent FDI respectively. In direct control government majorly regulates the balance regional
growthwithoptimumutilizationofresourcesinanationasawhole.Thesediscretionarymeasures
are performed at micro level i.e. at the firm level or industry level. While regulating government
makes sure that interest of all sections should be maintained. For example, no conflict among the
managementandlaborandlaborlawsshouldbepreserved.

NonDiscretionaryMeasuresincludethecontrolwithoutanyadministrativediscretionofanauthority.
These measures are exercised at macro level through fiscal and monetary policies. For examples
imposing different taxes on different products at different places, amending customs tariffs,
regulatingthebankinterestbychangingreporatesorreversereporates,regulatingmoneysupply
andcreditcreationandgrantingsubsidiestodifferentindustries.GovernmentofIndiaissponsoring
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and providing subsidies to solar and power projects for sustainable development. Hence, non
discretionary measures are achieved by passing different laws. In India, the regulatory role is
exercisedinfollowingmanner:

I.TheCompaniesAct,2013:Itisanacttoconsolidateandamendthelawrelatingtocompanies.
This act is related to companies in force before the Indian Companies Act, 1866 the Indian
Companies Act, 1882 the Indian Companies Act, 1913 the Registration of Transferred Companies
Ordinance,1942andtheCompaniesAct,1956forbetterfunctioningofbusinessinlegalizedform.

II. The Banking Laws (Amendments) Act, 2012: This is an act to further amend the Banking
RegulationAct,1949,theBankingCompanies(AcquisitionsandTransferofUndertakings)Act,1970,
the Banking Companies (Acquisitions and Transfer of Undertakings) Act, 1980 and to make
consequential amendments in certain other enactments for better functioning of banking sector to
helpbusinessesandothereconomicactivities.

III. The Securities and Exchange Board of India (Amendment) Act, 2013: This is an Act which
furtheramendstheSecuritiesandExchangeBoardofIndiaAct,1992fordirectingthefunctioningof
SEBI.

IV. The National Food Security Act, 2013: This act provides for food and nutritional security in
humanlifecycle,byensuringaccesstoadequatequantityandqualityoffoodataffordablepricesso
that people can live a life with dignity. It is also concerned with matters connected therewith or
incidentalthereto.

V. Consumer Protection Act, 1986: This is an act to protect the interest of consumers in India by
making provision for the establishment of consumer councils and other such authorities for the
settlementofconsumers'disputesandformattersconnectedtherewith.

VI. Industrial Policy: In India, Industrial Policies have been announced in 1948. 1956, 1973, 1977.
1980, 1990, and 1991. These the policies aimed at development of Industrial Structure by
Liberalization, Privation and Globalization and encouraging private sector to start their venture in
Indianeconomy.

VII. MRTP Act, 1969: The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted to
makesurethattheoperationoftheeconomicsystemdoesnotresultinconcentrationofeconomic
power in hands of few, to restrict the monopolies, and to forbid monopolistic and restrictive trade
practices.ThisActwasamendedin1982,1984,1985and1991.

VIII.ForeignExchangeRegulationAct,1973:ForeignExchangeManagementAct,1973,asamended
bytheForeignExchangeRegulation(Amendment)Act,1993.ItisanActtoconsolidateandamend
lawsrelatedtocertainpayments,dealingsinforeignexchangeandsecurities,transactionsindirectly
affecting foreign exchange and the import and export of currency, for the conservation of the
foreign exchange resources of the country and the proper utilization thereof in the interests of the
economicdevelopmentofthecountry.(AsPerRBI)

IX.CommercialLaw:Thisacthasbeenmadewithaviewtoorderoperationalaspectsoftradeand
business. It includes acts like India Contract Act, Sales of Goods Act, Negotiable Instruments Act,
ArbitrationAct,etc.

Theregulationandcontroldiscussedaboveisaimedtoencouragethetradeandindustrialgrowthby
monitoringtheactionsofprivate,public,jointandcooperativesectorandlimitingthemifrequired.
It helps the economy with increased competitiveness at both the levels nationally and
internationally.

