Role of Government in Business

Regulator of Business:

The entire regulatory legislation and policies stand covered under this segment. On the one hand, there is a very large indirect area of government control over the functioning of private sector business through budgetary and monetary policies.

But against this there is also a fast-expanding area of direct administrative or physical controls through which the government seeks to ensure that private investment and production in industry and the use of scarce resources conform to government’s basic socio-economic objectives.

They have become necessary tools in a system which seeks to avoid total nationalisation of resources.

Government’s regulatory functions with regard to trade, business and industry aim at laying down the limits for the private enterprise. The regulatory functions of the Government include:

(i) Restraints on private activities

(ii) Control of monopoly and big business

(iii) Development of public enterprises as an alternative to private enterprises to ensure competitive dualism

(iv) Maintenance of a proper socio-­economic infrastructure.

Promoter of Business:

The promotional role of the government in relation to industries can be seen as providing finance to industry, in granting various incentives and in creating infrastructure facilities for industrial growth and investment.

For example, our government has identified certain backward areas as ‘No Industry Districts’. To promote development of such areas, Government provides subsidies and tax holiday to attract investment in backward areas.

In this way the government will help the process of balanced development and thereby remove regional disparities. The government is assisting the development of small scale industries.

The District Industrial Centers are assisting the development of small industries. The government is actively helping the industrial development of the country by providing finance to them through the development banks.

Government as the Planner:

In its role as a planner, the government indicates various priorities in the Five Year Plans and also the sectoral allocation of resources. Mixed economies are democratically planned economies.

The government tries to manage the economy and its business activities through the exercise of planning. Planning is the most important activity in a modern mixed economy. The idea of economic planning can be traced to three different sources: Rationalism, Socialism and Nationalism.

Economists advocate a planned economy on the ground that it can be a rational economy which can utilize the available resources in an optimal manner.

In other words, the planned economy is a rational economy which attempts to secure the maximum return with minimum wastage of productive resources.

The socialists advocate a planned economy because it helps to achieve some desirable social ends like economic equality. An unplanned economy, left to it, is incapable of attaining the social ends.

The nationalists advocate a planned economy because a planned economy is a powerful economy.

Government’s Responsibilities towards business:

• Providing Monetary System

The Government has to provide monetary system so that business transactions can be effected. Further, it is also the responsibility of the Government to regulate money and credit, and protect the money value of the currency in terms of other currencies.

• Incentives to Home Industries

It is the responsibility of the Government to encourage the development of home industries by providing them various incentives and subsidies.

• Conducting Inspections

It is the responsibility of the Government to inspect the private business concerns in order to make sure that they produce quality products, and also to prevent the production and sale of sub-standard goods.

• Transfer of Technology

It is the responsibility of the Government to transfer to private industries whatever discoveries are made by the Government owned Research Institutions so that they can be used for commercial production.

• Assistance to Small-scale Industries

It the responsibility of the Government to provide the required facilities and encourage the development of small-scale industries to overcome the problem faced by them.

• Supply of Information

It is the responsibility of the Governments to provide information, which is useful to businessmen in carrying out their business activities. Government agencies publish and provide a large volume of information, which is used extensively by business firms. This information normally relates to economic and business activity, specific lines of business, scientific and technological developments, and many other things of interest to business houses or business leaders.

• Provision of Basic Infrastructure

Government should provide basic infrastructural facilities such as transportation, power, finance, trained personnel and civic amenities, which are indispensable for the effective functioning of business concerns.

• Balanced Regional Development and Growth

It is the responsibility of the Government to make sure that there are balanced regional developments and growth.

• Maintaining Law and Order

Maintaining law and order and protecting persons and property is another responsibility of the Government of the country. It would be impossible to carry on business in the absence of a peaceful atmosphere.

• Enacting and Enforcing Laws

Enacting and enforcing laws is the prime responsibility of the Government of each country. This is because laws and regulations only enable the businesses to function smoothly. Further, Government provides a system of court for adjudicating differences between firms, individual or Government agencies.