The government has also to take care of financial sector, because major sources of investment flow from banking and insurance sector. Thus government took over business and insurance sector. With this take over banking and insurance system expanded widely to serve the interest of common people, branches expanded to all over the country. Avenues of investment became smoother after nationalisation of banks and insurance companies.
The government had to be pioneer in building infrastructure and promote strategic industries like hydroelectric projects, irrigation, roads and railways transport because private sector investment would not be adequate here.
Government’s Role as a Regulator:
The government of India has to control and regulate the economic life of the country so that excesses of market economy do not have to cast any pall of gloons over the residents of the country. Neither the government can allow a free situation (non-interference) nor they pose a stumbling block in the development of private enterprise (this may be contrary to the principle of democracy).
Before Economic Liberalisation a large part of the economy was under control. There were MRTP and FERA Act to restrict the monopoly houses and to ensure regulated handling of foreign exchange. There was a broad list of industrial licensing. The government controlled money market through R.B.I, credit policies. Moreover, controllers of capital issues were there to maintain norms of stock market, primary issues etc.
After liberalisation the element of market economy has unleashed many forces which may be beyond the control of government. That is why; the institutions have been created for control of various aspects of the economy. S.E.B.I. has replaced controller of capital issues, to act as a watchdog in the stock and derivative market.
Telecom Regulatory Authority of India has been in charge of overseeing the affairs of telecom market. IRDA was created as a Regulatory Authority of Insurance sector. To control the uncertainties and upheavals of market economy such institutions have been created for controlling affairs of the respective sector.
Thus in the liberalised phase, government has created more formal bodies in various sectors to see the things that basic trends and norms of our democratic economy are not violated. Judiciary is also acting as a role of regulator and controller.
The glaring example is, in a historic judgement Supreme Court declared the process of HPCL, BPCL divestment as invalid because government actions did not obey the rules of the country and parliament.