ValueAddition1:DidYouKnow?
MajorFinancialRegulatoryBodiesInIndia
TheGovernmentofIndiaplaysanimportantroleincontrollingtheoverallfinancialsystemin
India.However,InIndia,thefinancialsystemismainlyregulatedbyindependentregulatorsin
the field of banking, insurance, capital market etc., with Government of India partially

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influencingtheroleoftheseregulatorstosomeextent.Clickonthelinkbelowtolearnmore
aboutfivemajorfinancialregulatorybodiesinIndia.
Source:http://www.allbankingsolutions.com/BankingTutor/RegulatoryBodiesinIndiaRBI
SEBIIRDA.shtml

3.2.EntrepreneurialRole:

In the entrepreneurial role, the government acts as an entrepreneur and participates in economic
activitiesthroughitsownownershipinformofpublicsectorventureslike

TransportationIndianRailwayCateringandTourismCorporationLtd,DMRCLtd
CommunicationMTNL,BSNL
ElectricityandPowerBSES,NDPL
CompanieslikeEPCBHEL,PGCIL,IRCONltd

Sometimesprivatesectorisunabletoestablishitsventureinsomeareaduetoconstraintslikelack
ofcapital,lackofknowhoworrestrictionsbygovernment.Forthis,thegovernmenthastoperform
the entrepreneurial role by entering the market with its ownership through public sector. For
example in the steel sector, minerals, chemical industry, engineering, irrigation, power and heavy
industry government of India established its business. Similarly, projects like Delhi Rail Metro
CorporationLimitedisinitiatedbyDelhiGovernmentundercompanyact,1956withGOIandGNCTD.
After the DMRC project, Mumbai Metro One Private Limited (MMOPL) project was initiated by
RelianceInfrawith69%equity,MumbaiMetropolitanRegionDevelopmentAuthoritywith26%and
Veolia Transportation RATP Asia, France with 5% equity. Entrepreneurial role of government is
encouragedowingtothefollowingreasons:

Forsocialwelfare
Forbalancedregionalgrowth
Forcapitalintensivegrowth
Forprovidingconsultancytoprivatesector

As per the Industrial Policy Resolution Act (1948), it was declared that monopoly of few of the
sectors like manufacturing of arms and ammunition, the production and control of atomic energy,
and the ownership and management of railways would lie under Central Government and six
industriesnamelycoal,ironandsteel,aircraftmanufacture,shipbuilding,manufactureoftelephone
andwirelessapparatus,andmineralore,wouldbeestablishedbyPublicsectorsolely.However,the
amendmentsinTheIndustrialPolicyResolution(1956)hadliberalizedthesepolicies.Moreover,the
current NDA government allowed 49 percent FDI in defense compared with 26 percent ceiling and
100percentFDIinrailwaysprojecttomagnetizemoreforeigninvestments.

However,CentralPublicSectorEnterprises(CPSEs)aremakinglossesduetonoprofitmotives,lack
to proper operational function, inadequate research, deficient technology enhancement and slow
processofbureaucracy.Hence,GovernmentofIndiahasfavoreddisinvestmentofpublicsectors.In
199192,thefunctionofdisinvestmentstartedwith31PublicSectorUnitsanditgenerated30.4bn.
This action aimed for finance generation, encouraging participation of private sector and to ensure
greater market accountability. Moreover to increase the competiveness and resource generation,
disinvestment assumed to be significant. During 200405 to 200809, the disinvestment process
stagnatedwithtotalreceiptsofRs.85.2bnandnodisinvestmenttransactionduringFY07andFY09.

Although after New Industrial Policy, 1991 the role of entrepreneurship is declined as government
introduced the concept of Liberalization, Privatization and Globalization. This reorientation of
Government of India encouraged private sector to be more participative in economic activities.
However,stillGovernmentofIndiaisperformingtheroleasanentrepreneurinrequiredareas.

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3.3.PromotionalRole:

In promotion role, government does not regulate or control the activities of business, however,
supports the business activities by promoting the better environment, advanced infrastructure,
offering various incentives to endorse economic activities in the business. This role includes
arrangement of proper roads, transportation, communication, power supply, financial institute,
banking,capitalmarketsforcoordinationamongvarioussectors.

