Since 1948, when for the first time the importance of the public sector in the Indian economy was recognized, the public sector has experienced a phenomenal growth both in terms of number and volume of investment. The Government has made sustained efforts to break the vicious circle of poverty and undevelopment by setting up public sector enterprises or by nationalizing certain key industries. The most recent instances are the nationalization of the bigger commercial banks and that of coal mines.
Role of Public Sector enterprises in India
We may enumerate below the various arguments put forth in support of the public sector in India.
1. Maximizing the rate of economic growth :
Originally, the activity of the public sector enterprises was to be limited to a definite field of basic and key industries of strategic importance. There were certain fields where the private enterprise was shy to operate as they involved huge investment or risk. It was the public sector alone which could build the economic overheads such as power, transport, etc. Since then the ideological objective of capturing the “commanding heights” by the public-vector bas been duly fulfilled, it succeeded in creating the necessary infrastructural base for sustained industrial growth. It has tremendously boosted the technological capabilities.
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The public enterprises have firmly established the foundation for the construction of a self-generating, industrial economy. During the planned era, the public sector has-diversified its activities to cover a wide spectrum of industries. The public sector today has entered into the production of consumer goods such as bread, paper, watches, scooters, T.V. and transistor parts, cement, drugs,, etc. Prof. Lakdawala is of the view that the public sector should now enter the fields of distribution and rural development as well.
2. Development of capital-intensive sector :
Industrial development of a country necessitates the foundation of an infrastructure! base. This foundation is provided by the development of capital-intensive industries and the basic infrastructure. The private sector neither has the zeal nor the capacity to invest in such infrastructural programmes. From this point of view, the public sector has a magnificent record. The State has successfully implemented various schemes of multi-purpose river projects,, hydroelectric projects, transport and communication, atomic power,, steel, etc. It has vastly contributed in the fields such as nuclear or steel technology, aeronautics, defense materials, ship-building and so on. It has laid down a good network of transport and communications.
3. Development of agriculture :
The public sector has an important role in the field of agriculture as well. The public sector assists in the manufacture of fertilizers, pesticides, insecticides and mechanical implements used in agriculture. Through the various research institutes the public sector has augmented agricultural productivity by introducing new high-yielding variety of seeds, preventing crop diseases and innovating new agricultural practices.
4. Balanced regional development :
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In the pre-independence period a major problem was regional economic disparities. There were certain areas where there was a heavy concentration of industrial activity. On the other hand, there were certain backward areas which went without industries. Industrial development was highly lopsided. Thus Maharashtra, West Bengal, Gujarat and Tamil Nadu, etc., were highly developed industrially. States like Orissa, Assam, Bihar, Madhya Pradesh etc. were highly backward. Besides, industries used to be gravitated towards the metropolitan areas, rather than the smaller towns. But imbalanced economic development is as bad as underdevelopment.
Through the extension of public sector enterprises the Government desired to remove such regional imbalances. The State, consequently, participated in the industrial growth of the less developed areas by setting up public enterprises. Normally the private sector cannot be induced to start industries in the backward areas. White locating new public enterprises the claims of the relatively backward areas are given due consideration. The policy of dispersal of Industries aims at removing regional disparities. A conscious attempt has been made-in the successive five-year plans to accelerate the development of relatively backward areas.
5. Development of ancillary industries :
Establishment of a few big public enterprises is not enough to unleash forces of industrial development in an area. There are states like Bihar where in spite of lavish public sector investment, industrial development has not been satisfactory. On the other hand. States like Punjab have made a vast progress because of the development of small and ancillary units. This realization made the public sector take a close interest in the development of small and ancillary units. It is expected that the development of ancillaries would have the way for rapid industrial growth of a region and lead to balanced economic development. The number of such ancillary units was 432 in 1974-75 and the number rose to 888 in 1979-80 with purchases from them increasing from Rs. 29 crores to Rs. 120 crores. It is expected that in future, ancillary development would receive more attention from the Government.
6. Increasing employment opportunities :
The growth of the public sector has led to the expression of gainful employment opportunities. In addition to the primary effect of the public sector in creating employment opportunities, public sector investments also have a multiplier effect on other sectors of the economy. This has a beneficial effect on the total employment position. In 1963-61, the number of people employed in public enterprises was only 1.82 lakhs. This figure rose to 14.08 lakhs in 1974 75 involving an increase of 671 per cent. Similarly the total amount of salaries and wages increased from Rs. 40’91 crores to Rs. 1,053 35 crores, involving an increase of 2,474.8 per cent, during the same period, In 1986-87 the number of working population in these industries stood at 22 lakhs.
