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What are the economic roles of a
government?

Government is simply the governing body of a particular state. The term Government simply refers to
administrators, legislators and the arbitrators existing in the bureaucracy that regulate or control or administrate a
state at a particular point of time. Conduct and development of a nation entirely depends upon the policies
accepted and practiced by the government of that particular country. The term government actually comes out
from the Latin word gubernare, that simply means to manage or to govern, and the Latin word mente, that
simply means mind.
Government play an extremely crucial role in shaping up the economy of a particular country, in fact, the
organizations of governments of different countries work together to ensure the economic security and
development of entire region. These collative efforts are now mandatory due to advent of globalization.
Globalization has integrated the markets of world in such a way that if US economy faces a down fall then the fire
can also be seen in other economies like India, Europe, Britain, Australia etc
Talking in modern context, government of a country can have regulative, facilitative and preventive roles t o play
in the economy. Which role a government will play, entirely depends upon the national and international
circumstances along with the specific ideology of the government.
Regulative Role
A government that is having socialistic ideology usually plays a regulative role in economy. Government put
restrictions on every trade practice and traders need to have approval and license from the government for new
endeavor. For building the equality in society government try to keep all the capital related issues in strict hands.
It has been observed that socialistic governments slowly turn into mixed governments, where they adopt
liberalization to enjoy the benefits of globalization. At this stage regulative role of government start getting diluted
and it turn into facilitating role.
Facilitative role
Facilitative governments facilitate the development of economy through simplification and privatization.
Governments remove restrictions from trade practices and usually increase FII and FDI permissions to enjoy the
benefits of integrative economies. Indian government turned into from regulative to facilitative in 1991, when the
finance minister of time Dr. Manmohan Singh announced LPG (Liberalization, Privatization,
Globalization) policy to the nation. Even the facilitative governments keep regulation on economy through various
authorized bodies like RBI, SEBI etc
Preventive Role
Governments play preventive roles to save the economy from depressions and recessions. For playing the
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 practices like market stipulation, money laundering, increased money
supply etc. When recessions strike the economy, governments also provide bailout packages to help the
business houses to come out from downfall.
The progress of India as an economy over the past two decades has been well documented. GDP growth rates,
however, are not an end in themselves; rather, they are the means through which a nation can strive to enable
progressively better living standards for its people.
In fact, in this context, India has managed to cover considerable ground. Poverty levels declined sharply from
37.2% in 2004-2005 to 22% in 2011-2012. Indias growing middle class has been viewed as a boon by
multinationals seeking high-growth opportunities. According to Deloitte, India will be home to the worlds largest
middle class consumer market by 2030, with an aggregate spending of about US$ 13 trillion.
This notwithstanding, it is imperative to understand that India needs smart and timely interventions in a number of
areas such as education, healthcare, financial inclusion, agricultural productivity and governance to ensure
sustainable and inclusive growth. A critical factor, which favours India as it makes these interventions is the
leverage potential of 21st century technology.
A case in point is the potential of mobility devices and improving Internet connectivity towards achieving
development outcomes and integrating the masses into the mainstream. India has a wireless subscriber base of
around 873.36 million (as of June 2013) and a projected smartphone user base of 382 million by 2016. With 367
million connections, India is expected to be the worlds second largest mobile broadband market by 2016.
The US$ 50 Aakash tablet, for instance, won widespread acclaim as the cheapest tablet globally. It is the basis of
a massive project launched by the Government of India to connect 25,000 colleges and 400 universities of India
in an e-learning programme. This programme can play a game-changing role in Indias progression as a
knowledge superpower by providing universal access to quality education, and the government plans to provide
the tablet to 2.2 million students in another 7-8 years.
