Role of Government in India

(Mixed) & China (socialist)

What is Government? Definition:

The act of governing; the exercise of authority; the administration of laws; control;
direction; regulation; as, civil, church, or family government. 

Types of Economic systems-

Market Economy

In a market economy, national and state governments play a minor role. Instead,
consumers and their buying decisions drive the economy. In this type
of economic system, the assumptions of the market play a major role in deciding
the right path for a country’s economic development.
Market economies aim to reduce or eliminate entirely subsidies for a particular
industry, the pre-determination of prices for different commodities, and the amount
of regulation controlling different industrial sectors.
The absence of central planning is one of the major features of this economic
system. Market decisions are mainly dominated by supply and demand. The role of
the government in a market economy is to simply make sure that the market is
stable enough to carry out its economic activities properly.

Planned Economy
A planned economy is also sometimes called a command economy. The most
important aspect of this type of economy is that all major decisions related to the
production, distribution, commodity and service prices, are all made by the
government.

The planned economy is government directed, and market forces have very little
say in such an economy. This type of economy lacks the kind of flexibility that is
present a market economy, and because of this, the planned economy reacts slower
to changes in consumer needs and fluctuating patterns of supply and demand.

On the other hand, a planned economy aims at using all available resources for

developing production instead of allotting the resources for advertising or
marketing.

Mixed Economy

A mixed economy combines elements of both the planned and the market
economies in one cohesive system. This means that certain features from both
market and planned economic systems are taken to form this type of economy.
This system prevails in many countries where neither the government nor the
business entities control the economic activities of that country - both sectors play
an important role in the economic decision-making of the country. In a mixed
economy there is flexibility in some areas and government control in others. Mixed
economies include both capitalist and socialist economic policies and often arise in
societies that seek to balance a wide range of political and economic views.

Role of Government in India as Mixed Economy-

Early Policy development –

Many early post independence leaders, such as Nehru, were influenced by socialist
ideas and advocated government intervention to guide the economy, including state
ownership of key industries. The objective was to achieve high and balanced
economic development in the general interest while particular programs and
measures helped the poor. India's leaders also believed that industrialization was
the key to economic development. This belief was all the more convincing in India
because of the country's large size, substantial natural resources, and desire to
develop its own defense industries.

The Industrial Policy Resolution of 1948 gave government a monopoly in

armaments, atomic energy, and railroads, and exclusive rights to develop minerals,
the iron and steel industries, aircraft manufacturing, shipbuilding, and
manufacturing of telephone and telegraph equipment. Private companies operating
in those fields were guaranteed at least ten years more of ownership before the
government could take them over. Some still operate as private companies.

The Industrial Policy Resolution of 1956 greatly extended the preserve of

government. There were seventeen industries exclusively in the public sector. The
government took the lead in another twelve industries, but private companies could
also engage in production. This resolution covered industries producing capital and
intermediate goods. As a result, the private sector was relegated primarily to
production of consumer goods. The public sector also expanded into more services.
In 1956 the life insurance business was nationalized, and in 1973 the general
insurance business was also acquired by the public sector. Most large commercial
banks were nationalized in 1969. Over the years, the central and state governments
formed agencies, and companies engaged in finance, trading, mineral exploitation,
manufacturing, utilities, and transportation. The public sector was extensive and
influential throughout the economy, although the value of its assets was small
relative to the private sector.

India's current economic reforms began in 1985 when the government abolished
some of its licensing regulations and other competition-inhibiting controls. Since
1991 more "new economic policies" or reforms have been introduced. Reforms
include currency devaluations and making currency partially convertible, reduced
quantitative restrictions on imports, reduced import duties on capital goods,
decreases in subsidies, liberalized interest rates, abolition of licenses for most
industries, the sale of shares in selected public enterprises, and tax reforms.
Although many observers welcomed these changes and attributed the faster growth
rate of the economy in the late 1980s to them, others feared that these changes
would create more problems than they solved.

