The following are a few headlines which appeared recently in the leading business dailies:
1. Crop worry: Centre scraps import duty on wheat to ease supply and check prices
2. Monetary Policy panel members voted unanimously for a rate cut
3. A fortified mid -day meal gets underway at Karnataka’s government schools
4. Government to spend ` 60,000 crores more on rural jobs
5. Government looking at subsidizing Smart phones to boost digital payments
6. No service tax on credit, debit card transactions up to ` 2,000
Each of the above statements represents a proactive response on the part of the government to achieve certain objectives in the interest of the economy and the society.
What exactly is the government planning to accomplish by the above measures? On close examination, we can find that the first two steps are intended to control potential rise in prices; the next two seek to bring in welfare to the underprivileged sections of the society by ensuring equity and fairness and the remaining two are meant to provide incentives to promote the production/ use of resources in a socially desirable direction. The government does not expect the economic variables underlying the above mentioned phenomena to function automatically; rather it intervenes to direct them to function in particular directions. Such intervention on the part of the government is based on the belief that the objective of the economic system and the role of government is to improve the well being of individuals and households.
We have experienced in our day to day life that though governments at various levels impose many rules and regulations in the economy, some matters still go unregulated. Similarly, most of the goods and services that we consume are provided to us by private producers, but certain goods and services are provided exclusively by the government. For a variety of reasons, we believe that governments should accomplish some activities and should not do others. The purpose of this lesson is to examine the economic functions of the government and to understand why the government should invariably perform them.
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