Relationship Between Government and Business

Table of Contents:-

  • Relationship Between Government and Business
  • Government Control over Business in India
  • Role of Government in Business

Relationship Between Government and Business

The relationship between government and business is an important aspect of every economy. It plays an important role in shaping the relationship between the government and business environment. It determines the success or failure of businesses. The dynamics of the relationship between government and businesses. It influences the regulatory framework, policies, and practices that impact how businesses operate within a given jurisdiction. This complex interplay between the relationship between government and business commodities can determine factors such as market competitiveness, access to resources, and the overall political environment of business. Effective collaboration and communication between the government and business sectors are essential for fostering a conducive environment for economic growth and development.

With time, the government of every nation has played different major roles that have contributed towards their growth and development. In nations where governing structures have recently undergone liberalization, the government maintains several controls over special interests. The private sector usually accepts the promotion of businesses by the government. India, being a mixed economy, has both public and private sectors running businesses. The government under such an economy acts as a producer for public sector enterprises, and promoter and regulator for private enterprises. Economic planning holds substantial significance in the market, thereby affirming the government’s role as a planner. There are both negative and positive aspects associated with the complex relationship between government and business.

Government Control over Business in India

The following points reflect the government’s control over business in India:

  1. Economic Planning
  2. Industrial Licensing
  3. Labour Laws
  4. Regulation of Foreign Trade
  5. Industrial Policy

1) Economic Planning

The year 1951 marks the commencement of planning in India. The investment endeavours of private sector enterprises are subject to regulation through economic planning. It also enables the government to improve their activities towards rural and underdeveloped regions of the society. Achieving social justice is another important aim of Indian economic planning

2) Industrial Licensing

The government effectively executes its industrial policy through the mechanism of industrial licensing. Designed with a clear objective, it strives to achieve balanced regional development, comprehensive economic development, and the most efficient utilization of the nation’s resources.

3) Labour Laws

The formulation of labour laws aims to ensure oversight and regulation of labour welfare, wages, bonuses, social security, and the working and living conditions of labourers and workers. These laws also ensure sound employer-employee relationships and include the Factories Act and the Minimum Wages Act. The Payment of Wages Act, Workmen’s Compensation Act, Trade Unions Act, the Payment of Bonus Act, and Employees State Insurance Act. The Payment of Gratuity Act, Industrial Disputes Act, etc.

4) Regulation of Foreign Trade

The government has formulated certain Acts and regulatory bodies for monitoring foreign trade in the nation. The Imports and Exports Act, FEMA, FERA and COFEPOSA, are responsible for the regulation of foreign trade, imports, exports and similar business activities. Through the Imports and Exports (Control) Act of 1947, the government possesses the power to manage or curtail import and export business activities in the broader interest of society and the public. With the help of regulatory agencies such as the State Trading Corporation of India (STC) and the Minerals and Metals Trading Corporation of India (MMTC), the Government of India gets directly involved in the import and export activities of particular businesses.

5) Industrial Policy

Indian industrial policy prioritises the relative roles of big, small and cottage industries as well as public and private enterprises, and guides the states towards the development of different industrial sectors. Improvement of Indian industries is one of the major objectives of industrial policy.

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Role of Government in Business

The role of government towards business can be understood with the help of the following points:

  1. Maintenance of Law and Order
  2. Providing Money and Credit
  3. Building Infrastructure

1) Maintenance of Law and Order

The government is responsible for maintaining and regulating law, order and peace in a society. Formulation and regulation of appropriate laws can ensure the existence of businesses, as changes and alterations in laws create hurdles for many business operations. This affects their existence in society. Thus, maintenance of law and order is important for inviting foreign investment and ensuring the smooth functioning of existing businesses.

2) Providing Money and Credit

Finance is a requirement of every business. The flow of credit and money acts as the flow of blood in the economic body. Capital and money market acts as the sources of finance for businesses. The government is responsible for regulating the sources of finance so that the maximum amount of capital can be directed to the businesses. They are also responsible for maintaining the efficiency and stability of various financial institutions so that more finance can be mobilised. A suitable rate of exchange is determined by the government in discussion with the central bank of the nation to attract foreign investment,

3) Building Infrastructure

Businesses can rapidly expand and prosper when the government successfully builds proper infrastructure and work set-ups. Infrastructure works as a channel for different activities like information sharing, supply of credit and energy, communications and transport, etc. It is the role of the government to actively monitor and design infrastructure policies.

4) To Pass and Execute Proper Laws

Laws are the commuters of people’s behaviour in society. The government should formulate laws which not only create a pleasant and helpful atmosphere in society but also ensure the security of every individual. Moreover, the laws should also be able to reduce dishonesty among businessmen and prevent illegal and unethical practices. There are various acts and laws passed by the Government of India including The Factories Act and, the Cotipaties Regulation Act. The Foreign Exchange Management Act, The Labour Laws, The Social Security Laws, etc. Along with the formulation of effective laws, the government should also ensure their effective and proper Implementation. Even a good law will encourage dishonesty and illegality if wrongly implemented.

5) Research

Research is an essential element for conducting business and performing effective decision making. Along with providing reliable information, research also fosters innovation.

It is basically of two different types:

  1. Basic Research
  2. Commercial Research

i) Basic Research

Basic research is conducted to collect the required information. This research is not profit-oriented. The government conducts basic research to provide the framework for conducting commercial research.

ii) Commercial Research

Commercial research is profit-oriented research which is conducted on the foundation laid by the basic research. Thus, the government provides financial incentives and monetary allowances to businesses for conducting commercial research,

6) Controlling the Growth of Monopolies and Preserving Competition

Monopolies inherently arise under a free market economy. They create an environment of inequality and concentrate political and economic power, which is both socially and economically harmful. Thus, in the monopolistic business environment, the government enacts suitable laws and orders to encourage market competition and prevent monopolies.

7) Awarding Patent Rights and Copyrights

Innovations and inventions are essential for the growth and development of businesses. Such inventions need protection so that no other competitor or rival can misuse or reuse the idea or the concept. Thus, patent rights and copyrights provide the required protection for such inventions and originations. The government awards such patent rights to deserving businesses by performing effective inspection and regulation. Different regulations and guidelines of the World Trade Organisation (WTO) concerning patent rights and copyrights are followed by member countries to develop the same.

8) Protections

The governments of developing nations protect their industries through tariff and non-tariff barriers, as they would not be able to compete with the industries of developed nations. In addition, to avoid superiority, the government should ensure that businesses are not getting excessive protections.

9) Providing Information

The government gathers information on various issues and topics that can be helpful for businesses to develop their marketing strategies, policies and manufacturing processes. Such information includes statistics about population growth, demographic changes, migration trends, etc.

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