Government Intervention And Its Disadvantages Should our economy be run by a doctrine that was made popular by a group of French writers called physiocrats in the mids? This doctrine is called laissez-faire and it literally means to let or allow to do The Family Education Network. It is a theory of economic policy which states that government generally should not interfere with decisions made in an open competitive market. These decisions include policies such as setting prices and wages.
The objective was to achieve high and balanced economic development in the general interest while particular programs and measures helped the poor.
The Industrial Policy Resolution of gave government a monopoly in armaments, atomic energy, and railroads, and exclusive rights to develop minerals, the iron and steel industries, aircraft manufacturing, shipbuilding, and manufacturing of telephone and telegraph equipment.
Private companies operating in those fields were guaranteed at least ten years more of ownership before the government could take them over. Some still operate as private companies.
The Industrial Policy Resolution of greatly extended the preserve of government. There were seventeen industries exclusively in the public sector. The government took the lead in another twelve industries, but private companies could also engage in production.
This resolution covered industries producing capital and intermediate goods. As a result, the private sector was relegated primarily to production of consumer goods.
The public sector also expanded into more services. In the life insurance business was nationalized, and in the general insurance business was also acquired by the public sector.
Most large commercial banks were nationalized in Over the years, the central and state governments formed agencies, and companies engaged in finance, trading, mineral exploitation, manufacturing, utilities, and transportation. The public sector was extensive and influential throughout the economy, although the value of its assets was small relative to the private sector.
Controls over prices, production, and the use of foreign exchange, which were imposed by the British during World War II, were reinstated soon after independence. The Industries Development and Regulation Act of and the Essential Commodities Act of with subsequent additions provided the legal framework for the government to extend price controls that eventually included steel, cement, drugs, nonferrous metals, chemicals, fertilizer, coal, automobiles, tires and tubes, cotton textiles, food grains, bread, butter, vegetable oils, and other commodities.
By the late s, controls were pervasive, regulating investment in industry, prices of many commodities, imports and exports, and the flow of foreign exchange.
Export growth was long ignored. Controls were usually imposed to correct specific problems but often without adequate consideration of their effect on other parts of the economy.
For example, the government set low prices for basic foods, transportation, and other commodities and services, a policy designed to protect the living standards of the poor.
However, the policy proved counterproductive when the government also limited the output of needed goods and services.
Price ceilings were implemented during shortages, but the ceiling frequently contributed to black markets in those commodities and to tax evasion by black-market participants. Import controls and tariff policy stimulated local manufacturers toward production of import-substitution goods, but under conditions devoid of sufficient competition or pressure to be efficient.
Private trading and industrial conglomerates the so-called large houses existed under the British and continued after independence.
The government viewed the conglomerates with suspicion, believing that they often manipulated markets and prices for their own profit.
After independence the government instituted licensing controls on new businesses, especially in manufacturing, and on expanding capacity in existing businesses.
In the s, when shortages of goods were extensive, considerable criticism was leveled at traders for manipulating markets and prices.
The result was the Monopolies and Restrictive Practices Act, which was designed to provide the government with additional information on the structure and investments of all firms that had assets of more than Rs million for value of the rupee--see Glossaryto strengthen the licensing system in order to decrease the concentration of private economic power, and to place restraints on certain business practices considered contrary to the public interest.
The act and subsequent enforcement restrained private investment. The extensive controls, the large public sector, and the many government programs contributed to a substantial growth in the administrative structure of government. The government also sought to take on many of the unemployed.
The result was a swollen, inefficient bureaucracy that took inordinate amounts of time to process applications and forms. Business leaders complained that they spent more time getting government approval than running their companies. Many observers also reported extensive corruption in the huge bureaucracy.
One consequence was the development of a large underground economy in small-scale enterprises and the services sector. Since more "new economic policies" or reforms have been introduced. Reforms include currency devaluations and making currency partially convertible, reduced quantitative restrictions on imports, reduced import duties on capital goods, decreases in subsidies, liberalized interest rates, abolition of licenses for most industries, the sale of shares in selected public enterprises, and tax reforms.
Although many observers welcomed these changes and attributed the faster growth rate of the economy in the late s to them, others feared that these changes would create more problems than they solved.
The growing dependence of the economy on imports, greater vulnerability of its balance of payments, reliance on debt, and the consequent susceptibility to outside pressures on economic policy directions caused concern. The increase in consumerism and the display of conspicuous wealth by the elite exacerbated these fears.Business: Inflation and Economic Growth Essay Demand Side and Supply Side Policies This is my Global Business Environment assignment where I have been asked to discuss how demand-side policies and supply-side policies can be used to stimulate economic growth.
The negative effects of government intervention in the economic sector outweigh the benefits of policies and methods implemented to help the consumer.
These policies are found in both the agricultural and business sectors of the economy. Types of economic system and how policies effect organizations. Print Reference this This system prevails in many countries where neither the government nor the business entities control the economic activities of that country – both sectors play an important role in the economic decision-making of the country.
Economics Essay Writing.
Government and EU Influences Government and EU Influences on Business. With the advent of globalisation, businesses today are operating across the boundaries and are therefore influenced by the national governments to a greater extent.
InStrategies for Economic Development in Management Policies in Local Government Finance,4th ed., edited by J. Richard Aronson, Eli Schwartz. Economic development strategies should consider the quality of jobs and who gets those jobs rather than just the total number of jobs.
Tax subsidies to business for economic development are likely to. Government economic policy, measures by which a government attempts to influence the timberdesignmag.com national budget generally reflects the economic policy of a government, and it is partly through the budget that the government exercises its three principal methods of establishing control: the allocative function, the stabilization function, and the distributive function.