Public and Private

Sectors

.
Public Sector
The objective
of------------------------------------------
accelerating the pace of
economic development and the
political ideology which gave the
public sector a dominant role in
the industrial development.
.
These enterprises came to cover a
wide spectrum of activities in basic
and strategic industries like
-------------------------------Steel, coal,
minerals and metals, petroleum,
heavy engineering, chemicals,
fertilizers and pharmaceuticals etc.
on the one hand.
.

And consumer goods,

transportation services, tourist
services, financial services,
development of small industries
etc. on the other.
OBJECTIVES

The public enterprises which

were promoted as an
instrument for implementation
of the government’s socio-
economic policies, had a
multitude of objectives.
.
1.To help in the rapid economic
growth and industrialization.

2.Create the necessary

infrastructure for economic
development
 .
 3.To earn return on investment and
thus generate resources for
development.

 4.To promote redistribution of

income and wealth.
.

5.To create employment

opportunities.

6.To promote balanced

regional development.
.
 7.To assist the development of
small-scale and ancillary industries.
 Ex- Auxiliary industries.
(supporting)

 8.TO promote import substitution

save and earn foreign exchange for
the economy.
Growth and Role
 The following points highlight role
played by the PSE’s in developing our
economy.
 1. Share in national income.
Public Sector Enterprises (PSE’S)
account for one-fourth of our GDP.
During the peroid(1960-61 to 2001-02),
doubled their share in the GDP.
.
 2. Commanding Heights of the Economy
The sector is in commanding in almost all
the strategic sectors of the economy like
----------------------------- coal, oil-refining,
electricity, iron and steel, paper and the like.
ONLY agriculture, wholesale and retail trade
and small scale units have remained in the
private sector.
.
 3. Share in the capital
formation .
 But now from first five-year plan to
tenth five-year plan there was an
decline in the share of PSE’s in
total investment in each plans.
( From 4th plan it started declining)
.

4. PSE’s and Employment

Public sector has vastly
contributed to the growth of
employment in the country.
.
BUT the growth rate of employment in
public sector slowed down
considerably and became negative
since 1996.
BUT the growth rate accelerated in
private sector during 1990’s.
.
Public enterprises have done
remarkably well in acting as a model
employer------------------------------------
---- in terms of providing jobs and
ensuring decent level of living to
those employed , is really
commendable.
.
 Rank by Company Staff Cost
staff cost (Rs. Crores)
1 SBI 6,093
2 TCS 5,138
3 SAIL 4,758
4 Infosys Technologies 2,366
6 BHEL 1,640
10 Satyam 1,338
(2004 report)
.
 5. Export Earnings
PSE’s have been contributed greatly to
the export of our country.

Export earnings have favorably impact on

India's balance of payments (BOP)
condition.
.

PSE’s did play crucial role in

the past in the development of
the economy and there is no
reason to doubt their potential
to continue to play such a role
in future. (LEFT PARTIES
ARGUMENT)
.
6. Balanced Regional
Development
Public sector enterprises, by
locating themselves in
backward areas, help remove
regional imbalances in
development.
.
 7. Industrialization and Economic
Development
 The role of the public sector in achieving
industrialization is considerable.
 The role is particularly significant when one
takes a look at the background against
which the country started its industrial
progress.
.
The private sector units had the problem
of resources.
Infact, the two private steel
companies------------------------- The Tata
Iron and Steel Company (TISCO) and
the Indian iron and steel company, were
each given a loan of Rs.10 crore by the
government for modernization.
.
The private sector, whose
primary consideration is quick
returns and high capital
appreciation, shuns the critical
projects.
.
 8. Encouragement to ancillary
industries:
 Industry Policy Resolutions and the
successive Five year plan documents have
spelt out various measures for their
development.
.
 9. Resource Mobilization:
 PSUs have contributed enormously to
the resources of the central Govt
through dividends, interest payments,
on loans, excise and other duties.
NON-PERFORMANCE OF PSE’s

Assessment of performance PSE’s

is rather difficult because of the
multiple objectives they seek to
pursue and because some of the
objectives conflict with one
another.
.
THE Central Govt undertakings
have been presenting poor
performance, reasons can be
found, not at their doors but
elsewhere.