Significantly, Aakash has also been made a part of a few pilot projects in American schools. A similar smart
intervention that leverages technology for better governance is the governments National Optical Fibre
Network (NOFN) project, which aims to connect 250,000 villages using optical fibre networks, and is expected to
be completed by 2015. Applications launched through the NOFN can greatly enhance the governments ability to
successfully implement schemes like NREGA and PDS, besides offering the potential for development of
numerous useful applications in areas like healthcare, education, agriculture and commerce. As the project
reaches completion stage, one can expect a greater contribution from the private sector towards this application
ecosystem.
The progress made by Indias pharma industry has also been transformational in the arena of affordable
healthcare. India was recognized by UNICEFs Supply Annual Report as the largest global supplier of generics in
2012, and has been lauded for its efforts towards supplying life-saving medicines to developing countries at low
costs. Indian pharma companies have successfully brought down the annual cost of HIV/AIDS treatment in Africa
per patient from US$ 12,000 to less than US$ 400.
A critical factor that has enabled such timely interventions has been the development of a nurturing ecosystem
for thriving partnerships between the government and the private sector. These interventions are expected to
play a key role in driving inclusive development for India, and could also possibly serve as vital blueprints for
achieving similar outcomes in other parts of the globe.

Innovation for future Growth


The progress of India as an economy over the past two decades has been well documented. GDP growth rates,
however, are not an end in themselves; rather, they are the means through which a nation can strive to enable
progressively better living standards for its people.
In fact, in this context, India has managed to cover considerable ground. Poverty levels declined sharply from
37.2% in 2004-2005 to 22% in 2011-2012. Indias growing middle class has been viewed as a boon by
multinationals seeking high-growth opportunities. According to Deloitte, India will be home to the worlds largest
middle class consumer market by 2030, with an aggregate spending of about US$ 13 trillion.
This notwithstanding, it is imperative to understand that India needs smart and timely interventions in a number of
areas such as education, healthcare, financial inclusion, agricultural productivity and governance to ensure
sustainable and inclusive growth. A critical factor, which favours India as it makes these interventions is the
leverage potential of 21st century technology.
A case in point is the potential of mobility devices and improving Internet connectivity towards achieving
development outcomes and integrating the masses into the mainstream. India has a wireless subscriber base of
around 873.36 million (as of June 2013) and a projected smartphone user base of 382 million by 2016. With 367
million connections, India is expected to be the worlds second largest mobile broadband market by 2016.
The US$ 50 Aakash tablet, for instance, won widespread acclaim as the cheapest tablet globally. It is the basis of
a massive project launched by the Government of India to connect 25,000 colleges and 400 universities of India
in an e-learning programme. This programme can play a game-changing role in Indias progression as a
knowledge superpower by providing universal access to quality education, and the government plans to provide
the tablet to 2.2 million students in another 7-8 years.
Significantly, Aakash has also been made a part of a few pilot projects in American schools. A similar smart
intervention that leverages technology for better governance is the governments National Optical Fibre
Network (NOFN) project, which aims to connect 250,000 villages using optical fibre networks, and is expected to
be completed by 2015. Applications launched through the NOFN can greatly enhance the governments ability to
successfully implement schemes like NREGA and PDS, besides offering the potential for development of
numerous useful applications in areas like healthcare, education, agriculture and commerce. As the project
reaches completion stage, one can expect a greater contribution from the private sector towards this application
ecosystem.
The progress made by Indias pharma industry has also been transformational in the arena of affordable
healthcare. India was recognized by UNICEFs Supply Annual Report as the largest global supplier of generics in
2012, and has been lauded for its efforts towards supplying life-saving medicines to developing countries at low
costs. Indian pharma companies have successfully brought down the annual cost of HIV/AIDS treatment in Africa
per patient from US$ 12,000 to less than US$ 400.
A critical factor that has enabled such timely interventions has been the development of a nurturing ecosystem
for thriving partnerships between the government and the private sector. These interventions are expected to
play a key role in driving inclusive development for India, and could also possibly serve as vital blueprints for
achieving similar outcomes in other parts of the globe.



