India’s Public Sector A Brief

In the Indian context, Public Sector or the PSEs primarily constitute the corporate bodies where 51 percent or more equity is held by the government, created under the special acts of legislature, or registered under the Companies Act, 1956. The Indian stake of Public Sector is huge considering the nationalized banks, financial institutions, insurance companies defense enterprises, and transport undertakings. Even the railways and airways are repositories of massive public investment.

Two hundred years of colonial rule crushed Indian Industry and exhausted resources. At the point of Independence, the leadership was convinced that political freedom without economic freedom was of little use. However, most of the private entrepreneurs did not have the vision, resources or capability or even the will to undertake heavy investments in core sector industries which have long gestation periods. Besides, given the ideological environment and shortage of supplies, it was only natural for the government not to choose a system controlled by the private enterprise.

Initially, the public sector was confined to core and strategic industries. Projects like the Damodar Valley Cooperation, Sindhri Fertilizers and Chemicals, Indian Telephone Industries, Hindustan Machine Tools, steel plants, aircrafts, shipbuilding, Bharat Heavy Electricals, Oil and Natural Gas Commission, and a host of others. The second phase saw mainly three trends, a nationalization spree, and takeover of sick units from the private sector, and entry of the public sector in new fields like, manufacturing consumer goods, consultancy, contracting, and transportation etc. Many foreign firms like Jessop & Co, Braithwaite & Co, Burn & Co etc were nationalized. Several hundred life insurance companies were absorbed into the Life Insurance Corporation. Hundreds of coal mines were transferred to the Coal Mines Authority. Then the public sector entered into fields like making medicine, weaving cloth, and running hotels. During the 1970s and 1980s the growth was phenomenal, wherein it undertook works like providing power and potable water, laying roads, constructing townships with basic amenities like schools, markets, hospitals and recreation clubs.

The public sector attracted the best talent in the country. It not only provided jobs to people in different regions, but invariably employed all the displaced people as well.

The public sector has to a large extent succeeded in meeting the objectives and laying a strong foundation for the industrial development of the country. It is widely recognized that the public sector management is based on strong systems and processes which is not usually the case with the private sector. At the height of its development, the public sector was less concerned with making profits and more with nation building activities. Also, huge investments were made in sectors which did not promise adequate return on the capital invested.

Post-1991, with declining revenues, and budgetary gaps, the government withdrew its budgetary support, and increased the pressure on them to produce profits, and thus dividends. While, their social and other gains were taken for granted, PSEs were criticized for not producing adequate profits and for entering into fields like Tourism and food supplies. This was partly the result of the global movement to private industry.

Over the years, a focused bureaucratic and inflexible approach led to the sapping of the autonomy. Somewhere down the lane, the government lost clarity in its roles of governance, as investor, regulator and business manager. The government paid little heed to the constitution of the board of directors, and hardly empowered them.

There are a large number of private sector units today, where ownership rests with government owned finance institutions. These companies are not hampered by bureaucratic control, and therefore are able to perform much better. Privatization may have served as a panacea to some of the developed countries, but a country like India has to find its own solutions bearing in mind its needs. There is a virtue in following a middle path.

Source: A Pictorial History of Indian Business (Extracted from an essay by M.A. Hakeem)

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