What are the principal problems of the public sector ?

The principal problems of the public enterprises are discussed in detail as follows.

1. Underutilization of capacity :

In recent years both the volume and value of public sector output have rapidly increased. In spite of that, most of the public sector enterprises suffer from the general problem of underutilization of capacity. In view of the paucity of investible resources and widespread shortages prevalent in the economy, capacity utilization becomes an important criterion to judge the performance of an enterprise. But, we find that, in most of the cases, a major part of the installed capa­city of manufacturing units in the public sector remains unutilized.

Public Sector Technology -

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When the capacity utilization in the public sector steel plants is even below 70 per cent, we are importing two million tons of steel from abroad, at a price two and a half times the local rate. Coal India is not operating even 50 per cent of its 925 nationalized coalmines. In 1977-78, only 71 units utilized 75 per cent or more capacity, 27 units utilized less than 50 per cent. “What surprises most is that during the period 1969-70 to 1974-75, the capacity utilization decreased instead of rising.” “Added to this the productivity per rupee of investment and per worker is also low compared with private enterprise.”

2 Undesirable Bureaucratic Interference :

While launching the public sector as part of national economic planning, Nehru had empha­sized the need for evolving a system that would ensure adequate checks as well as enough freedom for an enterprise to function quickly and efficiently. But gradually all public enterprises have come to be treated as if they were all departmental undertakings The public sector is slowly graduating into civil service culture.

“The control of management by specialists and technocrats so necessary for the efficient and productive operation of the public sector, is being inexorably weaned out. The infiltration of the bureaucracy in the public sector in a number of developing countries has become real and extensive with the interference of red-tape, dilution of accountability, leveling down of skill, enterprise, efficiency and even genius and eventually, loss of productivity and profit­ability becoming the order of the day,”

3. Remuneration Divorced from Productivity :

At present uncalled for industrial disputes have played havoc with productivity and profit­ability of these enterprises. Sometimes even the normal functioning is paralysed. There is little social pressure to promote a moral ethic conducive to better performance. The tendency to weaken the link between higher reward and higher productivity is basically inimical to both growth and distributive justice. This tendency affects the public sector particularly badly, since a variety of forces in society tend to treat it a an instrument for subsidization of wages and salaries. “The absence of any link between productivity and reward is inconsistent with the egali­tarian system that we aim to establish,” thus concludes K.S. Krishna Swami in an article in the Economic Times.

4. Stagnation in production :


In certain vital public sector under­takings production has been more or less stagnant. For instance, in spite of colossal investment, subsequent to nationalization, the persistent stag­nation in the coal industry is evident from the foregoing table. This led to a coal crisis, the magnitude of which could be guessed from the fact that some time back 1,000 trains were cancelled. Due to coal scarcity power generation also plummetted.

5. Incurring of losses :

Public undertakings are different from the private enterprises. Profit maximization is not the primary objective of the public sector. Its principal aim is the promotion of social welfare. Still, as the public sector utilizes a vast quantity of resources, it is expect­ed that they should operate efficiently and earn profit. The fact that public enterprises should create financial surpluses or profit is an established desideratum. It is an important performance criterion. In 1978  out of 153 enterprises as many as 142 were “running concerns” and only 11 were in various stages of gestation.

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