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Explain the entrepreneurial character of government role in business world.

Explain the entrepreneurial character of government role in business world.

Course: B.Com
1 Answer

The entrepreneurial role of the government signifies government investment, capitalisation and ownership of business. Entrepreneurial role of the government comprises of:

  • Making Investment in New Units: Government makes investments in industries which require heavy investments or whose development is in the interests of the nation.
  • Acquiring Exiting Units: Government acquires sick units for their revival. In 1977, government introduced the merger scheme, with an objective of encouraging merger of sick industrial units with healthy. Under the scheme, healthy units absorbing sick units could set-off the depreciation and accumulated losses against their tax liabilities.
  • Nationalisation: Certain industries have been reserved exclusively for the public sector.

Government investment is usually seen in the following industries involving high risk, capital intensive industries with low rate of return, long gestation period and those of national importance.

An example of entrepreneurial role of government is investment made by the government at the start of Eighth Five Year Plan. During the period, the government increased the investment to 1.18 Lakh crore in 237 operating units from Rs. 29 crore in merely five units in 1951. At the same time there were 11,000 state level enterprises with an estimated investment of Rs. 50,000 crore. The entrepreneurial role of the government increased considerably with industrial policy of 1948 and 1956.

The Industrial Policy of 1948 provided for exclusive government control and investment in these industries coal, iron, steel, aircraft manufacture, railways, shipping, telegraph, wireless, atomic energy, defence/arms and ammunition. The Industrial Policy of 1956 increased the scope of government entrepreneurial role. Under Schedule A of the policy, 17 industries were reserved for exclusive government investment. Schedule B of the policy contained another 12 industries for progressive state ownership. The role of government in industrial ownership kept increasing with reinforcing policies towards government ownership of industrial units. In 1991, under the leadership of P.V. Narshimahrao, many changes were made in the existing economic policy and the entrepreneurial role of the government was considerably modified. The number of industries reserved exclusively for government was reduced to merely eight.