Presented by:Anuj Sharma Anila Narang Mohit Mehra Mukesh

1. Reasons for State Intervention 2. Types of Intervention 3. Extent of Intervention 4. Consequences of Intervention

State participation is necessary to lay a strong base for the future development of industry and commerce. State intervention is necessary to eradicate any MONOPOLISTIC economy. Article 38to 48 of the Directive Principles; the Right to Equality; the Right to Freedom and the Right against Exploitation of Fundamental Rights makes it mandatory for the State to participate in economic activities.

 Formal

and Informal Interventions and Coercive Interventions

Inducive Direct

and Indirect Interventions and Regulatory Intervention

Promotional

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

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

When the government fixes price of certain products, it is an example of direct intervention. The variation of corporate income tax to influence economic activity is an indirect intervention.

 Promotional

intervention includes activities such as expansion of public sector, establishment and operations of development banks. interventions ensures orderly development of industries with the least wastage of resources like Industries Act

Regulatory

Although its true that intervention is necessary but as every thing has a positive and negative side this activity may have some positive and negative consequences.

 There

are certain weaknesses in the framing or administration of control policies that has resulted in the negative consequences. have resulted in the wastage of national resouces. capacity of fiscal machinery of the government to mobilise public savings and plough them back into development has been weakened.

Controls

The

Wastage of time is another consequence of control. Controls have bred corruption at various levels. In purely empirical terms, controls, as they have framed over the past forty years or so do not seem to have contributed to the development of the economy on soundlines or in a substantially dynamic manner.

Government planning may be more rigid and inflexible than private decision making because complex decision making machinery may be involved in government. Government may be incapable of administering detailed plans. Government controls may block privatesector 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 example, bureaucrats and industrilaist that obtain protected positions Individuals may know more about their own preferences and circumstances than the government

A good system of conrol, if it were to avoid negative consequences, should have following qualities: It must be democratic. This means it must be exercised in the interest of the governed as they see their interests. It must be powerful- powerful enough to make an unwilling minority obey the will of majority. It must have a wider vision and canvas to develop.

It must be efficient, and at the same, it must not destroy the efficiency of the thing it is regulating. The duties imposed must be simple enough to be understood. Control must be guided by experience or by wise experiment.