Promoting Education :

Budget
As a part of the tenth Five year Plan (2002–2007), the central government of India outlined an
expenditure of 65.6% of its total education budget of  . 438250 million, or ( . 287500 million) on
elementary education; 9.9% ( . 43250 million) on secondary education; 2.9% ( . 12500 million) on adult
education; 9.5% ( . 41765 million) on higher education; 10.7% ( . 47000 million) on technical education;
and the remaining 1.4% ( . 6235 million) on miscellaneous education schemes.[87]

Public Expenditure on Education in India

In recent times, several major announcements were made for developing the poor state of affairs in
education sector in India, the most notable ones being the National Common Minimum Programme
(NCMP) of the United Progressive Alliance (UPA) government. The announcements are; (a) To
progressively increase expenditure on education to around 6 percent of GDP. (b) To support this increase
in expenditure on education, and to increase the quality of education, there would be an imposition of an
education cess over all central government taxes. (c) To ensure that no one is denied of education due to
economic backwardness and poverty. (d) To make right to education a fundamental right for all children in
the age group 6–14 years. (e) To universalize education through its flagship programmes such as Sarva
Siksha Abhiyan and Mid Day Meal.
However, even after five years of implementation of NCMP, not much progress has been done on these
promises or announcements. The public expenditure on education has actually declined from around 3.23
percent of GDP in 2000-2001 to 2.88 percent in the recent times. As a proportion of total government
expenditure, it has declined from around 11.1 percent in 2000-2001 to around 9.98 percent during UPA
rule. A policy brief issued by [Network for Social Accountability (NSA)] [89] titled “[NSA Response to
Education Sector Interventions in Union Budget: UPA Rule and the Education Sector] [90]” provides
significant revelation to this fact. Due to a declining priority of education in the public policy paradigm in
India, there has been an exponential growth in the private expenditure on education also. [As per the
available information, the private out of pocket expenditure by the working class population for the
education of their children in India has increased by around 1150 percent or around 12.5 times over the
last decade].[91]

[edit]Legislative framework
Article 45, of the Constitution of India originally stated:

The State shall endeavour to provide, within a period of ten years from the commencement of this
“ Constitution, for free and compulsory education for all children until they complete the age of
fourteen years.[17] ”
This article was a directive principle of state policy within India, effectively meaning that it was within a set
of rules that were meant to be followed in spirit and the government could not be held to court if the actual
letter was not followed.[92] However, the enforcement of this directive principle became a matter of debate
since this principle held obvious emotive and practical value, and was legally the only directive principle
within the Indian constitution to have a time limit. [92]
Following initiatives by the Supreme Court of India during the 1990s the Ninety-third amendment bill
suggested three separate amendments to the Indian constitution: [93]

 The constitution of India was amended to include a new article, 21A, which read:

The State shall provide free and compulsory education to all children of the age of six to fourteen
“ years in a such manner as the State may, by law, determine. [94] ”
 Article 45 was proposed to be substituted by the article which read:

Provision for early childhood care and education to children below the age of six years: The State shall
“ endeavour to provide early childhood care and education for all children until they complete the age
of sixteen years.[94] ”
 Another article, 51A, was to additionally have the clause:

...a parent or guardian [shall] provide opportunities for education to his child or, as the case may be,
“ [a] ward between the age of six to fourteen years.[94] ”
The bill was passed unanimously in the Lok Sabha, the lower house of the Indian parliament, on
November 28, 2001.[95] It was later passed by the upper house—the Rajya Sabha—on May 14, 2002.
[95]
 After being signed by the President of India the Indian constitution was amended formally for the eighty
sixth time and the bill came into effect. [95] Since then those between the age of 6–14 have a fundamental
right to education.[96]
Article 46 of the Constitution of India holds that:

The State shall promote, with special care, the education and economic interests of the weaker
“ sections of the people, and in particular of the Scheduled Castes and Scheduled Tribes, and shall
protect them from social injustice and all forms of social exploitation'. [57] ”
Other provisions for the Scheduled Castes and Scheduled Tribes can be found in Articles 330, 332, 335,
338–342.[57] Both the 5th and the 6th Schedules of the Constitution also make special provisions for the
Scheduled Castes and Scheduled Tribes.[57]
Anti- Poverty Program

Since the early 1950s, govt has initiated, sustained, and refined various planning schemes to help the
poor attain self sufficiency in food production. Probably the most important initiative has been the supply
of basic commodities, particularly food at controlled prices, available throughout the country as poor
spend about 80 percent of their income on food.

