What is Regulatory Role of Government?

Kane Dane

Regulatory role of government involves regulation of various business and economic activities by directing the businesses with set of controls. These regulations aim to prevent concentration of power in few hands, localization of business few areas. These also aim at intervening and settling disputes between management and workers. These controls include general norms and standards as set by the government like ceilings on dividends, public utility profits, imposition of duties and other taxes.

Objectives of Regulatory Functions of Government:

Developing small scale industries and promote entrepreneurship.
Prevent monopolistic activities.
Promote interests of the weaker sections of society.

Thus, regulation aims to align business activities and processes with social justice.

Important Aspects of Government Regulations:

First regulation should not be excessive.
Secondly, regulation should be done efficiently.

Government Regulation:

Direct Regulations:

Direct controls are drastic and discretionary measures taken by the government which affect the firm/industry at micro-level. Such measures are necessary to control the activities of business which are at times imperfect in terms. For example, industrial licensing system was introduced by the government based on the rationale that in free market resources are not fairly allocated and hence must be regulated.

Indirect Regulations:

These regulations are made at macro-level and can be in form of monetary incentives, duties, penalties, rewards, grants, bail etc which indirectly affect the interests of industry. For example, to promote export-oriented units government gives various grants, cheap funds, tax-relief, duty exemptions, duty-cuts etc.

List of India Government Regulates the Ways:

Industrial Development and Regulation Act, 1951:

The Government of India introduced the process of registration and licensing to ensure the smooth functioning of industries in India. Within the series of law, it introduced Industries (Development and Regulation) Act, 1951 aiming for a thorough and planned industrial development that included regulation, control and development of industries via registration and licensing. It was declared that licensing comes as a must for establishing a new undertaking and also for manufacturing new article.

Licensing was also required for the substantial expansion however, small scale industries or ancillary units come to be an exception. Even the projects situated in backward zones that carried an investment of Rs. 25 crore were kept apart from the process of licensing.

Industrial Licensing System:

It is clearly defined under Section 10 that each industry needs to register itself before starting its operation. Thereafter, this industry is issued a certificate of registration displaying its industrial capacity. If owner starts operation without registration, he can be imprisoned for 6 months or can be fined with Rs 5000. However, registration is not necessary if the undertaking is small scale industry.

Licensing is must for:

Forming new industrial entities: The six industries that still require licensing are:
— Distillation and brewing of alcoholic dealings.
— Cigars and cigarettes and tobacco manufacturers.
— Electronic aerospace and defence manufacturing.
— The industrial explosives, such as safety fuses, etc.
— Hazardous chemicals.
— Drugs and pharmaceuticals.
Starting up a new article in manufacturing is present licensed industrial Undertaking.
License required in case of substantial expansion of licensed undertaking.
Or when a register able entity has not yet been registered.
Changing the location of registered industrial undertaking.
If the registration has been revoked, the business cannot be carried after its revocation.

Control over Capital Issue:

Earlier to SEBI, the market governing law was the Capital Issues Control Act, 1956 that was regulating the primary market. There was Securities Contracts Regulation Act to regulate the Secondary market. However, keeping in interest to the investors security, SEBI was floated in April 1998. Even the Capital Issues Control Act has been released and the Companies Act amended for making SEBI the administrative authority to regulate capital issues.

Even the government transferred the power to SEBI under SCR Act for regulating the stock market. Thus SEBI was delegated with the task of adopting suitable measures to protect investors interests in securities.

Price Control:

The government regulates the prices of various commodities in the market to protect the interests of common man.

Distribution Mechanism:

The Government has enacted Essential Commodities Act to regulate the supply of essential commodities in the market. The Public Distribution System (PDS) ensures timely and adequate supply of essential commodities in the market.

Securities Contract (Regulation) Act, 1956:

The Act regulates capital markets, national and local stock exchanges, OTCEI, various issues of the companies, including securities (debt and equity).

Foreign Exchange Regulation Act (FERA), 1973:

The Foreign Exchange Management Bill was placed in parliament in July 1998, to replace FERA. The Act aims at effective management of foreign exchange in the country. The act provides for authorized dealings in foreign exchange and has provisions for penalties, contraventions and adjudication procedures to regulate foreign exchange transactions.

Foreign Trade (Development and Regulation) Act, 1992:

The main provisions of Foreign Trade (Development and Regulation) Act , 1992 are outlined below:

It empowers the Central Government to formulate and implement policies related to country’s imports and exports.
Under the provisions of the Act, the Central Government must take necessary steps for development and regulation of foreign trade. It can work to promote or restrict import-export of certain goods.
The Act provides for allotment and cancellation of importer-exporter code numbers and licenses.
Goods meant for export can be inspected, and if found inappropriate or sub-standard, such goods and associated documents can be confiscated and penalized.
Any order made under the Act can be appealed and revised.

