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Economic Role of Govt - Copy

Economic Role of Govt - Copy

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Published by Shahid Anwar Alig
Economic Role of Govt - Copy
Economic Role of Govt - Copy

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Categories:Types, Business/Law
Published by: Shahid Anwar Alig on Apr 28, 2013
Copyright:Attribution Non-commercial


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• The term government is derived from the Latin word “gubernare” that simply means “to manage” or “to govern”. • Government simply a governing body of particular state. • Development of a nation entirely depend upon the policies accepted and practiced by the government of particular country.

Economic role of government
Government plays five important economic role. 1. Regulative role 2. Promotional role 3. Entrepreneurial role 4. Planning role 5. Preventive role

Regulative role
In this role , government regulates the economic activities by direct and indirect control. 1. Direct control direct control can be applied from firm to firm, industry to industry like reservation of certain products for small enterprises, licensing, imposing restrictions on imports and exports etc.

2. Indirect control These are applicable to all types of business units. For example.. (a) Restrictions on inter-corporate investments. (b) Interlocking of directors. (c) Regulation of promotional activities. (d) Tax measures. (e) Monetary policy measures. (f) Measures to regulate foreign investments.

Promotional role
The promotional role of government is very important for the economic development of the nation. For promoting economic development, government provides infrastructure, social overhead capital etc. Promotional role of government are as follows-

1. Generation and distribution of power and energy(electricity, coal, petroleum products, natural gas etc.) 2.Development of transport and communication facilities. 3. Development of social overhead capital like health, education, training institute etc. 4. Development of money and credit system like banks, stock exchanges etc.

5. Providing incentives in the form of tax concessions, subsidies, concessional loans, etc. for development of industries which are of strategic importance and for industries located in backward regions.

Entrepreneurial/participative role
In this role, government directly participates in economic activities by setting up public enterprises. Indian government has setup various enterprises like Railways power generation plants steel plants

Enterprises produces various engineering goods heavy machinery etc. In developing countries like India this role is of special importance as all economic activities cannot be left to the private sector due to many different reasons. Some of them are as follows1.To promote social welfare by providing essential items at a price even below cost of production.

2. To promote areas where private sector has no interest, because these areas are less profitable and required huge capital. 3. To protect consumers from the monopoly like situation created by private sector. 4. To takeover sick private sector units in the interest of employees.

Planning role
For planned economic development of the nation, government frames economic plans to ensure optimum utilization of resources. In economic planning, priorities are setup, in which more important areas are given top priority. In India government has setup planning commission , which frames five year plan for promoting economic development and achieving social welfare objectives.

Preventive role
Government play preventive roles to save the economy from depressions and recessions. For playing a preventive role governments put attention on all those aspects that can initiate a chain reaction of downfall. For this purpose government keep a check on practice like market stipulation, money laundering, increase money supply etc. So no doubt an economy gets its shape from various players, but it’s the government that provides it with a backbone.


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