Figure5:FunctionsunderPromotionalRole

Thefollowingaremajorfunctionsperformedinpromotionalrole:

Toprovidebasicinfrastructureforsmoothfunctioningofbusinessactivities
Tohavecoordinationamongpublic,private,jointandcooperativesectors
TohavebalancegrowthamongallsectionThus,thepromotionalroleofIndiangovernment
includesfiscalandmonetarypoliciesfordevelopmentandgrowthoftheeconomy.

Figure6:PromotionalRole

FiscalPolicy:

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The adjective fiscal' is derived from the noun "fisc" (from Latin fiscus) where fisc means state
Treasury.Thewordfiscal,therefore,referstoallmatterpertainingtostatetreasuryparticularlyit
is a source of revenues and patterns of expenditures. Fiscal policy influences consumption &
investment expenditures and accordingly the income, output & employment in the country. Fiscal
policydealswithGovernment'spowertotax&spendforthepurposeofachievingcertaindeclared
policyobjectiveswhichgenerallyrelatetoprices,output&employment.Thesepoliciesofacountry
aredirectedtowardsfourobjectives:

Figure7:ObjectivesofFiscalPolicy

These are achieved by two ways namely by direct tax and indirect tax. A Direct tax is a kind of
charge, which is imposed directly on the taxpayer and paid directly to the government by the
persons(juristicornatural)onwhomitisimposed.Adirecttaxisonethatcannotbeshiftedbythe
taxpayertosomeoneelse.ItincludesIncomeTax,CorporateTaxandPropertyTax.Anindirecttax
isataxcollectedbyanintermediary(suchasaretailstore)fromthepersonwhobearstheultimate
economicburdenofthetax(suchasthecustomer).Anindirecttaxisonethatcanbeshiftedbythe
taxpayertosomeoneelse.Anindirecttaxmayincreasethepriceofagoodsothatconsumersare
actually paying the tax by paying more for the products. It includes Customs Duty, Central Excise
Duty,VATandCST.Despitethefactthat,fiscalpolicyisalsocarrieslimitationsi.e.thetaxstructure
indevelopingeconomyisnarrow&rigidandlackofsound&reliabledatabaseinourcountry.

MonetaryPolicy:

Monetary policy is the deliberate exercise of the monetary authority's power to induce expansions
or contractions in the money supply with the objective of influencing investment, income and
employment and maintaining price stability in general within the broad framework of economic
policy objectives of government. There are two major instrument in monetary policy namely
Quantitative and Qualitative instrument. Quantitative instruments are called 'quantitative' because
they affect the total volume (or quantity) of money supply and credit in the country. It takes
account of Variations in reserve requirements, changes in Bank rate and open market operations.
Qualitative Instruments are also known as selective instruments. Selective instruments are called
selective because they are aimed at the movement of credit towards selective sectors of the
economy. It consists of Margin requirements, Moral suasion, Ceilings on credit and Discriminatory
ratesofinterests.

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3.4.PlanningRole:

GovernmentofIndiaactsasaplannertosecureoptimumutilizationofresources.In1950,Planning
CommissionwassetupbyGovernmentofIndiawithanobjectiveformobilizationofresourcesand
to formulate the plans for the development of the nation. The following motives of planning
commissionsare:

ToincreasetheproductivityandhighGDP
Toachievehighpercapitaincomeandnationalincome
Togenerateemployment
Toreduceinequalityamongdifferentsections
Toachievethelaidobjectives
Toattainsocialjustice

Figure8:TypesofPlanning

Basically,therearetwotypesofplanningi.e.centralizedanddecentralizedplanning.InCentralized
planning, plans come from top (central level) and passed to state level. In Decentralized planning,
theplansareinitiatedfromthebottomi.e.fromindividualunitsaypanchayatlevel,sectorallevel,
regional level and national level. Moreover, there are short term planning and long term planning
likefiveyearsplanlaiddownbygovernmentofIndia.

