Government is one of humanity’s oldest and most important institutions. Since the early times, some kind of government has been an important source in the society. Every society needs some people to make and enforce decisions upon the society and the government refers to the process of exercising power in a group. Government generally means the public government as of a nation, state, province, country, city or village. Government affects the activity of every human in important ways. Form of government refers to the set of political institutions by which a government of a state or a country is organized.
Each successive government is composed of a body of individuals who control and exercises control over political decision-making. Their function is to make and enforce laws and arbitrate conflicts. In some countries and states this group is often of hereditary class and in some of democracy, where political roles remain but there is frequent turnover of the people actually filling the positions. In parliamentary system, government is used to refer as the executive branch and governing party in presidential system. The government is composed of the prime minister and cabinet and in other cases as executive, legislative, judicial, bureaucratic and sometimes devolved powers.
The government plays an important role in almost every country’s economy. According to the World Bank, “a substantial share of the nation’s product goes to satisfy public wants, a substantial part of the private income originates in the public budget, and public tax and transfer payments significantly influence the state of private income distribution. Moreover, the budget policy affects the level of employment and prices in the private sector.” In socialist economies government interference is greater. Hence, state control of economy is found in every country of the world. However, the nature and extent of control differ widely from one country to another depending upon political philosophy, social attitudes, and stage of economic development and behavior of the private sector.
Government roles can be classified into four categories:
- Regulatory role: The government prescribes rules and regulations concerned with the entry into business, conduct of the enterprise, disposal of surplus and relationships. Like the grant of license, restriction on the location of the industry, regulations on the working conditions of the factory, ceilings on the managerial remuneration, prohibition of certain activities, ceilings on dividends, tax on income of business enterprises, limiting the tariffs of the electric supply undertakings, regulating inter-company investments, provisions for settlement of labor management disputes and so on. In order to regulate the economy government applies both administrative and fiscal incentives and disincentives. Industrial policy is an important instrument for regulating the entry and location of private enterprise.
- Promotional role: In a developing country like India, infrastructure for industrial development is inadequate. Therefore, the government has to assume direct responsibility to build-up and strengthen infrastructural facilities like power, transportation, communication, finance, training, research and so on. The promotional role of government consists of assistance by way of subsidies, allocation of scarce resources, providing land at concessional price, concessional rates for power and water supply and facility of concessional rate of interest for the development of backward regions. Fiscal, monetary and other incentives, insurance of business risks for the development of priority sectors and activities.
- Entrepreneurship role: Consists of government’s participation in business through public ownership and management of industrial and commercial undertakings. This role of government has given rise to a strong public sector in developing countries like India. Even in developed countries which are committed to the philosophy of free private enterprise; defense production, public utilities, multi-purpose river valley projects, railways, airlines and strategic industries are often owned and controlled by the government. Objectives like balanced regional development of the country, promotion of capital intensive industries with long gestation periods to check private monopolies and exploitation of consumers, dearth of private entrepreneurship and lack of competition in certain industries have promoted the government to become an entrepreneur.
- Planning role: Government has the responsibility of fulfilling the aspirations of public. Scarcity of economic resources is the main problem in achieving the socio-economic objectives of growth and social justice. Therefore, the government lays down national priorities for optimum allocation of scarce resources through planning. The government of India had set up planning commission in 1950 and the basic goal of five year planning have been balanced regional development, rapid industrialization, employment generation and development of agriculture and small scale industries.