What do you mean by Entrepreneurial role of government?

Entrepreneurial role of the government refers to government investment, capitalization and ownership of business. For example, at the start of Eighth Five Year Plan, the government investment increased to 1.18 Lakh crore in 237 operating units from Rs. 29 crore in merely five units in 1951. At the same time there were 11,000 state level enterprises with an estimated investment of Rs. 50,000 crore.

Entrepreneurial role of the government comprises of:

Making Investment in New Units: Government makes investments in industries which require heavy investments or whose development is in the interests of the nation.

Acquiring Exiting Units: Government acquires sick units for their revival. In 1977, government introduced the merger scheme, with an objective of encouraging merger of sick industrial units with healthy. Under the scheme, healthy units absorbing sick units could set off the depreciation and accumulated losses against their tax liabilities.

Nationalization: Certain industries have been reserved exclusively for the public sector.

Government investment is usually seen in the following industries:

  1. Industries involving high risk, like heavy and basic industries.
  2. Capital invective industries.
  3. Industries with low rate of return.
  4. Industries with long gestation period.
  5. Industries of national importance.

Changes in Entrepreneurial Role of Government in India:

The entrepreneurial role of the government increased considerably with industrial policy of 1948 and 1956:

The Industrial Policy of 1948 provided for exclusive government control and investment in these industries coal, iron, steel, aircraft manufacture, railways, shipping, telegraph, wireless, atomic energy, defence/arms and ammunition.

The Industrial Policy of 1956 increased the scope of government entrepreneurial role. Under Schedule A of the policy, 17 industries were reserved for exclusive Government investment. Schedule B of the policy contained another 12 industries for progressive state ownership.

The role of government in industrial ownership kept increasing with reinforcing policies towards government ownership of industrial units.

In 1991, under the leadership of P.V. Narshimahrao, many changes were made in the existing economic policy and the entrepreneurial role of the government was considerably modified. The number of industries reserved exclusively for government was reduced to merely eight. The policy defined the following priority areas for the government:

  • Essential social and economic infrastructure.
  • Oil and mineral exploration.
  • Technological development in areas of national interests and where private investment is limited.
  • Product manufacture in areas of strategic concern.

Need for New Economic Changes:

The government had considerable entrepreneurial role until the new economic reforms were introduced in 1991. The following factors necessitated need for limiting entrepreneurial role of the government:

  1. Most government units were loss making on year on year basis.
  2. Most of the loss-making government units were in small scale or non-priority sector, where private players had shown better performance. Hence, it is argued that government must disinvest in these units and shift focus on priority sector units.
  3. Operational inefficiencies.
  4. Inappropriate allocation of resources.
  5. Delay in filing for top-level positions.
  6. Restrictions on functional and operational autonomy.
  7. Tight regulations concerning investments.
  8. Inadequate attention towards research and development.
  9. Poor project management.
  10. Management inefficiencies: Bureaucratic attitude of management, Red tape and corrupt practices, Over manning.
  11. Lack of workforce dedication.

Areas of Public Disinvestment

  1. Low technology industries (ones which are more labor intensive).
  2. Areas of low productivity, with negligible social significance.
  3. In areas where private sector is performing better and has developed expertise.
  4. Inefficient and low productivity areas.
  5. Small and non-strategic areas , like small scale industries.

The New Economic Reforms were laid on the strategy of Eighth Five Year Plan (1992-97). Under the new economic reforms, the main emphasis was on liberalization, privatization and globalization.

The main objectives of the New Economic Reforms are stated below:

  • To introduce an economic system free of excessive regulatory norms and bureaucratic controls.
  • To liberalise Indian economy and work towards globalization.
  • To relax foreign direct investment norms.
  • To opens areas otherwise reserved exclusively for public sector participation for private and foreign participation. This was driven by the fact that several public sector enterprises were either incurring losses year after year and had very low rate of return.
  • To take away restrictions on investments by business and industrial firms, under the Monopolistic and Restrictive Trade Practices (MRTP) Act.
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