12/4/2019 Public Sectors in Indian Economy: Objectives, Importance, Performance and Problems

Public Sectors in Indian Economy: Objectives, Importance,

Performance and Problems
In India, a public sector company is that company in which the Union Government or State
Government or any Territorial Government owns a share of 51 % or more. Currently there
are just three sectors left reserved only for the government i.e. Railways, Atomic energy
and explosive material.
HEMANT SINGH
NOV 25, 2015 11:58 IST

In India, a public sector company is that company in which the Union Government or
State Government or any Territorial Government owns a share of 51 % or more.
Currently there are just three sectors left reserved only for the government i.e.
Railways, Atomic energy and explosive material. Private sectors/players are not allowed
to operate in these sectors.

Before the independence of India, there were only a few public sector companies in the
country this includes, Indian Railways, the Port Trusts, the Posts and Telegraphs, All
India Radio and the Ordinance Factory are some of the major examples of the country’s
public sector enterprises. However, post Indian independence, some policies for the
development of the socio-economic status of the country were planned out by the then
visionary leaders, where the public sector were used as a tool for the self-reliant growth
of the nation’s economy.

This was the reason that the second five year plan of India was solely based on the
development of the different industries. Till 1990s major sectors of the economy were
reserved only for the government, this caused the great loss of our precious natural
resources and the whole country trapped into the great economic problem. From the
very first five year plan till 1980s our country grows with the average rate of 3.5% per
year (which is called Hindu rate of growth by Prof. Rajkrishna).

But later on the in 1991, july our new economic policy was launched under the
leadership of Mr. Manmohan Singh and P.V. Narsimha Rao.

The main objectives of this new economic policy were:

1. To maintain a sustained growth in productivity

2. To enhance gainful employment

3. To achieve optimum utilization of human resources

https://www.jagranjosh.com/general-knowledge/public-sectors-in-indian-economy-objectives-importance-performance-and-problems-1448432925-1 1/4
12/4/2019 Public Sectors in Indian Economy: Objectives, Importance, Performance and Problems

4. To transform India into a major partner and player in the global arena.

5. To take out Indian economy from the vicious circle of poverty.

6. Open the Indian economy to interact openly with the rest of the world.

The main result of this new policy was that reserved sectors were opened for the private
players. Public sectors were not able to operate at its optimum pace.

Objectives: The public sector aims at achieving the following objectives:

To promote rapid economic development through creation and expansion of

infrastructure

• To generate financial resources for development

• To promote redistribution of income and wealth

• To create employment opportunities

• To promote balanced regional growth

• To encourage the development of small-scale and ancillary industries, and

• To accelerate export promotion and import substitution

Role of public sectors in the development of the country is explained below:

• Public Sector and Capital Formation: The role of public sector in collecting saving
and investing them during the planning ear has been very important. During the first
and second five year plan it was 54% of the total investment, which declined to 24.6 %
in the 2010-11.

• Employment Generation: Public sector has created millions of jobs to tackle the
unemployment problem in the country. The number of persons employed in the as on
march 2011 was 150 lakh. Public sector has also contributed a lot towards the
improvement of working and living conditions of workers by serving as a model
employer.

• Balanced Regional Development: Public sector undertakings have located their

plants in backward parts of the county. These areas lacked basic industrial and civic
facilities like electricity, water supply, township and manpower. Public enterprises have
developed these facilities thereby bringing about complete transformation in the socio-
economic life of the people in these regions. Steel plants of Bhilai, Rourkela and
Durgapur; fertilizer factory at Sindri, are few examples of the development of backward
regions by the public sector.

• Contribution to Public Exchequer: Apart from generation of internal resources and

payment of dividend, public enterprises have been making substantial contribution to
the Government exchequer through payment of corporate taxes, excise duty, custom
duty etc. gross internal resource generation in 1990- 2000 was 36000 cr which rose to
1, 11,000 cr in 2008-09, while net profit was 92,077 cr in 2010-11.

• Export Promotion and Foreign Exchange Earnings: Some public enterprises have
done much to promote India’s export. The State Trading Corporation (STC), the Minerals
https://www.jagranjosh.com/general-knowledge/public-sectors-in-indian-economy-objectives-importance-performance-and-problems-1448432925-1 2/4
12/4/2019 Public Sectors in Indian Economy: Objectives, Importance, Performance and Problems

and Metals Trading Corporation (MMTC), Hindustan Steel Ltd., the Bharat Electronics
Ltd., the Hindustan Machine Tools, etc., have done very well in export promotion.

• Import Substitution: Some public sector enterprises were started specifically to

produce goods which were formerly imported and thus to save foreign exchange. The
Hindustan Antibiotics Ltd., the Indian Drugs and Pharmaceuticals Ltd. (IDPL), the Oil and
Natural Gas Commission (ONGC), the Indian Oil Corporation Ltd., the Bharat Electronics
Ltd., etc., have saved foreign exchange by way of import substitution.

• Promotion of Research and Development: As most of the public enterprises are

engaged in high technology and heavy industries, they have undertaken research and
development programmes in a big way. Public sector has laid strong and wide base for
self-reliance in the field of technical know-how, maintenance and operation of
sophisticated industrial plants, machinery and equipment in the country. Expenditure on
research and development reduces the cost of production.

Performance of Central Public Sector Undertakings

There were altogether 248 CPSEs under the administrative control of various
ministries/departments as on 31 March 2011. Out of these, 220 were in operation and
28 were under construction. The share of cumulative investment (paid-up capital plus
long-term loans) in all the CPSEs stood at Rs. 6,66,848 crore as on 31 March 2011
,showing an increase of 14.8 per cent over 2009-10. The share of manufacturing in
gross block, during 2010-11, was 27.8 per cent. The share of mining, electricity, and
services in total investment, in terms of gross block, was 23.0 per cent, 25.2 per cent,
and 23.2 per cent respectively. The net profit of (158) profit-making CPSEs stood at Rs.
1,13,770 crore in 2010-11. The net loss of (62) loss-making enterprises, on the other
hand, stood at Rs. 21,693 crore during the same period. The year also witnessed severe
financial 'under-recoveries' by public-sector oil marketing companies (OMCs) as they had
to keep the prices of petroleum products low in the domestic market despite high input
prices of crude oil.

Problems of Public Sectors:

• Poor policy making and its execution

• Over staffing

• Wastage of resources or under utilization of resources

• Higher operating cost

• Lack of motivation for self improvement

• Lack of proper price policy

List of Navratna companies in India:

https://www.jagranjosh.com/general-knowledge/public-sectors-in-indian-economy-objectives-importance-performance-and-problems-1448432925-1 3/4
12/4/2019 Public Sectors in Indian Economy: Objectives, Importance, Performance and Problems

Conclusion:

The expansion of the public sector was aimed at the fulfillment of our national goals,
that is., the removal of poverty, the attainment of self-reliance, reduction in inequalities
of income, expansion of employment opportunities, removal of regional imbalances,
acceleration of the pace of agricultural and industrial development, to reduce
concentration of ownership and prevent growth of monopolistic tendencies by acting as
effective countervailing power to the private sector, to make the country self-reliant in
modern technology and create professional, technological and managerial cadres so as
to ultimately rid the country from dependence on foreign aid. But these motives could
not be achieved up to the desired extent. That is why government is on the spree of
privatization of these enterprises.

https://www.jagranjosh.com/general-knowledge/public-sectors-in-indian-economy-objectives-importance-performance-and-problems-1448432925-1 4/4