Monopolistic and Restrictive Trade Practices Act, 1969:

The MRTP Act 1969 came up to ensure that there is no concentration of economic power at a single place. Besides it also checked the restrictive, monopolistic and restrictive trade practices. The main body to monitor this Act is MRTP Commission that has right to inquire into any complaint that is related to monopolistic trade practice and is also having right for recommending any concrete plans for making any action to the Central Government.

The MRTP is the only body that has the right to inquire, cease or award compensation in case there are some restrictive and unfair trade practices being practiced.

Regulation and Promotion of Foreign Trade:

The Export Import Policy aims at regulating country’s foreign trade. Most of the provisions of the policy are implemented by the regulatory framework provided by Foreign Trade (Development and Regulation) Act, 1992.

Regulation of Companies:

The Companies Act 1956 are related to the formation and promotion of company, defining of capital structure of companies, arranging company meetings and procedures, making presentations of company’s accounts, its audits etc., for inspecting and investigating the affair of the company and the constitution of board of directors and lastly for the administering of company law.

Industrial Policy:

The government announced industrial policies in 1948, 1956, 1973, 1977, 1980, 1990, and 1991 giving stress on development of various sectors of economies.

Industrial policies in 1948: This was the first industrial policy, in which the government emphasized the role of small scale sector (SSS) in overall economic development.

Industrial policies in 1956: In this role of SSS was reemphasized.
The policy drew attention towards the fact that sector provides immediate large scale employment, besides helping in mobilization of local capital and skills and helps in equal distribution of income. Under the policy SSS was kept outside preview of industrial licensing system. The policy emphasized need for technical up-gradation and modernization of small scale units.

Industrial policies in 1977: The number of items reserved for SSS was considerably increased. The responsibility for industrial units was transferred to respective state governments.

Industrial policies in 1980: Laid guidelines for strengthening the existing facilities for SSS.

Industrial policies in 1990: A separate policy for SST was announced by the government. (Before IPR 1991, polices for small scale sector formed a part of general industrial policy).

Industrial policies in 1991: Emphasized the development of Small scale industries.

Labour Affairs:

The government has passed several legislation’s to safeguard the interests of workers. Some of these are:

Minimum Wages Act, 1948
Factories Act, 1948
Payment of Wages Act, 1936
Payment of Bonus Act, 1965
Equal Remuneration Act, 1976
Employees State insurance Act, 1948
Employee Deposit Linked Insurance Scheme, 1976
Employees Provident Funds and Miscellaneous Act, 1952
Industrial Dispute Act, 1947
Employees Pension Scheme, 1995
The payment of Gratuity Act, 1972
The Industrial Employment (Standing Orders) Act, 1946
Trade Union Act, 1926

Commercial Acts:

Commercial Acts aim to regulate the operational aspects of trade and business. These include:

Sales of Goods Act 1930: Sales of Goods Act, 1930 includes provision related to contracts of movable property. It was earlier a part of Indian Contract Act. However, later on, it was repealed and reenacted as separate legislation-in 1930.

Indian Contract Act: This law of contracts is, embodied in the India Contract Act, 1872 dealing with general principles related to the formation of contract.

Negotiation Instruments Act: This Act defines a cheque as a bill of exchange that can be drawn on a specified banker and is payable only on demand. The Act also defines the inland and foreign bills, ambiguous and inchoate instruments, instruments payable in demand, holder in due course etc. There are certain negotiable instruments including bills of exchanges, cheques, promissory note etc. that are used in business transactions and are not transferable by endorsement, however, the holder acquired the valid title even if the previous holder’s title is defective.

Arbitration Act: This encodes the principles of law applicable to all kinds of arbitration made with or without intervention of court.

Indian Partnership Act: Under His Act, the partners are defined as relations between two or more persons who have agreed to share the profits of business carried for all. The partners are called as firm and they are running the business under a firm name. This Act specifies the rights and duties of partners. This was also a part of Indian contract Act till 1932, however, later on it was reenacted as an Indian partnership Act.

Miscellaneous Regulatory Enactments: There are other enactments which touch all aspects of business.

Some of these are:

Banking Act
Standardized Weights and Measures Act, 1956.
Agriculture Products (Grading and Marking) Act, 1959.
Trade and Commercial Commodities Marketing Act, 1959.

Essential Commodities Act: The Essential Commodities Act, 1955 promises to protect the general public interest for controlling production and ensures the smooth supply and distribution of trade and commerce in essential commodities. Presently, this Act is applicable to 18 commodities. Under this act, central government has the power to regulate production of essential commodities, to bring under cultivation any waste land and to regulate control price etc.