1.Political interference
.
 2.High Cost of Delay

 3.Headless plants-----------Many
PSE’s remains without chief
executives for months.
.
4. Inefficient Management.
5. Huge inventories.
6. Trade Unionism
 7.Unutilised Capacities--------
Plant capacities of PSU’s were
never fully utilised.
.
 8. The impact of escalation in the
prices of various inputs and
periodical wage revision.
 9. Low return on investment on
account of price constraints
imposed on certain infrastructural
goods and services of public
enterprises.
.
Ex------- Even under conditions of
monopoly , the objective of the
pricing policy of a particular public
sector enterprise may not be profit
maximization.
Indian Railways and State
Electricity Boards are examples of
public monopolies.
.
 Public enterprises like SAIL and
Fertilizer corporation of India also
operates in seller’s market.

 It is very easy for these enterprises

to earn huge profits simply by
increasing their profits.
.
BUT since their object was not
profit maximization but
fulfillment of some social
objective.
.
They opted for losses in some
cases while in some instances
they just tried to equate total
revenue to total cost.
.
 OTHER REASONS: Wrong
choice of locations, uncertainty of
financial allocations, poor quality
products, high cost, higher social
cost and nepotism and corruption
have also contributed to the low
performance of PSE’s.
Public Sector Navarathnas
 THESE are -------------------
 1. BHEL
 2.BPCL
 3.HPCL
 4.IOC
 5.IPCL – petrochemicals
 6.NTPC
.
7. ONGC
8. SAIL
9. VSNL
And two more enterprises, GAIL
and MTNL, were given the
same status.
.
 Greater operational, financial and
managerial autonomy has also
been granted to 97 other profit-
making enterprises
-----------------------------------------------
-referred to as Mini-Ratnas, for
making them more efficient and
competitive.
.
 NOTE: Board for
Reconstruction of Public Sector
( BRPSE) ----------- Govt of india
decided to set-up BRPSE for
strengthening the PSE’s in general
and to make them more
autonomous and professional.
.

PRIVATE SECTOR
.
Role of Private Sector
 In a mixed economy, the private sector,
too, has an important role to play.
 1. The Dominant Sector:
Despite the rapid progress of the public
sector in the period of planning, private
sector is the dominant sector in the
Indian economy.
.
 Thus as many as 86% of the total companies
were in the private sector , the share of public
sector being only 11.6%
 2. Importance for Development:
 In western countries private entrepreneurs
have played an imp role in economic
development. As the initiator and moving
force behind the industrialization process.
.
Ex------ IN India IT companies are initiators in IT
industry development.
THE Private entrepreneur acts as an innovator
who revolutionizes the entire method of
production.
SUCH activities help the process of
industrialization and economic
development.
.
THIS the reason that the
industrial policy resolutions
of 1948 and 1956 of the Govt
gave immense opportunities to
the private sector to expand its
activities.
.
 THE new liberalized scenario that
has emerged after the
announcement of
the----------------------------------- new
industrial policy in 1991, private
sector has been assigned the
dominant role in industrial
development.
.
 3. Extensive modern industrial
sector
 After independence, a number of
consumer goods industries were set up
in the private sector.
 Ex – cotton, sugar, edible oil industry
etc.
.
 4. Potentialities due to personal
incentive in the small sector
 In India , all small and cottage
industries are in the private sector.
 Personal initiative plays a decisive
role in small scale industries.
.
 WITH help of small capital, the
small entrepreneur uses his
resources efficiently to earn
maximum profit.
 SUCH Management is not
available to public sector
enterprises.
.
 The Govt has reserved a large
number of items for production in
the small scale sector.
 This sector is granted loans at
concessional rates of interest and
marketing outlets are provided.