The Nehruvian Era – Rise of Public Sector

Rise of Public Sector

A state-owned enterprise in India is called a public sector
undertaking (PSU) or a public sector enterprise.
These companies are owned by the union government of India, or one
of the many state governments, or both.
The company stock needs to be majority-owned by the government to
be a PSU.
PSUs may be classified as central public sector enterprises (CPSEs) or
state level public enterprises (SLPEs).
 Rise of Public Sector
CPSEs are companies in which the direct holding of the Central
Government or other CPSEs is 51% or more. They are administered by
the Ministry of Heavy Industries and Public Enterprises.
When India achieved independence in 1947, it was primarily an
agricultural country with a weak industrial base.
The national consensus was in favour of rapid industrialisation of the
economy which was seen as the key to economic development,
improving living standards and economic sovereignty.
 Rise of Public Sector
Building upon the Bombay Plan, which noted the requirement of
government intervention and regulation, the first Industrial Policy
Resolution announced in 1948 laid down broad contours of the
strategy of industrial development.
Subsequently, the Planning Commission was constituted in March 1950
and the Industrial (Development and Regulation) Act was enacted in
1951 with the objective of empowering the government to take
necessary steps to regulate industrial development.
 Rise of Public Sector
The first Prime Minister, Jawaharlal Nehru, promoted an economic
policy based on import substitution industrialisation and advocated
a mixed economy.
He believed that the establishment of basic and heavy industry was
fundamental to the development and modernisation of the Indian
economy.
India's second five year plan (1956–60) and the Industrial Policy
Resolution of 1956 emphasised the development of public sector
enterprises to meet Nehru's national industrialisation policy.
 Rise of Public Sector
The major consideration for the setting up of PSUs was to accelerate
the growth of core sectors of the economy; to serve the equipment
needs of strategically important sectors, and to generate employment
and income.
A large number of “sick units" were taken over from the private sector.
Nehru was a man in a hurry to create the structure of a Modern State
and a strong and forward looking economy.
Power, transportation, healthcare, education, science and technology,
our cultural heritage, participative rural development -- there was
hardly any sector which Nehru did not cover.
 Rise of Public Sector
Parallel to the normal governmental administration was created a
development administration to service the new Community
Development Programme.
The Civil Service was re-oriented to administer in the public interest
rather than to merely rule.
Nehru called for the building of the New Temples of a resurgent India,
including huge dams for irrigation and hydel power, large thermal and
hydro based power stations, steel plants, aluminium plants, copper and
zinc plants, transportation systems.
 Rise of Public Sector
Reinvigorated agriculture and educational institutions like
• Indian Institutes of Technology,
• Indian Institutes of Management,
• Indian School of Mines,
• massive Agriculture Universities,
• All India Institute of Medical Sciences,
and the public sector which galvanised and synergised the economy.
 Rise of Public Sector
Nehru believed that private sector did not have a scale large enough
and in any case was too mercantile to believe in long term investment
in long gestation projects.
It is only the State which could encourage capital formation and,
therefore, Nehru used the State to drive our economy.
The private sector was not discouraged but it is the State which
grabbed the initiative.
The sheer speed of the transformation of the economy leaves us
breathless even today.