In the 1980s and early 1990s, Indian government programs attempted to provide
basic needs at stable, low prices; to increase income through pricing and
regulations, such as supplying water from irrigation works, fertilizer, and other
inputs; to foster location of industry in backward areas; to increase access to basic
social services, such as education, health, and potable water supply; and to help
needy groups and deprived areas. The total money spent on such programs for the
poor was not discernible from the budget data, but probably exceeded 10 percent
of planned budget outlays.

India has had a number of antipoverty programs since the early 1960s. These
include, among others, the National Rural Employment Program and the Rural
Landless Employment Guarantee Program. The National Rural Employment
Program evolved in FY 1980 from the earlier Food for Work Program to use
unemployed and underemployed workers to build productive community assets.
The Rural Landless Employment Guarantee Program was instituted in FY 1983 to
address the plight of the hard-core rural poor by expanding employment
opportunities and building the rural infrastructure as a means of encouraging rapid
economic growth. There were many problems with the implementation of these
and other schemes, but observers credit them with helping reduce poverty. To
improve the effectiveness of the National Rural Employment Program, in 1989 it
was combined with the Rural Landless Employment Guarantee Program and
renamed Jawahar Rozgar Yojana, or Jawahar Employment Plan.

Four decades of planning show that India's economy, a mix of public and private
enterprise, is too large and diverse to be wholly predictable or responsive to
directions of the planning authorities. Actual results usually differ in important
respects from plan targets. Major shortcomings include insufficient improvement
in income distribution and alleviation of poverty, delayed completions and cost
overruns on many public-sector projects, and far too small a return on many
public-sector investments. Even though the plans have turned out to be less
effective than expected, they help guide investment priorities, policy
recommendations, and financial mobilization.

Establishing MRTP (Monopoly Restrictive Trade Practice) Act:

This Act was enacted:

• To ensure that the operation of the economic system does not result in the
concentration of economic power in the hands of few

• To provide for the control of monopolies

• To prohibit monopolistic and restrictive trade practices

The Act is also extended to the Jammu & Kashmir in India.

FERA (Foreign Exchange Regulation Act ) ACT-

To amend the law regulating certain payments, dealings in foreign exchange,

effecting foreign exchange and import and export of currency, for the conservation
of the foreign exchange resource of the country and the proper utilization thereof in
the interests of the economic development of the country.

 Regulated in India by the Foreign Exchange Regulation Act (FERA),1973.

 Consisted of 81 sections.
 FERA Emphasized strict exchange control.
 Control everything that was specified, relating to foreign exchange
 Law violators were treated as criminal offenders.
 Aimed at minimizing dealings in foreign exchange and foreign securities.

WHY FERA ?

a) FERA was introduced at a time when foreign exchange (Forex) reserves of the
country were low, Forex being a scarce commodity.

b) FERA therefore proceeded on the presumption that all foreign exchange earned
by Indian residents rightfully belonged to the Government of India and had to be
collected and surrendered to the Reserve bank of India (RBI).

c) FERA primarily prohibited all transactions, except one’s permitted by RBI.

OBJECTIVES-

 To regulate certain payments.

 To regulate dealings in foreign exchange and securities.
 To regulate transactions, indirectly affecting foreign exchange.
 To regulate the import and export of currency.
 To conserve precious foreign exchange.
 The proper utilization of foreign exchange so as to promote the economic
development of the country.
China : The Economy Introduction
General considerations
Despite China’s size, the wealth of its resources, and the fact that about one-fifth of
the world’s population lives within its borders, its role in the world economy was
relatively small until late in the 20th century. However, since the late 1970s China
has dramatically increased its interaction with the international economy, and it
has become a dominant figure in world trade. Both China’s foreign trade and
its gross national product (GNP) have experienced sustained and rapid growth,
especially since foreign-owned firms began using China as an export platform for
goods manufactured there.

