Economics(Paper-4) - Shivaji University

7) Public Spending : Fiscal policy will be instituted through public expenditure
and economic development can be achieved. Spending on Education may create
qualitative human capital which is necessary for economic development. Alongwith
this spending on health care centre the efficiency of labour force can be enhanced.
During the depression compensatory spending must be undertaken till the private
investment becomes normal. Thus, compensatory spending shall results in raising the
levels of income, output and employment.
8) Taxation : It is an inevitable instrument for raising finance for economic
development. The government may resort both Direct and Indirect taxation to have
adequate revenues for development purposes During inflation higher rate of direct
taxation and lower rate of indirect taxes may useful to poor people. Through this peoples
well being can be maintained at higher level. But at the same time rich class will be hit
hard. Thus, very wisely the taxation policy should be executed to have smooth space of
economic development of a country.
3.2.4 Role of Government in Economic Development :
After a big jolt of great depression 1930, people lost their confidence in market
mechanism Keynes economic models more emphasized that active government
participation is a necessary condition for economic development of an economy.Thus
to tackle various socio-economic problems in an effective way, government intervention
was deemed to be essential. Hence, World Development Report 1997 argues that,
“The state (government) is central to economic and social development not as a direct
provider of growth but as a partner, catalyst and facilator.Al the end the rationale role of
government in economic development in the following way.
1) Capital Formation : The process of economic development in the under
developed countries depends mainly on capital formation. The Government institutes
the monetary and fiscal policy to have a desirable capital formation for economic
development. In other words credit policy, spending and taxing policy launches in such
a way that there will be capital formation.
2) Building Institutions : The effective rate of capital formation is possible if
institutions are powerful. The institutional structure means the banking, education,
insurance and saving organization should be well developed then only capital formation
is possible. Thus, state / government takes an appropriate action to best institution
which in turns helps to achieve higher level of economic development.
3) Infrastructure : Government has to bear the responsibility of developing
infrastructure i.e. power, electricity, irrigation, transport system etc. Huge capital
investment are required to create such facilities, there private sector is reluctant to
spend on this sectors. Thus, government can only invest in such projects. Therefore
government plays an important role in economic development by instituting these
facilities.
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