Rationale and extent of state intervention

State into inndustries

1. Rationale and Extent of State Intervention Submitted By: Nitish Sadotra

2. Introduction Multinational enterprises operates in the different areas around the Globe, and that too under different kinds of political and legal margins. This State’s Intervention ensures that the enterprise that is functioning in their state of the world would have to operate according to the working environment of that particular state/area.

3. State Intervention Reasons for State Intervention. Types of State Intervention. Extent of State Intervention. Consequences of Intervention.

4. Reasons for State Intervention State's participation is necessary to lay a strong base for the future development of industry and commerce. State’s intervention is necessary to eradicate any Monopolistic economy. And also due to the Directive Principles Article 38 to 48, following Rights are given; Right to Equality, Right to Freedom, and Right against Exploitation of Fundamental Rights makes it mandatory for the state to participate in the economic activities.

5. Reasons Contd. What people and country need is understood and provided by the government and not by private sector. Markets generally fail and when the market fails the State should Intervene.

6. Types and Extent of Intervention Formal interventions : those which emanate from the legislation. e.g.: the FEMA, the Companies Act,1956etc. Informal interventions : those which various groups impose upon themselves out of need and custom.

7. Types and Extent of Intervention Coercive intervention: It requires performance of certain actions .e.g. Taxes must be paid otherwise fine or imprisonment may result. Inductive interventions: It hold out promise of reward for compliance with the desired line of action .e.g. Subsidies may be granted to stimulate certain activities .

8. Types and Extent of Intervention Direct Intervention : W hen the government fixes price of certain products, it is an example of direct intervention. Indirect Intervention: The variation of corporate income tax to influence economic activity is an indirect intervention .

9. Types and Extent of Intervention Promotional intervention: It includes activities such as expansion of public-sector, establishment and operations of development banks. Regulatory interventions: It ensures orderly development of industries with the least wastage of resources like Industries Act .

10. Consequences of Intervention There are certain weaknesses in the framing or administration of control policies that has resulted in the negative consequences. Controls have resulted in the wastage of national resources. W astage of time is another consequence of  control .

11. Consequences Contd. Controls have bred corruption at various levels . G overnment planning may be more rigid and inflexible than private decision making because complex decision making machinery may be involved in government. G overnment may be incapable of administering detailed plans .

12. Consequences Contd. G overnment controls may block private-sector individual initiative if there are many bureaucratic obstacles. Planning may be manipulated by privileged and powerful groups that act in their own interest, and planning creates groups with a vested interest in planning, for e.g., bureaucrats and industrialist that obtain protected   positions.

13. Thank You !!