The Chinese economy thus has been in a state of transition since the late 1970s as
the country has moved away from a Soviet-type economic system, the
nonagricultural private sector has grown rapidly, and government priorities have
shifted toward light and high-technology, rather than heavy, industries.
Nevertheless, key bottlenecks have continued to constrain growth. Available
energy has not been sufficient to run all of the country’s installed industrial
capacity, the transport system has remained inadequate to move sufficient
quantities of such critical commodities as coal, and the communications system has
not been able to meet the needs of a centrally planned economy of China’s size
and complexity.

China’s underdeveloped transport system—combined with important differences in

the availability of natural and human resources and in industrial infrastructure—
has produced significant variations in the regional economies of China. The three
wealthiest regions are along the southeast coast, centred on the Pearl (Zhu) River
Delta; along the east coast, centred on the lower Yangtze River; and near the Bo
Hai (Gulf of Chihli), in the Beijing-Tianjin-Liaoning region. It is the rapid
development of these areas that is having the most significant effect on the Asian
regional economy as a whole, and Chinese government policy is designed to
remove the obstacles to accelerated growth in these wealthier regions. At the same
time, a major priority of the government is the economic development of the
interior of the country to help it catch up with the more-prosperous coastal regions.

THE ROLE OF THE GOVERNMENT

China has been a socialist country since 1949, and, for nearly all of that time, the
government has played a predominant role in the economy. In the industrial sector,
for example, the state long owned outright nearly all of the firms producing
China’s manufacturing output. The proportion of overall industrial capacity
controlled by the government has gradually declined, although heavy
industries have remained largely state owned. In the urban sector the government
has set the prices for key commodities, determined the level and general
distribution of investment funds, prescribed output targets for major enterprises
and branches, allocated energy resources, set wage levels and employment targets,
run the wholesale and retail networks, and controlled financial policy and the
banking system. The foreign trade system became a government monopoly in the
early 1950s. In the countryside from the mid-1950s, the government prescribed
cropping patterns, set the level of prices, and fixed output targets for all major
crops.

By the early 21st century much of the above system was in the process of
changing, as the role of the central government in managing the economy was
reduced and the role of both private initiative and market forces increased.
Nevertheless, the government continued to play a dominant role in the urban
economy, and its policies on such issues as agricultural procurement still exerted a
major influence on performance in the rural sector.

The effective exercise of control over the economy requires an army of bureaucrats
and a highly complicated chain of command, stretching from the top down to the
level of individual enterprise. The Chinese Communist Party reserves the right to
make broad decisions on economic priorities and policies, but the government
apparatus headed by the State Council assumes the major burden of running the
economy. The State Planning Commission and the Ministry of Finance also are
concerned with the functioning of virtually the entire economy.

There are three types of economic activity in China: those stipulated

by mandatory planning, those done according to indicative planning(in which
central planning of economic outcomes is indirectly implemented), and those
governed by market forces. The second and third categories have grown at the
expense of the first, but goods of national importance and almost all large-scale
construction have remained under the mandatory planning system. The market
economy generally involves small-scale or highly perishable items that circulate
within local market areas only. Almost every year brings additional changes in the
lists of goods that fall under each of the three categories.

The basic thrusts of urban economic reform were toward integrating China more
fully with the international economy; making enterprises responsible for their
profits and losses; reducing the state’s role in directing, as opposed to guiding, the
allocation of resources; shifting investment away from the metallurgical and
machine-building industries and toward light and high-technology industries, while
retaining an emphasis on resolving the energy, transportation, and communications
bottlenecks; creating material incentives for individual effort and a consumer ethos
to spur people to work harder; rationalizing the pricing structure; and putting
individuals into jobs for which they have specialized training, skills, or talents. At
the same time, the state has permitted a private sector to develop and has allowed it
to compete with state firms in a number of service areas and, increasingly, in such
larger-scale operations as construction.

