ICAI Notes- Public Policies - Government Policies for Business Growth | Business and Commercial Knowledge (Old Scheme) - CA Foundation PDF Download

Public Policy

1. Rohit sells firecrackers in Delhi. He was fined by local police for selling firecrackers with an expired trade license.
2. Sukhbir employed 34 full-time workers in his garage. He was advised by his Chartered Accountant to pay provident fund contributions for all of them.
3. Ranga was not allowed to enter Kuwait by the immigration officer as he had several visa stamping in Tel Aviv Airport in Israel.
4. Bharat was imprisoned for three days in Singapore as he violated traffic rules.
5. Coke was driven out of India in 1977 as the then ruling Party was a strong believer of Swadeshi. In the 1990s Coke came back to India.

From these examples, we understand that, Public policy is guided by social, cultural religious and political factors.  

• In India, a small fine is there for traffic rules violations, but in Singapore, traffic rule violation is taken as a major offense. 
• Due to political differences with Israel, immigration officers in many Arab nations decline entry of foreign visitors having multiple visa stampings on their passports. Licenses and PF issues are taken seriously in India.
• These policy issues are not only diverse instances. FDI Policy of the Indian Government derives its origin from the country’s economic standpoint, whereas respect for all religions is more of a cultural fabric designed by the Indian constitution. The policy of keeping special compartments for ladies in trains emanates from a socio-cultural perspective.

Thomas R. Dye says that “public policy is whatever government chooses to do or not to do” Richard Rose says that “public policy is not a decision, it is a course or pattern of activity”. 

Public Policy, according to them is a summation of decisions followed by many. India is a pluralistic society therefore, there are many opinions. We have a complex legal system. Whereas in Dubai, laws are stringent but very simple.

In Carl J. Friedrich’s opinion public policy is a proposed course of action of a person, group or government within a given environment providing opportunities and obstacles which the policy was proposed to utilise and overcome in an effort to reach a goal to realise an objective or purpose. 

In the USA, Martin Luther King fought for the rights of black people. In India, Swami Vivekananda had an inclusive approach towards the downtrodden socially outcast people. Indian policies are directed toward the upliftment of socially deprived classes.

From the aforementioned discussion, it is clear that public policies are well thought of governmental decisions, and these are the resultants of various social and economic activities which the government undertakes in pursuance of clearly defined goals and objectives. The nature of public policies has the following characteristics:

1. Public Policies are always goal-oriented. These are formulated and implemented in order to attain certain objectives which the government has in view for the ultimate benefit of the masses in a welfare state. These policies clearly spell out the programs of government.
   For example, the banks are instructed by the government to initiate financial inclusion plan and they are bound to open branches in villages. Opening of low frill accounts under Jan Dhan Yojna had been made mandatory. This policy of financial inclusion is a goal-oriented policy.
2. Public policy represents the outcome of the government’s collective actions. It means that it is a pattern or course of activity or the governmental officials and actors in a collective sense than being as their discrete and segregated decisions.
   The whole legal system of India stands on collective actions. The courts of law starting from a Magistrate Court to Supreme Court, the duties and codes of conduct of the judges, the involvement of lawyers and public prosecutors, the role of police and forensic experts, the appointment of juries are the examples of collective actions.
3. Public policy is what the government actually decides or chooses to do. It is the relationship of the government units to the specific field of the political environment in a given administrative system. It can take a variety of forms like law, ordinances, court decisions, executive orders, decisions, etc. In India, most of these public policies are written statements and these are decided by the government and other regulatory bodies.
4. Public policy is positive in the sense that it depicts the concern of the government and involves its action to a particular problem on which the policy is made. It has the sanction of law and authority behind it. Negatively, it involves decisions by the governmental oficials regarding not taking any action on a particular issue. In nations run by autocratic military dictators and dictatorial minority, we see exceptions and their public policy turns often negative. For entrepreneurs and business house, it is very important to know the major fundamental policies followed by a government before entering a new country.
5. Public Policy Process is continuous in nature. It involves certain distinct components as shown in the next section. These components are interconnected by various types of communication and a multiplicity of feedback loops.

Public Policy Process

It involves the following process:

1. Agenda Setting
2. Formulation
3. Adoption
4. Implementation
5. Evaluation
6. Support/Maintenance

Agenda setting

This step identifies new issues that may require government action. If multiple areas are identified they can all be assessed, or particular issues may be given a priority.

