The following factors were responsible for the growth of public sector in India. It has grown both in scope and depth. It now controls the “commanding heights of the economy.”
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Factors responsible for the growth of public sector in India :
1. Indian Constitution :
A developing country suffers from various economic, social, political and cultural bottlenecks. It does not merely aim at bringing about economic growth within the existing framework. Its fundamental objective is to usher in a completely new socio-economic order. In India the Directive Principles of State Policy are to serve as the guidelines while framing laws to promote welfare of the people and ensuring social, economic and political justice. T. Ramaswami has rightly observed that public enterprises are an offshoot of the philosophy enshrined in the Indian constitution.”
2. Establishment of a socialist society :
Since 1955, India resolved to establish a socialist pattern of society in India. The private sector was to play an effective role in it, no doubt. Yet basic, key and strategic industries which were of vital importance for the economic regeneration of the country, were entrusted to the public sector. Gradually, insurance, banking, finance and many other sectors which were considered vital for the promotion of socialist objectives in the country were brought under the public sector. Thus on ideological ground “the increasing participation of the state in industrial and commercial enterprises is inevitable, irresistible and compulsive.”
3. Policy of economic planning :
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After independence India adopted the planned path to economic development. Under the Five-Year Plan certain objectives were laid down. Targets were fixed. It was considered that public sector enterprises would serve as an effective tool for a better and rapid implementation of planned programmes. The public sector is more suitable to achieve the national goals and priorities than the private-sector.
4. Industrial policy resolutions :
The Industrial Policy Resolutions of 1948 and 1956 also laid the foundation of a mixed economy, where the public and private sectors were to coexist. The 1980 Industrial Policy also emphasized upon the active and dynamic role of the public sector.
5. Development of the infrastructure :
Our colonial past had hindered comprehensive development of infrastructure, so vitally essential for economic development. Development of infrastructure such as roads, railways, telecommunications, bridges, power, water supply, irrigation, etc., can be properly developed only when the state steps in. Today in many developing countries, such as Brazil, Mexico, Ethiopia, Sri Lanka, etc., a sizable section of power generation, transport and communication and irrigation systems belong to the public sector. For example, in India, Nigeria, Ghana, etc., more than 90 per cent electricity generation is done by the public sector.
6. Long gestation period :
There are certain basic and heavy industries which are highly capital intensive. Such undertakings may give rise to returns after a long period. Take the case of steel, fertilizers, chemicals, aluminium, etc. The private sector may not be in a position to wait for a long period. Besides, such industries enjoy a sort of semi-monopolistic position in the economy. Development of private monopoly in such basic industrial activity is not a very rational step. Public sector is justified in this case.
7. Risky enterprises :
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Besides, private entrepreneurs may be shy to come forward for certain activities where the elements of risk and uncertainty are too high. For instance, take the case of the exploration of oil and natural gas, generation of atomic energy, etc. Private enterprise is dominated by short-sighted calculation of cost and profit. It cannot view the social needs from an aggregative point of view. Such activities also have to be assumed by the state itself.
8. Foreign collaboration :
If an industry calls for external aid and Foreign collaboration, then also an enterprise in the public sector is in a favourable position. It can more easily assure a guaranteed return to the foreign participant. Besides, the countries of the socialist bloc prefer to render technical and financial assistance to the public enterprises.
9. Removal of regional disparities :
Public enterprises may be used as a tool for reducing regional disparities in economic development. In India certain states like Orissa, Rajasthan, Madhya Pradesh, etc., are comparatively more backward. Through central government initiative public sector projects may be sponsored in such areas. Public sector financial institutions may play a central role in promoting industrial and commercial activities in these backward regions.
10. Reduction of economic inequalities :
Extension of the public sector is also justified on the ground that it can serve as an effective means for dealing with the problem of wide economic inequalities. If profits are earned by public enterprises, such profits can be further diverted for general welfare. Such profits, again, do not lead to private enrichment. Such enterprises can create employment opportunities for the poor unemployed. They also act as model employers and improve the incomes of the employees. Thus the setting up of public enterprises is likely to have a favorable redistributive effect on income and wealth in the society.