India shining Report
India Shining has been the unofficial slogan for India since the turn of the
21
st
century. India averaged 8% annual GDP growth in the three years before
the recent global financial crisis. Armed with population strength of more than a
billion people, India is now the 11
th
largest economy in the world. According to
data, from Indias Planning Commission, rapid economic growth has
contributed to a decline in the poverty rate with 37.2% in 2005 to 29.8% in
2010, a drop of 40 million people in the absolute number of the countrys
poor. Per capita income doubled during those five years.
Internationally, India has also become an important actor. Forming the I in the
BRICS group of nations, India plays a very important role in the leadership of
the emerging markets and developing nations. India boasts a culture of
entrepreneurship and innovation, pioneering the global IT services industry, and
has a global Diaspora that are leaders in various fields. On paper, Indias
potential is immense, with approximately 500 million people between the ages
of 18-25; its best years seem to be ahead.
Polls have revealed that the Indian youth and business people are bullishly
confident of a bright future in India. This potential is reason why India is tipped
to become the largest economy by 2050. However, potential does not always
translate to growth, and India has been learning this the hard way. An economy
that once was shining is now rapidly losing that shine. India is at a serious risk
of plunging itself into a crisis, one that might soon be too large to be defeated
by policy.
The Twist
1991 is often used as the central year for economists and other experts when
discussing the Indian economic growth story. In June 1991, then finance
minister Manmohan Singh, passed widespread reforms that liberalized and
opened Indias economy to the world. However, 1991 is also the year the last
time India has passed economic reforms of such significance.
Over the past 12 months, the optimistic mood within Indias economy has taken
a sharp dip. GDP growth slowed to 6.3% in 2011-12; the worst it has been in 9
years, and the first quarter of 2012 India grew a measly 5.3%, according to
some estimates. While a slowdown in GDP growth has been relatively recent,
India has been battling with a rising inflation for the past two years, which
included food inflation at between 15-25%. The Rupee has been in a sharp
decline, decreasing by 25% in value of the past six months to become one of the
worst performing currencies in the international market. Although a weakening
external demand, due to the Eurozone crises and U.S. economic slowdown has
contributed to the slowdown, Indias economy is very much based on internal
demand, which has slowed recently partly because of private consumption
dropping from 5.5% in 2011/12 from 8.1% the previous year. Indias economy
is showing signs of overheating with a growing demand and inability to match it
with supply. Leading domestic business people have exerted frustration at the
economic situation. Since business confidence is at a low, the IMF, OECD and
financial rating agency S&P are all issuing warnings to the Indian government.
They all unanimously call for.
Reform, Reform, Reform
In its current form, the Indian economy is like a car sputtering forward and now
slowly running out of fuel.
India is in desperate need of reform of its tax laws. For over two years it has
delayed passing laws on the goods & services tax which will allow the central
government to regulate taxing on services and certain goods, rather than the
current system of state regulations. In the current system, it is extremely
difficult for business to run operations across the 28 state lines. Foreign
investors have raised concerns on two Indian provisions seeking to tax indirect
investments and combat tax evasion. The first gives India power to retroactively
tax the indirect transfer of assets. The second targets tax evaders via the General
Anti-Avoidance Rule (GAAR), putting the responsibility on investors registered
in countries with special tax exemptions with India to prove they do not intend
to explicitly avoid tax. Investors are fretting and such policies are threatening to
drive away private investment rather than encourage it. Major hedge funds such
as Macquaries Asia hedge fund which manages over $50 billion in emerging
markets, have begun pulling out.
A situation unthinkable a couple of years ago, India is feeling significant strains
on its fiscal budget. When India was growing at 8% a few years ago, no one
questioned the government's spending. The Indian government spent freely on a
variety of populist subsidies programs, racking up a fiscal deficit that it allowed
itself due to GDP growth. India considered this deficit sustainable. The deficit
currently stands close to 7% and the government must reign in on its spending,
and it must discontinue these subsidies programs and allocate money to other
sectors. For over a year, the central government has attempted but failed to
institute such reforms.
