Why is it necessary for government to directly participate in business and industry?

Government participate directly in business activities because of following reasons:

Basic Reasons.

Government wanted industrialization to take place. With this decision, they thought that if private sector takes the initiative, it would take along time to achieve the objective of rapid industrialization. Such enterprises lacked adequate entrepreneurship and didn’t had resources in order to begin large scale projects.

Then, government thought of a solution and asked private enterprises to establish new industries and government also went into industry in a big way.

In order to achieve industrial and agricultural growth, steel plants, fertilizer factories and other such units were established. Many enterprises and power projects were set up by the government after they took the decision. For example Sindri Fertilizer Factory, Hindustan Cables, NFCI, NIDC, Power and Irrigation Projects etc.

If government would not have been there, our country would not have been industrialized. Such large number of industries that are established by the government would never have been set up if we had waited for private sector to make necessary investment and take the risk.

Ideological Reasons.

This is another reason why government participated directly in business activities. Government had very strong ideological commitment to philosophy of public ownership of means of production, apart from economic and social consideration. The need of the government in business was emphasized by the Industrial Policy Resolution of 1956. With the help of such a policy, the importance of government owned enterprises in Indian Economy was revealed and explained.

Insurance Business.

Insurance business, now-a-days lies in the bands of the government. It is the life insurance Corporation of India which operates the Life Insurance business and General Insurance Corporation of India operates other types of insurance business.

Government took charge of such a business because private companies were not able to fulfill the main objective of life insurance business like using insurance funds for economic development, effective use of savings of people and spreading the insurance message as for as possible. With the coming of government, such objectives were fulfilled.

In the same way, government companies also operated the general insurance business after its nationalization and such a business has been given the social orientation.

Commercial Banks.

Commercial Banks 90% of commercial banks are in the hands of government. Government participated in banking business because it wanted this system to serve the developmental needs of economy in conformity with national policy and objectives. It even wanted banks to provide benefit to weaker group of society by advancing loans. Private firms were not prepared to render help to the government so that it can achieve such objectives.

Government nationalized the Imperial Bank of India in 1955 and converted it into State Bank of India. This conversion was done because government wanted to open large number of branches in rural areas and Imperial Bank of India was not able to fulfill this desire of government.

Air Transport Business.

Many private air companies were there till 1953. As most of these had no money to invest in modern and costly aeroplanes, government nationalized nine air companies and formed Indian Airlines Corporation in 1953.

Coal Industry.

Coking coal mines were nationalized because such a coal that is important and necessary to produce iron and steel and has limited resources in the country. Government participated in this because private sector was mining this scare resource in a very wasteful manner, it didn’t had necessary funds in order to increase the coal production and private coal miners were greatly exploiting the labor employed in the mines.

Oil Industry.

Many oil companies were nationalized in 1970. Government today, enjoys full control over the production and distribution of oil and because of government, rich dividends have been obtained in terms of self-reliance of generation of resources.

Other types of Business.

This is another reason of government entering into business of other types. Government took over the cotton mills and many engineering enterprises because it didn’t wanted to lose production capacity which existed in sick units and which private sector wished to close down government was not in favor of closing down such sick units because of hundreds of employees who may be asked to leave their job. It would prove to the undesirable both socially and politically.

Government in India went into business due to economic and social compulsions. Also because of the failure of private enterprises, many measures of nationalization were taken to meet the challenge of the situation. By seeing the situation and picture of the country, government was forced to step into private business activities.

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