Tax is levied by the government for the development of the state's economy. Government revenue depends on direct taxes (levied on the income of persons) and indirect taxes (levied on goods and services), through which the government mobilises its "financial resources".
1. Role of Government in Development Policies
| Function | What the government does |
|---|---|
| Defence | Essential security function to protect the nation from enemies; the Union government creates and maintains defence forces. |
| Foreign policy | Friendly relations with all countries and cordial economic relations through exports, imports, investments and labour – provided by the Union government. |
| Periodic elections | India is a democratic country; we elect representatives to Parliament and state assemblies. State governments conduct elections to local bodies. |
| Law and order | Union and state governments enact laws; the Union government has a vibrant judicial system; state governments administer the police force. |
| Public administration and public goods | Departments such as revenue, schools, hospitals, rural and urban development; local governments provide local roads, drainage, drinking water and waste collection and disposal. |
| Redistribution of income and poverty alleviation | High-income people bring in more tax revenue than the poor; the poor are given basic necessities – food, shelter, clothing, education, health care and monthly income to the very poor. |
| Regulate the economy | Through the Reserve Bank of India, the Union government controls money supply, interest rate, inflation and foreign exchange rate; also through agencies such as SEBI and the Competition Commission of India. |