Bottle-necks
India is in urgent need of reform on Foreign Direct investment (FDI) rules,
particularly in its retail sector. Outdated technology, and lack of organization
and inefficiency, has seen the Indian retail industry slowly and steadily pull
down Indias economy. The Indian retail industrys has an annual revenue of
$500 billion as of 2011 and employs thesecond-most number of people after
agriculture, a sector that is intrinsically linked to the retail sector. Yet, the
Indian retail industry is also one of the most unorganized sectors in the country.
90% of the retail industry is controlled by small-scale, family-run operations
with big chains making up just 10% of the market. Thus far, Indian suppliers
have not been able to deliver to the consumer.
Indian Commerce Minister Anand Sharma asserted that 30% of agricultural
produce does not reach the market, and of the remaining 70%, more than 50% is
lost due to poor transportation and storage technology. This is a gross waste in
any country; especially in a developing country where there are still hundreds of
millions bellow the poverty line. This lack of organization has led to much
inefficiency, which is the root of many of Indias problems, especially inflation.
Over the past two years, basic foods have been suffering an inflation of 15-20%
and they have been directly linked to the inefficient supply chain. Increasing the
cap on FDI in the retail sector will allow foreign firms to enter the country and
make major investments that will significantly modernize the sector and will set
the country on a path towards further modernization, and help it to increase
consumer spending and address the food inflation.
When the shoe doesnt fit anymore
India's biggest challenge is its infrastructure deficit. If you have travelled to
India, you have experienced tremendous traffic on poor roads burdened with
bottle necks. Indias infrastructure deficit problem is nothing new, and the
government has been trying to catch up for years. However, Indias economy
has grown to a size that e will make it very difficult for both new businesses to
enter the market and existing business to expand. According to the consulting
firm Mckinsey, India is suffering a shortfall of $190 billion in the infrastructure
sector and is in urgent need of capital. Indias roads are often unsuitable for
large vehicles and they even literally form blockades for progress. The railways
and roads dominate the countrys transport landscape. Within these two modes,
2% of road length carries 40 percent of all road traffic of the country, and one-
sixth of the rail network. With the fragmented character of the industry, road
transport services in India are generally poor and logistics costs high. Clocking
the worlds lowest average speeds, trucks in India are used for 60,000-100,000
km annually less than a quarter of the average in developed countries. A
quick comparison with an immediate neighbor to the northeast gives you an
idea. The time to travel by rail or road between Indias political capital New
Delhi and Financial hub Mumbai is over 12 hours to cover 1180 km. In China,
between Beijing and Shanghai, a train covers the 1071 km in approximately 5
hours.
India needs to boost growth in this sector, and fast. Indian Urban Development
Minister Kamal Nath stated, With growth preceding infrastructure, we are not
building for the future, but for the past. There is a sense of saturation within
the economy that is proving to be a damper for business. The government has
steadily increased spending, but some wounds are self-inflicted. Private
business have been desperately calling for reform in land acquisition, and in its
current state, the lack of reform means companies are facing problems making
large capital investment. Without such reform or encouragement for further
private investment through allowing foreign funds and mutual insurance funds,
India will continue to be building for the past.
The root of Indias economic woes, in all the areas mentioned above, all find
themselves leading to one common problem: The central government. India is
in a crisis of politics and the center of the Indian government is stuck in a
paralysis.
In Office But not in Power
Indias center of governance lies in the parliament in the capital city of New
Delhi. However, power seems to lie everywhere, but in the center. The way
Indias parliamentary system works is the ruling party holds together a coalition
of smaller parties who come together to form a majority in the parliament. The
current ruling coalition since 2009, called the UPA, is weak and fragmented,
while the incumbent Prime Minister has shown himself to be to inept. The
parliament has no significant majority and the center is loosing power to
regional parties who consistently threaten to pull support from the coalition over
major reform issues, forcing the leadership to back down. The opposition party,
BJP, has shown itself more committed and content to reveal the weaknesses of
the congress than to work towards a solution. The word political paralysis has
now become synonymous when discussing the Indian economy.
