The Promotional Role of the Government | Creation of economic and social overhead capital to promote private business

The most important role of the government is to create economic and social overhead capital to promote private business. The building of economic overhead implies the creation of transport and communication facility, development of financial institutions, development of irrigation, electricity, fuel facilities etc. Such overhead capital cannot be built by the private sector. On the other hand, the building of social overhead implies the investment made on the development of education, health, housing, training efficient technology etc. The certain economic overhead capital includes development infrastructure including:

1. Certainty of transport and communication facilities (e.g., railways, roadways, airports and seaports, telephone and telex services etc.)
2. Certainty of means of irrigation (e.g., dams, canals, tube wells, etc.)
3. Generation and distribution of electricity and exploration and development of other sources of energy (e.g., coal, petroleum, natural gas, atomic energy and solar energy).
4. Promotion and expansion of industries which are strategic importance but lag behind for lack of private investment, and
5. Development and adoption of new and more efficient technology.

Creation of social overhead capital includes investment in education, health, housing, community development programmes, technical training etc., which enhance the productivity and growth potentials.

First, the creation of economic and social overheads helps to accelerate the pace of production and overall economic growth. A growing economy provides an environment in which entrepreneurs can look forward to explain their business with confidence and optimism. Economic growth enlarges the market size to the advantage of private business through a sustained increase in aggregate demand.

Second, an adequate supply of economic and social overhead capital creates external economies, reduces private cost of production and reduces capital output ratio. Besides, economic and social overhead facilities created by the government help growth of private business by facilitating acquisition of inputs (labor and raw materials), by helping in the expansion of market for their product, by making technical and skilled labor easily available, and so on. The lack of such facilities in the less developed countries restricts growth of the economy and also that of private business activities. Thus, by providing the necessary infrastructure, the government plays a significant role in promoting private business.

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