Since 1951, Government of India is planning long term plans for Indian economy. Each five year
plan has distinctive focus and mission. First Plan (1951 56) also known as
NehruMahalanobisstrategy of Development included plans to control the inflation, to solve the
problem of food shortage, to focus on agriculture, price stability and to build base for heavy
industries. Second five year plan for 1956 to 1961 initiated to focus shift from agriculture to
industry,forrapidindustrialization,forestablishmentofhydroelectricpowerprojectsandfivesteel
plants at Bhilai, Durgapur, and Rourkela, to add more railways lines in northeast, to produce more

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coal.ThirdFiveYearPlancommencedon1961to1966andfocusedonprimaryschooleducationand
PanchyatElectionatruralareas.However,foodoutputfallendownandplanturnedouttobefailure
andlargedifferenceingrowthwasrecorded.FourthPlan(196974)includedintroductionofGreen
Revolution and nationalization of 14 banks. Fifth Plan (197479) stressed on Garibi Hatao (poverty
alleviation), focused on employment Generation and tourism enhancement. Due to change in
government, BJP introduced the Rolling Plan (1978 80) and rejected the 5th Plan. This plan was
flexibleandplanchangesasperthecountryeconomies.However,limitationanddifficultyinlaying
down the plan was observed. Sixth Plan (1980 85) was the beginning of early liberalization with
reduction in rationing and price control. Seventh Plan (1985 90) included rapid growth in food
grains production, increased employment opportunities and the plan was very successful, the
economyrecorded6%growthrateagainstthetargeted5%.

Eighth Five Year Plan (1992 97) was after new economic policy focusing in liberalization,
privatization and globalization. The highlights of this plan were modernization of industries with
rapid economic growth, high growth of agriculture and allied sector, and manufacturing sector,
growthinexportsandimports,improvementintradeandcurrentaccountdeficit.NinthPlan(1997
2002)enhancedselfrelianceandcombinationofprivateandpublicsection.TenthPlan(20022007)
focused on poverty reduction and it reduced by 5% in 2007. Improvement in wage rates and
lessening gender gaps in literacy were also included in tenth five year plan. Eleventh Plan (2007
2012) highlighted the issues of rapid and inclusive growth, poverty reduction and emphasized on
social sector, service sector and sustainable environment. Increased in growth rate of agriculture,
industry and services to 4%, 10% and 9% respectively was reported in this duration. Current
Twelfth Plan (20122017) mainly focused areas areinfrastructure, health and education and
improvement in facilities of direct cash transfer of subsidies in food, fertilizers and petroleum.
Focusedwasgivenondrinkingwaterandsanitation.

ValueAddition4:PauseandThink
AchievementsofIndiasFiveYearPlans
Each five year plan was introduced with certain major objectives in mind. If we pause and think
abouttheachievementsofIndiasFiveyearplanssofar,muchhasbeenachievedinincreasesin
national income, per capita income, developments in agriculture, industry, transport and
communication sectors, improvements in employment and capital formation of the country etc.
ClickonthelinkbelowtoknowmoreabouttheachievementsofIndiasFiveyearplans.
Source:http://www.preservearticles.com/201107169216/whataretheachievementsofindiasfive
yearplans.html

However,thecurrentPrimeMinisterofIndiaShriNarendraModihassuggestedtoscraptheyears
oldPlanningCommissionandtoformNationalDevelopmentReformCommissionwitheight
membersthreefromindustryandtherestcomprisingformerorexistingchiefministersand
Cabinetministers.NationalDevelopmentReformCommissionwillfocusoninclusiveplanningwith
NationalAquiferManagementProgramme,flexibleplans/schemes,breakingdepartmentsilosand
facilitatingandmainstreamingthestateswithspokespersonateachstate.Thisnewcommissionwill
empowerthebusinessandeconomicwiththinktankfacilitythantoonlyregulatethefunctions.

Theseplanshelpinimprovementofsocioeconomicconditionsofthenationwithbroaderobjectives
ofsocialwelfare,sustainabledevelopment,pricestability,employmentgeneration,optimum
utilizationofresourcesandeconomicgrowth.Theseplansarebackedupwithmonetary,fiscaland
budgetarypolicieswithproperexecutionandimplementation.Finally,theperformanceoftheplans
shouldbemeasuredandevaluatedtoensureitsfutureeffectivenessandoutput.

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