Evolution: Prior to Independence, there were few ‘Public Sector’ Enterprises in the

country.These included the Railways, the Posts and Telegraphs, the Port Trusts, the
Ordinance Factories, All India Radio, few enterprises like the Government Salt
Factories, Quinine Factories, etc. which were departmentally managed.

Independent India adopted planned economic development policies in a

democratic, federal polity. The country was facing problems like inequalities in
income and low levels of employment, regional imbalances in economic
development and lack of trained manpower. In view of thesocio-economic
set up, our visionary leaders drew up a roadmap for the development of Public
Sector as an instrument for self-reliant economic growth. This guiding factor led
to the passage of Industrial Policy Resolution of 1948 and followed by Industrial
Policy Resolution of 1956. Public Sector would correct the regional
imbalances and create employment. Industrial Policy Resolution of 1948 laid
emphasis on the expansion of production, both agricultural and industrial; and in
particular on the production of capital equipment and goods satisfying the basic
needs of the people, and of commodities the export of which would increase
earnings of foreign exchange.

GLOBAL TREND:
The Public Sector emerged as the driver of economic growth consequent to the
industrial revolution in Europe. With the advent of globalization, the public sector
faced new challenges in the developed economies. No longer the public sector had
the privilege of operating in a sellers market and had to face competition both from
domestic and international competitors.
Today, both Public Sector & Private Sector have become an integral part of the
economy.In developing countries, the performance of Public Sector
has considerable scope for improvement.

Economic Scenario and Role of Public Sector in India:

Government of India, as part of its national agenda to promote growth, increase in
efficiency and international competitiveness, has been continuously framing
policies for industrial growth, fiscal, trade and foreign investment to achieve
overall socio-economic development of the country. As a result of exceptionally
severe balance of payments and fiscal crisis in the year 1991, the government
decided to shift to a liberalized economy with greater reliance upon market forces,
a larger role for the private sector including foreign direct investment. The Government
realized that a strong and growth oriented nation could be built if India grows as part of
the world economy and not in isolation.

Scope of Public Sector

Public sector has come to assume the commanding heights of the economy. It was monopoly
in railways, communication and air transport; virtual monopoly in coal mining, power
generation and petroleum industry; a predominant share in banking, insurance, shipping, steel
and other metals; machine tools, fertilizers, insecticides, and petrochemicals; and share in
light engineering industries like drugs;textiles garbages industries; consumer goods form
break of electronic new industries, it has also been taking over old opens which became sick.
Public sector has played a significant role in the industrialization of the country. By
establishing the basic and heavy industries and providing the infrastructure, it has enabled
growth of innumerable light industries and also provided the virtual inputs of ushering the
“Green Revolution”. It has also played a pioneering role in dispersing industries in various
regions of the country particularly in the backward area.

It is generally recognized as a “model employer” providing fair wages, good working conditions
and amenities, and recognizing the rights of the workers. As a result, industrial relations,
except in certain units and for some time past, are better and the mandays lost are much less
than n the private sector.

In spite of its phenomenal growth and achievements, the public sector has come in for
criticism for its major shortfalls. The most important defect in the public sector is the overall
net loss incurred by it. The non-utilization of the rated capacity, by the public sector
undertakings, is another major shortcoming. The shortfalls in core items in particular
adversely affect the growth of the entire economy. Some of the other defects in the sector
are:

(i) lack of professional management; (ii) lack of autonomy for the mangers of undertakings;
(iii) adoption of bureaucratic procedures which breed delay; (iv) appointment for surplus
labour; (v) over stocking of inventories; (vi) unproductive expenditures; (vii) neglect in
maintenance of equipment; (viii) taking over the burden of sick industries; (ix) uneconomic
pricing of products; and (x) lack of organic linkages between the big plants and small
industries.

Objectives

(i) To promote rapid economic development by filing critical gaps in the industrial structure
(ii) To provide basic infra-structural facilities for the growth of the economy;
(iii) To undertake economic activity strategically important for the growth of the country,
which, if left to private initiative, would distort the national objectives;
(iv) To achieve balanced regional development and dispersal of economic activity through
growth and diversification of economic activity in less developed areas by providing adequate
infra-structure and undertaking programmes of conservation and development of national
resources;
(v) To reduce disparities in income;
(vi) To avoid concentration of economic powder in a few hands;
(vii) To exercise social control and regulation of long-term finance through public financial
institutions;
(viii) To control over sensitive areas, i.e., allocation of scarce imported commodities; control
over the distribution system in relation to essential goods in order to reduce the margin
between prices obtained by the producers and those paid by the consumers;
(ix) To attain self-reliance in different technologies through development of capacity for design
and development of machinery, equipment and instruments and elimination of dependence of
foreign agencies for these services;
(x) To enhance the employment opportunities by heavy investment in industry and mining,
transport and communication; and
(xi) To increase exports and earn foreign exports and earn foreign exchange to ease the
pressure of Balance of Payments.

Present Situation
Undertakings in Public Sector: There are 3 forms of public sector companies in India.
• Limited companies formed under Companies Act in which at least 51% shares are
held by the state
• Statutory Corporations set up through an Act of Parliament. For e.g. Food Corp.
of India, Unit Trust of India, etc
• Holding Companies formed under Companies Act

Case Study