7. Model employer :
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Dr. R.K. Gupta has observed that in India “the State has inaugurated the era of the model employer in contrast to the employer with a feudal outlook. It has laid down guidelines for employer-employee relations and for developing good and efficient personnel.” The public sector has been the pacesetter in the field of labour welfare and social security. The State aims at establishing an industrial democracy which will provide a fair deal to the workers. The public enterprises have been investing liberally on matters pertaining to labour welfare and social security. Not only the wages have been substantially increased, conditions of service have vastly improved. For instance, wages in the coal industry have nearly trebled since nationalization and many other amenities also are being provided.
8. Preventing concentration of economic power :
Preventing private monopolies and concentration of economic power is the avowed objective of our economic policy. Nationalization is considered as an antidote for the concentration of economic power in private hands. In India the public sector enterprises have grown both in number and in strength. Today, the public sector not only occupies the commanding heights in the economy, it has also penetrated into the production of essential consumer goods. The share of the public sector in the overall industrial production, has substantially gone up. This has effectively curbed the concentration of economic power. It has created a countervailing force against the growth of larger industrial houses.
9. Export promotion :
The public sector enterprises are substantially contributing to the country’s export earnings. The public sector has-built up a reputation abroad in selling plants, heavy equipment’s, machine-tools and other industrial products. She has created a goodwill in the third world countries-for her consultancy services and technical know-how. Public sector exports also include consumer goods. The role of the State Trading Corporation, or the Minerals and Metals Trading Corporation has been quite creditable in promoting exports. Between 1968-69′ and 1984-85, the percentage share of public sector enterprises in India’s export trade went up from 20.05 to 38.1 per cent. Public sector exports increased from Rs. 272 crores in 1968-69 to Rs. 4,522 crores in 1984-85. In 1976-77 the public enterprises earned Rs. 2,248 crores in foreign exchange. The public enterprises thus bad a splendid performance.
10. Import substitution :
The public sector enterprises have also-succeeded in their efforts in import substitution. Today many commodities starting from basic drugs to highly advanced equipments are manufactured in the public sector, which previously used to be imported from abroad. In certain fields public enterprises were specially started to reduce imports from abroad, and achieve self-sufficiency. Public enterprises like Hindustan Antibiotics Ltd. or Bharat Electronics Ltd. or Hindustan Machine Tools etc., have done a remarkable job in import substitution. This has resulted in saving of precious foreign exchange. Today there is a special drive in the public enterprises to utilize indigenous materials and domestic skill.
11. Production and sales :
While taking up the production of any goods or services, the private entrepreneur is guided solely by the profit motive. To maximize profit, he even does not hesitate to exploit the consumers. Very often maximization of profit is achieved at the cost of public welfare. It is only the public sector which can produce according to special needs. Sometimes it may even sell at a price lower than its cost. The total turnover of the State-owned manufacturing enterprises and service enterprises amounted to Rs. 2,650 crores in 1969-70; Total turnover of these enterprises increased to Rs. 3644.3 crore in 1981-82. This indicates that the contribution of the public sector to the flow of goods and services in the economy was quite considerable.
12. Mobilization of resources :
The public sector undertakings have played an important role in financing the planned development of the country. They have significantly contributed to the Central Exchequer in the form of interest and various taxes, etc. Besides public enterprises show an increasing trend in the generation of internal resources. From a mere Rs. 194 crores in 1969-70 it increased to Rs. 5,068 crores in 1986-87. In the total capital formation of the country more than 50 percent is contributed by the public sector.
13. Research and development :
Today no country can industrially prosper without research and development. Such research is highly essential for the introduction of new goods and new technologies of production, lowering the cost of production and improving the quality of the product. In this respect the public sector is playing a crucial role. A lot of research activities are being carried on in the laboratories of the public sector undertakings. In 1576-77, the total expenditure on research and development amounted to Rs. 32.79 crores.
14. Establishment of a socialist pattern :
In India the public sector was desired to be extended rapidly so as to establish a socialist pattern of economy. There was abject misery and poverty all round prior to the adoption of planning. Through our planned effort we not only wanted rapid economic growth but also social justice. The public enterprises aim at achieving equality of opportunity and reduction of economic inequalities.