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Role of the Government Can Broadly Be Divided Into

Two Parts:
1. Direct Role:
The government is a social-welfare organisation. It works for
the benefits of the common people without making any
motive to maximise profit.
Hence, the main agenda of the government is welfare


The direct involvement of the government towards

the country’s development is summarised below:
(a) Agricultural Growth:
India is an agro-based country. The main occupation of the
Indians is agriculture and its allied activities like farming,
poultry, cattle rearing, fishing, animal husbandry etc.
According to recent statistics, about 67 per cent of the labour
force in India is engaged in agriculture. They are producing
about 22 per cent of the country’s GDP (Gross Domestic
However, due to defective planning and improper
implementation the productivity of Indian agriculture is very
poor. Improper land tenure system, wrong landholding
inadequate credit system, primitive technology and old system
of ploughing and irrigation etc. are the main reasons behind
low productivity of Indian agriculture. To overcome all these
difficulties, government adopts several measures, including
land reforms, new tenancy system, economic subsidy etc. for
the growth of per hectare agricultural production.

(b) Industrial Growth:
In the Second Five Year plan the Government of India had
given huge emphasis on the development of basic and heavy
industries like steel, iron, cement, power etc. Although
consumer goods industries are growing up properly, but the
capital goods industries have lost their momentum. Most of
the industries have become sick and weak. To save these
situations, in 1991 the Government of India adopted New
Industrial Policy.
By the policy of privatisation, the government gives enough
licence to the private sectors for developing consumer goods
industries along with few heavy engineering goods. However,
the core basic industries like defence, railway, power and
energy etc. are still under the government hand. Proper credit
facilities and adequate subsidies are also provided to the
industrialists to increase their scale of production.
(c) Development of Socio-Economic Infrastructures:

In order to maintain a smooth functioning between

agriculture and industrial sectors, a sound socio-economic
infrastructure is necessary. Thus, government is investing
huge amount money of for the development of overhead
capitals like energy, power, transport, communications,
education, health, housing etc. Moreover, the government is
also giving stress on the development of other tertiary sectors
like banking finance, insurance etc.
(d) Efficient Utilisation of Resources:
All the countries have different types of natural and economic
resources for their own use. These resources are used
optimally to satisfy maximum wants among the economy.
This will enable the country to achieve the path of economic
development. Hence, efficient utilisation of domestic
resources is the main role of the government.
(e) Maintain Law and Order:
The government or the state plays an important role in
maintaining peace law and order within the economy through
effective administrative system. The state runs defence, police
and court to maintain peace and order both externally and
(f) Social Distributive Justice:
To implement social distributive justice, i.e., to reduce
inequalities between rich and poor, the government plays a
vital role in an economy. The government takes several
measures in this context, such as;
(i) Progressive Taxation:
Here rate of taxation increases along with the increase in
income. For example, rich or high income earning people will
give more taxes, while poor people will either pay low taxes or
no taxes at all.


(ii) Economic Subsidy:

The state gives economic subsidies to the poor people for the
consumption of necessary goods. Again, it also gives subsidies
to the poor farmers for buying their seeds, fertilisers,
pesticides etc. during the time of cultivation.
(g) Control of Monopoly:
The state adopts several controls to give benefits to the
citizens. The Government of India took the policy of MRTP
(Monopolies and Restrictive Trade Practices) Act to control
the economy from the hand of few monopolists and also to
stop consumers, exploitation. Moreover, the state also adopts
social monopoly like Indian Railway, Post & Telegraph to give
a bit of relief’ to the common mass.


(h) Active Participation:

The state actively participates into the economy on
the following grounds:
(i) To maintain price stability or to control inflation;
(ii) To stop black marketing, by the policy of price ceiling;


(iii) Direct intervention during the time of political disorder or

(iv) Direct participation during financial or economic crisis,
(v) Sole intervention during the time of war emergency or
natural disasters,
(vi) Regular supply of essential commodities to the weaker
section of the society through effective Public Distribution
System (PDS).
2. Indirect Role:

In spite of several direct roles, the government also plays

different indirect roles for the rapid economic development of
the country.
These indirect measures or roles are briefly given
(a) Fiscal Policy:
All the government policies related with public revenue and
expenditures, i.e., taxes and subsidies, are related with fiscal
policies. With the proper implementation of these policies the
state tries to raise economic development of the country.
It helps to perform following functions:
(i) To control inflation,
(ii) To increase capital formation,
(iii) To maintain equalities of income and wealth;
(iv) To stabilize market.
(b) Monetary Policy:
The government along with the Central Bank with the help of
this policy controls the money market. In India, Reserve Bank
of India (RBI) along with all the commercial banks tries to
control and regulate the money supply. During the time of
inflation, i.e., excessive rise in price level, the government
with the help of RBI checks the money supply and credit
creation. On the other hand, during deflationary situation
money supply increases.
(c) Price Measures:
The main objective of the state is to safeguard the common
mass from the exploitation of private entrepreneurs. In this
connection, the state sometimes adopts the price measures of
essential commodities and services through the policies of
price ceiling and price flooring.
(d) International Trade Policy:
According to Simon Kuznets, “Trade is the engine of economic
growth.” The government controls and regulates the trade
policies by imposing tariffs, quotas, duties etc. The main
intention of the trade policies to regulate exports and imports
for improving the Balance of Payment (BOP) situations and
increasing the stock of foreign exchange reserves. All the
above measures, i.e., both direct and indirect roles, are
performed by the government to achieve economic
development and to create the concept of Welfare State.