Role of State in the Indian Economy

Today almost everybody accepts that state has an important role in the economy of a country. But state cannot play the same role in all the countries of the world. The role of the state in an economy depends, largely, on the character of that economy. For example, in a socialistic economy the main responsibility lies with the state for all sorts of economic decisions. That is why state has a dominant role in these economies. On the other hand, in free capitalistic countries economic decisions are taken mainly by buyers and sellers. They take these decisions through market mechanism operated by the forces of demand and supply. Here the role of the state is merely to maintain the framework of the economy so that the market mechanism may work smoothly. But it is not easy to take decisions regarding the role of the state in an economy like India as ours is a mixed economy.

Here in India we have both the sectors—private sector as well as public sector. As far as public sector is concerned the decisions are taken mainly by the government. Government takes these decisions on the basis of social interest rather than private gains. Thus, in this sector decisions are taken on the same pattern as in the socialist countries. On the other hand, we have a very large private sector also in our country. In this sector economic decisions are taken mainly by the forces of demand and supply through market mechanism. But in this private sector decisions are not taken on the same pattern as in the capitalistic countries.

There are two main problems before us : (a) How can we judge whether the decisions taken in these two sectors (private and public sectors) are right or wrong? (b) How and on what basis can we establish the coordination between these two sectors? Now people are no longer prepared to accept the age-old principle that private sector should take all decisions only with a view to private profit. Rather they demand that private sector should also be regulated in such a way that it should work for social interest. As far as public sector is concerned it should definitely work for social interest. Thus, the role of the state in Indian Economy becomes very important as well as delicate. Here the question arises that—how can we decide what is in social interest? In other words, on what basis we can say what is socially desirable and what is not? Really it is a delicate question. But fortunately our Constitution-makers have tried to answer this question in our Constitution. Our Constitution includes some very important broad goals which may’ serve as guidelines for our Economy. Hence the role of the state in our Economy is to regulate both the sectors—private, as well as public sector—in such a way that they may work for the fulfillment of these objectives of our Economy. It is, therefore, essential for us to know the objectives set forth by our Constitution-makers for the Economy.