Public Sector means the various economic, industrial and commercial activities taken up by the State i.e., Central Government, state government, union territories or local self-governments. The public sector in India has taken up projects involving highly sophisticated technology and difficult construction. It has played a very important role in the economic development of country. They are the medium through which rapid industrial development has resulted. They have helped in producing enough infrastructural facilities (production of electricity, coal, steel, petroleum etc.) so that private sector may grow. Even in the agricultural field the Green Revolution could be possible through public sector by providing power and fertilizers. They have by and large developed substantial capacities for production of coal, iron-ore, steel, petroleum products, fertilizers, heavy machines, basic drugs, electricity, power equipments and ships. They have contributed to India’s export earrings as- well-as successful efforts towards import substitution. In addition, they are a source of employment to a large number of people.
There are various reasons which have led the public sector to enter the field of industrial and commercial activities. The public utility services .like electricity, water, transport etc. could not be left in the hands of private sector, which normally exploit masses. Secondly, there are several areas where huge investments are required and their gestation period is very long, while they are basic to the industrial development. The private sector is always interested in quick profit earning projects and therefore is always reluctant to enter such areas. Steel, heavy industries, oil exploration and refining, fertilizers etc. are such examples. The State has to enter these areas. Yet, mere are certain areas where profitability is low and private sector normally may not like to enter. The production of mass consumption goods like cheap cloth, milk, bread etc. may also call upon die state to enter. Defence industries or industries which are vital to the security of the country may also require public sector to enter in the interest of security and strategic position of the country. To ensure balanced regional development of the country, development of backward areas may require entry of public sector. Thus the public sector has entered a very wide area covering all the economic activities like production, marketing, distribution, exchange etc.
The public sector, which has entered into industrial and commercial activities in a big way, has been set up and expanded in pursuance of the Industrial Policy Resolutions of 1948 and 1956. The main objectives of public sector enterprises are to build a strong and sound base for heavy industries and to create infrastructural facilities for self-reliance and self-sufficiency in modem technological development, to prevent the concentration of wealth and economic power in few hands, greater welfare of the common man and rise in his standard of living through public ownership of means of production and development. In addition, it has resulted in sustained employment (particularly through nationalization of sick mills), and industrial development of the country by establishing industrial establishments in backward areas like Nagaland. Sikkim and tribal areas of Bihar and M.P. Thus public sector is responsible for equitable economic development of various regions of the country.
The public sector has been responsible for adopting modern technology in production. It has been manufacturing fuel efficient small cars and scooters. It has also helped in shaping off foreign domination or dependence. In addition, by entering into the areas of consumer goods public sector has helped in maintaining the price level.
The public sector enterprises cover ail those undertakings which are wholly or partly owned to the extend of at least 51% of the share capital by the state. There are normally 3 forms of public sector companies in India (i) Limited Companies formed under Companies Act in which at least 51 per cent shares are held by the state (ii) Statutory Corporations set up through an Act of Parliament, for example, Food Corporation of India, Life Insurance Corporation, Industrial Finance Corporation, Unit Trust of India etc. and (iii) Holding Companies formed under Companies Act. These Companies have a hold on the already set up Companies Act as an institutional buffer between the companies and the Government, for example Steel Authority of India, National Textiles Corporation etc. In addition to these forms, there are several Departments of Public Undertaking like Ordinance Factories, Railways, Post and Telegraph, Telephones etc. These Undertakings are directly run by the government and therefore do not normally come under the purview of public sector enterprises.
The expansion of public sector has been phenomenal. From a modest start of central investment of Rs. 29 crores up to 1951, the total investment now is more than 43,000 crores in more than 210 enterprises. Though there were losses initially, but now they are showing profits. During 1985-87, the public sector as a whole earned the highest ever net profit after tax of Rs. 1199 crores. The profit making enterprises had increased their pre-tax profits during the year by 20%, but the losses or the loss making concerns widened by 49%. The nationalized sick units, however, reduced their losses from 358 crores in 1984-85 to 257 crores in 1985-86. The petroleum group of enterprises contributed to the most of the profits. In addition to the profits, these enterprises paid a tax of over 100 crores to the exchequer during 1985-86. The gross profits during the year to the capital employed, accounted for 12.3%. According to an estimate about 20% of the Gross National Product is generated by the public sector. This sector is now providing employment to about 3 million people. In addition, these public sector enterprises have helped considerably in achieving socio-economic goals.
The public sector has been facing many problems. Frequent strikes and lockouts have been responsible for low productivity. Shortage of power and other essential inputs like raw materials have also contributed for low capacity utilization. The political interference in the day-to-day working of these enterprises has also been responsible for low profitability. Government has taken steps to remove these bottlenecks which have started yielding results.
These public sector enterprises suffer from several shortcomings as well. They are finally controlled by the Departments of Government which run on non-business like principles. Since the Govt. provides capital, they are dependent on it for policy decisions and suffer from red-tapism. Any delay in decisions may cause the enterprise sufficient losses. The management has no personal interest in its efficient working. The full capacity is not utilized, which results in low profitability. The salaries paid and number of employees in these enterprises is generally high. The administered prices, also, are responsible for their losses like DTC and Delhi Milk Scheme.
Profitability alone could not be a judge of public sector enterprises. Growth with social justice is the landable objective of public sector. They have served as pace setters in the technological advancement and industrial growth of the country. They have also acted as “Instrument or social change’. By better utilization of their capacities, they may act as model enterprises in the country.