Example: a foresight study may indicate that the growing population and steadily increasing energy consumption per capita will require an increased energy production. This, along with the need to reduce emissions and limit future climate change, may result in policymakers deciding to increase solar panel production and usage.

Formulation

This step defines the structure of the policy. What goals need to be achieved? Will there be additional implications? What will the costs be? How will key stakeholders react to these effects?

Example: Should governments offer tax-breaks to start-up renewable energy companies? Or should they offer individual subsidies to solar panel buyers? What might be the effects of these actions?

Adoption

Once the appropriate approval (governmental, legislative, referendum voting etc.) is granted then a policy can be adopted.

Example: A nation-wide policy to increase solar capacity can be implemented by the national government, but changing a law will require a vote in Parliament.

Implementation

Establishing that the correct partners have the resources and knowledge to implement the policy. This could involve creating an external organisation to carry out actions. Monitoring to ensure correct policy implementation is also necessary.

Example: Administration processes to allow organisations and individuals to apply for solar energy subsidies / tax benefits need to be created.

Evaluation

This step assesses the effectiveness and success of the policy. Did any unpredicted effects occur? These assessments can be quantitative and/or qualitative.

Example: The UK and Germany introduced highly popular solar energy policies. Energy production at certain times of the day and year have substantially increased. Occasionally more energy is being produced than is needed, which leads to further questions about how to handle the 'excess' energy.

Support / maintenance

This step studies how the policy might be developed, or provides additional support for its continuation. Additionally, the policy can be terminated if deemed redundant, accomplished, or ineffective.

Example: Even if a policy is considered a success, should it be continued? Should solar panel policies be continued, or should policies now focus on improving national electric grids, or should energy storage policies be developed instead?

Law Making in India

• In India, the law making has a distinct process.
• The Indian Parliament at the central level and Legislative Assemblies and Councils (wherever applicable) at the state level are the law making bodies. Indian Parliament consists of two Houses: the Lok Sabha, or “House of the People,” and the Rajya Sabha, or “Council of States.”
• The process of law making, in relation to Parliament, may be defined as the process by which a legislative proposal brought before it, and then is translated into the law of the land. 
• It depends on the society to decide which issues should be enacted. Law is the effective part of a governmental policy.
• In many parts of India, water is considered free. But in real life, government spends huge amount of money to clean water to make it fit for drinking. The government may institutionalize a new policy to stop wastage of drinking water. Rain water harvesting has become integral part of building in many cities.
• The process of law making in India may be broadly divided into three stages / phases
  Pre-legislative phase
  Legislative phase
  Post-legislative phase. 
• Pre-legislative phase comprises identification of need for a new law or an amendment to an existing legislation, drafting of the proposed law, seeking inputs / comments from different ministries and public, revision of the draft bill to incorporate such inputs, and getting the same vetted by the Law Ministry. It is then presented to the Cabinet for approval.
• The proposed legislation is brought to the Parliament and is referred to the Standing Committee. After the Cabinet approves the Bill, it is introduced in the Parliament. On introduction of the Bill, the Minister of the concerned Department may send notice demonstrating the intention that the Bill may be moved, considered and passed; be referred to the Select Committee of the House/ Joint Committee of both Houses
  or for eliciting public opinion.
• The House votes on the Bill with amendments, if any. If the Bill is passed in one House, it is then sent to the other House. Once the Bill is passed by both the Houses, a copy of the Bill is sent to Legislative Department of Ministry of Law and Justice for scrutiny. 
• Post scrutiny by the Ministry of Law and Justice, it is presented to the President for assent. The President has the right to seek information and clarification about the Bill, and may also return it to the Parliament for reconsideration. After the President gives assent, the Bill is notified as an Act.
• These communication and feedbacks interact in a number of ways. Policy making is a dynamic process. 
• Public policy, in almost all cases, lays down general - directives, rather than detailed instructions, on the main lines of action to be followed. After main lines of action are decided upon, detailed sub-policies that translate the general theory into more concrete terms are usually needed to execute it.
• A policy decision-making can result in a social action. The policies of most socially significant decision making, such as most public policy making are intended to result in action. Also, policies directed at the policy making apparatus itself such as efficiency drives in government are action oriented.