Bills on subsidy reduction, tax reform, land acquisition reform, and FDI reform
all exist, but a divided parliament is unable to pass such bills, and continues to
be laborious and indecisive. The government has attempted to answer the calls
for an end to the fiscally straining fuel and fertilizer subsidies that totally
amount to 2.5% of GDP. However, these subsidies are extremely popular
measures and the government has consistently faced opposition from regional
parties. During the last 12 months, each time the central government has
attempted to repeal the subsidies, regional parties carried out All-India
Bandhs, enforcing the closure of all business for a day, using force if
necessary. Acts such as this have only crippled the country further, diminishing
the central governments power and preventing reform. However, perhaps the
biggest symbol of the political paralysis has been the attempt to raise the cap for
FDI in the retail industry.
In December 2011, PM Manmohan Singh announced that he was set to approve
the bill on raising the cap from 21% to 49% FDI in domestic retail. There was a
sense of relief for this would have a revolutionary impact on the retail
industry. However, relief was short lived as Mamata Banerjee, Chief Minister of
West Bengal, and an important UPA ally, threatened to pull support if this bill
was passed, forcing the PM to once again pull back.
There is a popular saying in India that all economic growth in the country has
been in spite the government, rather than because of the government, and this
tells a tale of frustration among Indian and foreign business people. Corruption
has paralyzed the government, reckons the chief executive of one of Indias
most prestigious firms. Further asserting, We know what the problems are and
we have done nothing somebodys neck has got to be on the line, says the
leader of a bank. What Indians always knew, is now beginning to reveal itself
internationally.
Business confidence in India is taking a big hit. Beaurocracy and red tape
continue to scare foreign investors away. For example, regulatory and other
obstacles recently delayed a proposed $12 billion steel investment deal from
Korean company POSCO, who joined the list of other countries who have faced
similar restrictions. Standard & Poor recently announced, in a special report,
that India is in serious risk of being downgraded from its current BBB+ to BBB-
. This downgrade is mainly connected to Indias slowing economic growth and
weakening fiscal profile. S&P cited poor governance and political paralysis as
the key root to Indias economic woes.
What lies ahead?
The most encouraging sign, although equally frustrating, is that the answers lie
in its own hands. Reform bills, if passed, will take effect in a very short time,
speeding business up while also inspiring confidence, which will encourage
investors currently too afraid or unable to open their check book to begin
investing again. The government recently announced the controversial bill on
retroactive bill will be changed, which is a boost for foreign investors and is
also a sign that the government is still capable of making decisions. Although
still affected by the European debt crises and the global slowdown, India is still
not as dependent on the international economy and is mostly inward looking.
The service sector is continuing to grow and perform well. Indias monetary
policy has proved extremely resilient, and helped carry India through from the
financial crises until now.
Masking inaction under conservatism or simply suffering from a gridlocked
parliament will not help Indias cause. When times are tough a country needs its
leaders to stand up and be counted. The unfortunate truth is PM Singh is not
capable or powerless to do so, as he answers to Congress head Sonia Gandhi,
and holds no true power base of his own. The last two years have seen a
diffusion of power from the center to regional parties and this is alarming for
the country. Regional parties are playing to popular vote policies, with short
term rather than long term in interest. The situation is not as bad as it was in
1991, but it seems like it would take a crises of that magnitude to bring about
the change. So far, high economic growth has legitimized the UPAs inaction;
however, that growth is no more. Ultimately, India is a democracy, and the
government is responsible to the people. If reform does not come, the Indian
shining story will be no more.
Thi