As the business has to discharge certain responsibilities towards the government, similarly the government has to discharge several responsibilities towards the business. Government is the most powerful and sovereign authority in the country. It can do or undo anything. The government can use that power to regulate and to stimulate business.
In particular the responsibilities of the government towards business can be described as follows:
- To pass and execute proper laws
The behaviour of the people in society can be effectively controlled with the help of laws. The government has to pass laws which would create a friendly and helpful atmosphere for the business to grow. At the same time the laws should be capable of controlling the dishonest businessmen and prevent and punish their unfair practices.
In India the government has passed several laws such as Companies Regulation Act, The factory Act, The labour Laws, the social security laws, the foreign exchange management act etc.
Though passing of proper laws is important, an efficient implementation of the law is more important. If a good law is implemented in a bad way it produces harmful effects. It encourages dishonesty on the part of the people.
- Maintenance of law and order
It is the responsibility of the government to maintain law and order and peace in the community. Any business can exist and prosper if there is law and order in the country. Periods of disturbance are harmful to the existence of business and much more to the progress of the business. The government has to maintain law and order for attracting foreign investment.
- Providing Money and Credit
Every business requires credit. It is like blood circulation in the body of the economy. Finance is provided to business by the money market and the capital market. The government has to regulate them in such a way that they are able to attract more capital and direct it to the business. It is the responsibility of the government to maintain the financial institutions in sound health so that they can mobilize more finances.
The government, through the central bank of the country has to maintain a stable and appropriate rate of exchange which is helpful in attracting more foreign investment
- Building Infrastructure
All productive activities require infrastructure by way of means of transport and communications, supply of energy and credit, providing appropriate information about the openings for different businesses etc. If the government is successful in building efficient infrastructure, business can expand at a fast rate.
- Basic Research
Innovation is the watchword of modern business. Introduction of proper innovations at proper time requires extensive research. It is of 2 types: a: Basic research and b: commercial research.
A: Basic research is not profit oriented, hence it is the responsibility of the government to conduct it and provide foundation for the commercial research.
B: Commercial research is profit oriented; the business undertakes commercial research by using the basic research as the foundation. The government can give incentive to commercial research by providing fiscal concessions and monetary incentives.
- Providing information
The government collects information on several issues such as the growth of population, changes in the demographic features, trends in migration etc. This information is highly useful to business in formulating its policies. The government can keep that information open to business
- Controlling the growth of monopolies and preserving competition
A free market economy has an inherent tendency to give birth to monopolies. They are economically and socially harmful. They result into concentration of economic and political power. They are also instrumental in increasing inequalities. The government can pass appropriate laws and can take timely action for preventing the growth of monopolies and encourage competition.
- Reservation of fields of production
The government reserves certain fields of production for the public sector. The remaining part is kept open to the private sector. In India several fields of production were reserved for the small scale and cottage industries. The sphere was contracted after we adopted the policy of globalization.
- Awarding patent rights and copy rights
Progress in any field requires research inventions and innovations. The job of patent rights and copyrights is to give protection to those who invest in research and arrive at inventions and innovations. Every country has its patent rights. After the establishment of the WTO the member countries have adopted the rules and regulations prepared by WT in respect of patent rights, copy rights and allied matters
The industries belonging to the developing countries are not able to compete with the industries belonging to the developed countries. It is the responsibility of the government to give them protection by using tariff and if necessary, non-tariff barriers. At the same time the industries should not get undue protection which would develop complacency. After the establishment of the WTO, protection is slowly on the decline.
The success and progress of business depend upon perfect understanding and co-operation between government and business.