Why was public sector given a leading role in industrial development during the planning period?

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Solution

At the time of independence, Indian economic conditions were very poor and weak. There was neither private capital nor did India have foreign investment credibility so as to attract foreign investment. Moreover, Indian planners did not want to be dependent on foreign capital for economic development. In such a situation, it seemed most rational that the public sector takes an active role.

Following are the reasons that explain the driving role of the public sector in industrial development:

(i) Lack of Capital with the Private Entrepreneurs: At the time of independence, the requirement of capital for diversified industrial growth far exceeded its availability with private entrepreneurs. Accordingly, it became essential for the state to foster industrial growth through public sector undertakings.

(ii) Lack of Incentive among the Private Entrepreneurs: The private investors lacked the incentive to invest in large industries. Because of this reason, the public sector was forced to invest for the development of these industries.

(iii) Socialistic Pattern of Society: The government realised that a socialist society could be achieved only through direct participation of the state in the process of industrialisation because it requires investment that generates employment rather than investment that only maximises profit.

Concentration of wealth was to be discouraged and public investment was considered as the best means to achieve it.

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Q. 77. The Planning Commission was established in 1950 through a Government resolution to formulate long-term development Plans and to recommend them to the Union Cabinet. In framing its recommendations, the Commission has to act in close understanding and consultation with the ministries of the Central government and the governments of the States. The responsibility for policy decisions and implementation rests with the Central and State governments. Many have regarded and some still regard, that the Indian Plans are modelled on Soviet-type "command" planning. This is true only to the extent that there was considerable emphasis, particularly in the Second and Third Plans, on creation of a heavy industrial base under the auspices of the State. Under the aggressive intellectual leadership of Prof. P.C. Mahalanobis and a few other technical experts of the Commission, this objective was given a pride of place in development planning. Subsequently, as a result of severe difficulties, higher priority was accorded to agriculture. The Industrial policy resolutions of 1948 and 1956 provided the basic framework of industrial development and regulation. The Industrial policy Resolution of 1948 envisaged careful planning and integrated effort and that a progressively increased role will be assumed by the Central and State governments in the process of economic growth and in industrial development in particular, by the public sector within a mixed economy. It demarcated industries between the public and private sectors, providing for exclusive monopoly of the basic and infrastructural industries to the former. The Industrial policy Resolution of 1956 gave priority to development of heavy industries and machine-making industries, expansion of public sector, besides promoting the co-operative sector.
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2. Planning for development became the important agenda.

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What was the role of the public sector industries before 1991?

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