Efforts to create a freer labour market are also part of the overall stress on
achieving greater efficiency. As with price reform, tampering with a system that
keeps many citizens living more comfortably and securely than would an
economically more rational system risks serious repercussions in relations with the
public. Changes have proceeded slowly in this sensitive area.
A decision was made in 1978 to permit direct foreign investment in several small
“special economic zones” along the coast. These zones were later increased to 14
coastal cities and three coastal regions. All of these places provided favored tax
treatment and other advantages for the foreign investor. Laws on contracts, patents,
and other matters of concern to foreign businesses were also passed in an effort to
attract international capital to aid China’s development. The largely bureaucratic
nature of China’s economy, however, has posed inherent problems for foreign
firms that want to operate in the Chinese environment, and China gradually has
had to add more incentives to attract foreign capital.

The changes in China’s economic thinking and strategy since 1978 have been so
great—with the potential repercussions for important vested interests so strong—
that actual practice inevitably has lagged considerably behind declaratory policy.
Notable during this period have been the swings in economic policy between an
emphasis on market-oriented reforms and a return to at least partial reliance on
centralized planning.

INDIA VS CHINA ECONOMY-

Making an in depth study and analysis of India vs. China economy seems to be a
very hard task. Both India and China rank among the front runners of global
economy and are among the world's most diverse nations. Both the countries were
among the most ancient civilizations and their economies are influenced by a
number of social, political, economic and other factors. However, if we try to
properly understand the various economic and market trends and features of the
countries, we can make a comparison between Indian and Chinese economy. 

Going by the basic facts, the economy of China is more developed than that of
India. While India is the 12th largest economy in terms of the exchange rates,
China occupies the third position. Compared to the estimated $1.209 trillion GDP
of India, China has an average GDP of around $7.8 trillion. In case of per capital
GDP, India lags far behind China with just $1016 compared to $6,100 of the latter.
To make a basic comparison of India and China Economy, we need to have an idea
of the economic facts of the countries. 

Facts India China

GDP around $1.209 trillion around $7.8 trillion
GDP growth 6.7% 9.1%
Per capital GDP $1016 $6,100
Inflation 7.8 % -1.2 %
Labor Force 523.5 million 807.7 million
Unemployment 6.8 % 4.3 %

If we make the analysis of the India vs. China economy, we can see that there are a
number of factors that has made China a better economy than India. First things
first, India was under the colonial rule of the British for around 190 years. This
drained the country's resources to a great extent and led to huge economic loss. On
the other hand, there was no such instance of colonization in China. As such, from
the very beginning, the country enjoyed a planned economic model which made it
stronger. 

Agriculture 

Agriculture is another factor of economic comparison of India and China. It forms

a major economic sector in both the countries. However, the agricultural sector of
China is more developed than that of India. Unlike India, where farmers still use
the traditional and old methods of cultivation, the agricultural techniques used in
China are very much developed. This leads to better quality and high yield of crops
which can be exported. 
Liberalization of the market 

In spite of being a Socialist country, China started towards the liberalization of its
market economy much before India. This strengthened the economy to a great
extent. On the other hand, India was very slow in embracing globalization and
open market economies. While India's liberalization policies started in the 1990s,
China welcomed foreign direct investment and private investment in the mid
1980s. This made a significant change in its economy and the GDP increased
considerably. 

Difference in infrastructure and other aspects of economic growth 

Compared to India, China has a much well developed infrastructure. Some of the
important factors that have created a stark difference between the economies of the
two countries are manpower and labor development, water management, health
care facilities and services, communication, civic amenities and so on. All these
aspects are well developed in China which has put a positive impact in its economy
to make it one of the best in the world. Although India has become much
developed than before, it is still plagued by problems such as poverty,
unemployment, lack of civic amenities and so on. In fact unlike India, China is still
investing in huge amounts towards manpower development and strengthening of
infrastructure.