Types of Public Policy

Public policies are of three types:

1. Restrictive
2. Regulatory
3. Facilitating

Restrictive policies curtail all benefits in some particular issue. For example, custom duties may be imposed to protect Indian products.
Regulatory practices regulate the activities of a particular sector of economy. The regulator checks deviations in set practices and policies. Reserve Bank of India is a major regulator for banks. RBI also regulates the Money Market and Forex Market operations. Securities and Exchange Board of India (SEBI) was formed to regulate the equity, bond and derivative markets (including mutual funds). Insurance Regulatory Development Authority (IRDA) is the regulator of the insurance industry.
Facilitating policies are the ones which facilitates an activity. The conducive policies towards the development of MSMEs (Micro- Small-Medium Enterprises) are an example of facilitating policy. The formation of National Skills Development Corporation (NSDC) is another facilitating policy of government of India. We will learn more about these regulatory bodies in the next chapter.

Post-Independence Public Policy

• If we look at the Indian economy at the time of independence, it showed all signs of stagnation. 
• About 47% of the population was below the poverty line in 1951. At that point of time, 72% of the workforce was employed in agriculture. Agriculture contributed to nearly 50% of the national income. Industrialization was at a very low level with only 2% of the work force employed in industries. 
• In addition to this, there was hardly any investment in industries. The industries which were predominant were cotton textile and jute industries. They also suffered a major setback, as at the time of partition major jute producing areas went to East Pakistan (today’s Bangladesh) and as a result there was a shortage of raw material. 
• Indian economy was suffering with low agriculture output, little industrialization, low figure of national income, high poverty and unemployment, slow economic progress soon after independence. The government was looking for guiding policies to make India economically viable.
• The new Government of India identified a thoroughly close knit relation and interaction between the important governmental agencies viz., the political executive, legislature, bureaucracy and judiciary. Naturally, the Constitution of India was framed and accepted in 1950. The constitution of the nation outlines the nature of policies to be taken for the growth and development of the nation.
• During the time of independence of India, two major political thoughts were reining the world. The United State of America followed a strong Capitalist model of Government with a strong private sector with individual ownership. Freedom of choice was the buzz word. Government’s role was to provide a smooth business and work environment.
•  On the other hand, Soviet Union followed a Communistic model, where the state owned everything. All sorts of production were in the hands of government with a strong public distribution system of food and other needs. Many of the Eastern European nations signed the Warsaw Pact and followed the communistic pattern of economy. 
• The Western European nations like Great Britain, France, Spain, Portugal, Germany followed a Capitalistic model with the presence of several socialistic drives like public transport, healthcare system.

The Government of India followed a mixed economic path 

• A mix of policies borrowed from both capitalistic and communist economic policies. The first major goal of Indian public policies in the post-independence India was in the area of socio-economic development. 
• Wide ranging policies were formulated in the area of industrial and agricultural development. Many policies were included into Statutes like Industries (Development and Regulation) Act, 1951. Others were kept as directives in the various plan documents. Indian government had a strong dictum against imports. It was done in order to develop the nation’s own industries.
• After Independence, Planning Commission was established to make economic plans for a period of five years. For all policy directions, the Five Year Plans became the major source. These policies were of two types, ones of regulation and the others of promotion. It may be noted that NITI Aayog has now replaced the Planning Commission.
• Laws laid down what could be done or not done by the entrepreneurs. This could be in the larger area like what goods can be produced by the public or whether certain goods can be produced only by government agencies. 
• Laws also specified how State agencies themselves were to provide goods and services like electricity, transport, etc.
• The Government of India undertook similar responsibility in the social sphere. But socio-economic transformation was not the only problem when India became independent. 
• There were also problems of national integrity, the external environment was a source of threat and the country had to develop suitable policies to defend itself. Apart from this, there have been internal challenges. Regionalism has given rise to separatist tendencies that have to be countered in a long-term perspective
• These would include not only defence policies but also similar efforts at decentralisation that create greater national cohesiveness. Thus, since independence, public policies in India have been formulated with a view to achieving socio-economic development and maintain national integrity. These goals have been complex demanding coherent policies.
• This has been a difficult task because goals have had to be divided into sectors and sub-sectors. Many a time, the policies have been contradictory. What may be rational for economic development; may not be so for national integration. Thus, the need of a strong centre to cope with external threats, etc. is important but it may go against the principle of decentralisation which provides for greater national cohesion of a heterogeneous society. This is the reason why ascertaining of the actual impact of public policy becomes a necessity.