At the time of Independence, it was
expected that the public sector
enterprises would play an important
role in achieving certain objectives of
the economy either by direct
participation in business or by acting
as a catalyst. The public sector would
build up infrastructure for other sectors
of the economy and invest in key areas.
The private sector was unwilling to
invest in projects which required heavy
investment and had long gestation
periods. The government then took it
upon itself to develop infrastructural
facilities and provide for goods and
services essential for the economy.
(i) Development of infrastructure:
The development of infrastructure is a
prerequisite for industrialisation in any
country. In the pre-Independence
period, basic infrastructure was not
developed and therefore, industrialisation
progressed at a very slow pace. The
process of industrialisation cannot
be sustained without adequate
transportation and communication
facilities, fuel and energy, and basic and
heavy industries. The private sector did
not show any initiative to invest in heavy
industries or develop it in any manner.
They did not have trained personnel or
finances to immediately establish heavy
industries which was the requirement
of the economy
(ii) Regional balance: The government
is responsible for developing all regions
and states in a balanced way and
removing regional disparties. Most of
the industrial progress was limited to
a few areas like the port towns in the
pre-Independence period. After 1951,
the government laid down in its Five
Year Plans, that particular attention
would be paid to those regions which
were lagging behind and public sector
industries were deliberately set up.
Four major steel plants were set up in
the backward areas to accelerate
economic development, provide
employment to the workforce and
develop ancillary industries. This was
achieved to some extent but there is
scope for a lot more. Development of
backward regions so as to ensure a
regional balance in the country is one
of the major objectives of planned
development. Therefore, the government
had to locate new enterprises in
backward areas and at the same time
prevent the mushrooming growth of
private sector units in already
advanced areas.
(iii) Economies of scale: Where large
scale industries are required to be set
up with huge capital outlay, the public sector had to step in to take advantage
of economies of scale. Electric power
plants, natural gas, petroleum and
telephone industries are some
examples of the public sector setting
up large scale units. These units
required a larger base to function
economically which was only possible
with government resources and mass
scale production.
(iv) Check over concentration of
economic power: The public sector
acts as a check over the private sector.
In the private sector there are very few
industrial houses which would be
willing to invest in heavy industries
with the result that wealth gets
concentrated in a few hands and
monopolistic practices are encouraged.
This gives rise to inequalities in income,
which is detrimental to society.
The public sector is able to set large
industries which requires heavy
investment and thus the income and
benefits that accrue are shared by a
large of number of employees and
workers. This prevents concentration
of wealth and economic power in the
private sector.
(v) Import substitution: During the
second and third Five Year Plan period,
India was aiming to be self-reliant in
many spheres. Obtaining foreign
exchange was also a problem and it
was difficult to import heavy machinery
required for a strong industrial base.
At that time, public sector companies
involved in heavy engineering which
would help in import substitution were
established. Simultaneously, several public sector companies like STC and
MMTC have played an important role
in expanding exports of the country.
(vi) Government policy towards the
public sector since 1991: The
Government of India had introduced
four major reforms in the public sector
in its new industrial policy in 1991. The
main elements of the Government policy
are as follows:
ï Restructure and revive potentially
viable PSUs
ï Close down PSUs, which cannot
be revived
ï Bring down governments equity in
all non-strategic PSUs to 26 per
cent or lower, if necessary; and
ï Fully protect the interest of
workers.