Though Public sector is very essential for industries, many public sector undertakings incur huge losses. Define public sector and explain it's role in industrial development.
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Central public sector enterprises (henceforth, referred to as PSEs) have been
established, managed, and controlled by the Government of India as government
companies (under the Companies Act or statutory corporations under the specifi c
statues of Parliament). In these enterprises, the Central Government holding in paid
up share capital is more than 50 %. The government has used these public enter-
prises as an instrument for attaining self-reliant economic growth, and over the
years they have played an eminent role in the sustainable growth of Indian
economy.
The importance of public sector in the Indian economy has been recognized
since 1948. The public sector in India, since then, has experienced a phenomenal
growth both in terms of number and volume of investment. The government has
made sustained efforts to break the vicious circle of poverty and underdevelopment
by setting up public sector enterprises or by nationalizing certain key industries.
PSEs have been the mainstay of the Indian economy and were
set up with the mandate to:
1. Serve the broad macroeconomic objectives of higher economic growth.
2. Achieve self-suffi ciency in the production of goods/services.
3. Facilitate long-term equilibrium in the balance of payments.
4. Ensure stability in prices and create benchmarks for prices of essential items.
5. Promote redistribution of income/wealth and balanced regional development.
6. Create employment opportunities.
Historically, PSEs assume signifi cant importance to India’s economy, in both
pre- and post-independence period. In the pre-independence era, the PSEs were
confi ned primarily to select sectors including railways, posts and telegraphs, port
trust, ordnance factories, etc. Post-independence era was characterized by an agrar-
ian economy with a weak industrial base, regional imbalance in economic develop-
ment, low level of savings, inadequate infrastructure facilities, and considerable
inequality in income and levels of employment; thus, the development of public
sector enterprises was identifi ed as a key driver for self-reliant economic growth in
the absence of signifi cant private capital. Consequently, the Industrial Policy
Resolutions 1948 and 1956 laid emphasis on constituting public enterprises by the
Central Government for industrial development in the core sectors.
As a result of the initiatives taken during the fi ve-year plans, the role of PSEs in
terms of contribution to the Indian economy has increased manifold. The number of
PSEs as of 31 March 2009 was 246, with a total capital employed of nearly
Rs. 5.3 lakh crore, 1
raised to 260 on 31 March 2012, with a total capital employed
13.43 lakh crore as against 5 PSEs having a total investment of Rs. 29 crore on the
eve of the First Five-Year Plan (April 1951).
With the onset of economic reforms in 1991, the Government initiated a
systemic shift to a more open economy with greater reliance on market forces
and a larger role of the private sector including foreign investment. Accordingly,
the PSEs were exposed to competition from domestic private sector companies
as well as large multinational corporations. Given the competitive environment,
the PSEs undertook signifi cant initiatives for upscaling technologies and capaci-
ties in order to operate at par with the private counterparts in the liberalized
economy. The continued focused efforts towards achieving excellence have
helped several of the PSEs to become self-reliant and to play a critical role in
building the Indian economy.
It may not be out of context to mention that many of today’s success stories in the
developing world began life as state-owned enterprises (SOEs). In France, for
instance, Renault, Alcatel, EdF, Thomson, and Elf were SOEs for a long time, as
were Rolls-Royce and British Aerospace in the UK. In the Indian context also, con-
sequent to the initiatives taken during the fi ve-year plans, the role of central PSEs in
terms of contribution to the Indian economy has increased manifold.
established, managed, and controlled by the Government of India as government
companies (under the Companies Act or statutory corporations under the specifi c
statues of Parliament). In these enterprises, the Central Government holding in paid
up share capital is more than 50 %. The government has used these public enter-
prises as an instrument for attaining self-reliant economic growth, and over the
years they have played an eminent role in the sustainable growth of Indian
economy.
The importance of public sector in the Indian economy has been recognized
since 1948. The public sector in India, since then, has experienced a phenomenal
growth both in terms of number and volume of investment. The government has
made sustained efforts to break the vicious circle of poverty and underdevelopment
by setting up public sector enterprises or by nationalizing certain key industries.
PSEs have been the mainstay of the Indian economy and were
set up with the mandate to:
1. Serve the broad macroeconomic objectives of higher economic growth.
2. Achieve self-suffi ciency in the production of goods/services.
3. Facilitate long-term equilibrium in the balance of payments.
4. Ensure stability in prices and create benchmarks for prices of essential items.
5. Promote redistribution of income/wealth and balanced regional development.
6. Create employment opportunities.
Historically, PSEs assume signifi cant importance to India’s economy, in both
pre- and post-independence period. In the pre-independence era, the PSEs were
confi ned primarily to select sectors including railways, posts and telegraphs, port
trust, ordnance factories, etc. Post-independence era was characterized by an agrar-
ian economy with a weak industrial base, regional imbalance in economic develop-
ment, low level of savings, inadequate infrastructure facilities, and considerable
inequality in income and levels of employment; thus, the development of public
sector enterprises was identifi ed as a key driver for self-reliant economic growth in
the absence of signifi cant private capital. Consequently, the Industrial Policy
Resolutions 1948 and 1956 laid emphasis on constituting public enterprises by the
Central Government for industrial development in the core sectors.
As a result of the initiatives taken during the fi ve-year plans, the role of PSEs in
terms of contribution to the Indian economy has increased manifold. The number of
PSEs as of 31 March 2009 was 246, with a total capital employed of nearly
Rs. 5.3 lakh crore, 1
raised to 260 on 31 March 2012, with a total capital employed
13.43 lakh crore as against 5 PSEs having a total investment of Rs. 29 crore on the
eve of the First Five-Year Plan (April 1951).
With the onset of economic reforms in 1991, the Government initiated a
systemic shift to a more open economy with greater reliance on market forces
and a larger role of the private sector including foreign investment. Accordingly,
the PSEs were exposed to competition from domestic private sector companies
as well as large multinational corporations. Given the competitive environment,
the PSEs undertook signifi cant initiatives for upscaling technologies and capaci-
ties in order to operate at par with the private counterparts in the liberalized
economy. The continued focused efforts towards achieving excellence have
helped several of the PSEs to become self-reliant and to play a critical role in
building the Indian economy.
It may not be out of context to mention that many of today’s success stories in the
developing world began life as state-owned enterprises (SOEs). In France, for
instance, Renault, Alcatel, EdF, Thomson, and Elf were SOEs for a long time, as
were Rolls-Royce and British Aerospace in the UK. In the Indian context also, con-
sequent to the initiatives taken during the fi ve-year plans, the role of central PSEs in
terms of contribution to the Indian economy has increased manifold.
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