This PPT is all about Public Sector unit. What IS Public Sector Unit? How it's Work? How we can Identify? and Many More

1. PUBLIC SECTOR
UNIT
Rajat Baranwal

2. Introduction:
• The public sector is that portion of society controlled by
national, state and local governments.
• Deals with production, delivery and allocation of goods and
services by and for the government or its citizens
• Indian Industrialization Strategy did not change from
independences to 1990.
• Emphasized the development of heavy industry, public
enterprise and import substitution.
• Contempt for price mechanism and a belief that competition
was harmful

3. 1948 POLICY:
• Resolution of 1948 divided the industry into four
groups:
First category: Arms and ammunition, atomic energy, railway
transport – exclusive monopoly of the central govt.
Second category: Coal, iron and steel, aircraft, ship building,
telephone, telegraphs and wireless – new undertaking only by
govt.
Third category: made up of industries of such basic importance
– central govt. plan and regulate them.
Fourth category: remaining all left open – private enterprise,
individual as well as cooperative.
1948 policy – Public sector play a dominant role in
Indian economy.

4. OBJECTIVES:
• To impetus Economic growth and boost industrialization in
country.
• To develop Infrastructure, railways, telecommunication,
nuclear power, defense etc.
• To promote redistribution of income and wealth and create
employment opportunities.
• To produce import substitutes and utilize the natural
resources of country in national interest.
• To ensure easier availability of articles of mass consumption.
• To invest in areas where private investors are not ready
because of high risk, low ROI, lack of technology, large
gestation period.

5. Role of Public Sector in Indian Economy
Capital Formation:
• Gross domestic capital has increased from 10.7% to 24.6%.
• The share of the public sector improved from 3.5% to 9.2%
• The share of the public sector, which accounted for 1/3rd
of capital
increases to about one half during sixth plan and declined to
37%.
Employment:
• In 1971 total no.of workers employed was 71 lakhs
It is increased to 196 lakhs by 1997

6. Share of public sector in GDP:
The GDP share raises in the following manner
1960-61-----8%,
1970-71-----14%,
1980-81-----20%,
1992-93-----25%.
Development of Infrastructure:
The government, took the initiative to create and expand the
infrastructure quite successfully in the following areas
mainly transportation, communication, fuel, energy,
basic heavy industries.

7. Strong Industrial base:
• The industrialisation has been boosted after independence.
• It reserved Industries like atomic energy, ammunition and armament,
aircraft etc.. for the interest in national security.
• It also took responsibility of developing certain industries like coal, iron
and steel, aircraft, ship building sector.
• In 1996 share of public sector in mining, communication, railways, and
defence was 100% of the total GDP.
• In electricity, water and gas they had 95% share and in banking and
insurance upto 83%.
Export Promotion:
• Foreign exchange earnings of the public sector increased from about Rs
35 crore in 1965-66 to 9198 crores in 1991-92.

8. Import Substitution
Removal of Regional Disparities:
• Major portion of public sector has been directed
towards backward issues.
• All the major steel plants were established in backward
states. (Bihar, orissa, MP,UP)
• And also all the units of HMT and IFFCO were
established in backward areas.

9. Raising Internal Resources:
• It consist of Depreciation and retained profit.
• In 7th
plan it generated Rs.29,750 crores and during 8th
plan it
is increased to Rs.1,31,450 crores.
Contribution to Exchequer:
• It is making substantial contribution to the national
exchequer through payment of corporate taxes, excise
duty, custom duties, and other duties.
• Public enterprises contributed during 6th
plan Rs.27,570
crores and during 8th
plan it is Rs.1,33,780 crores.

10. Reducing Inequalities in the Economy
• Profits of the public sector can be used directly by the
govt. i.e for welfare programmes.
• They can give better wages to labour and can implement
various welfare schemes.
• It can follow a discriminatory policy.
• It can orient production machinery towards the
production of mass consumption goods.
• There can be effective regulation of the income of top
executives in public enterprises.

11. Reasons for Losses in PSUs:
• Performance of public sector was not Satisfactory.
• The Nine top (Navaratnas) performing public sector
enterprises account for nearly 75% of profits of all public
Sector enterprises.
• The profitability and ROI of even the profit-making units
is quite low when compared to prevailing industry
Standards.

12. Various factors responsible for low profits
in public sector undertaking, the following are
particularly important:
1. Price policy of public sector undertaking
2. Underutilization of capacity.
3. Problems related to planning and construction of
projects.
4. Problems of labour, personnel and management.
5. Lack of autonomy.

13. PROBLEM with PSU’s:
• The biggest problem with PSUs is its management and
objective.
1.Govt. never looked on PSU as profit making body.
2.Resources are not used in a optimum manner.
3.Objective was set for establishing employment generation
because of that, it was overburdened with workers.
4.As profits was not basic objective, no research was
undertaken and no steps were taken to reduce the
manufacturing cost.
5.Since PSU’s have monopoly over the product, - - not
concentrated in sales which results in increase in cost.

14. Frequent changes in Management:
• The top level management were not sure as to how long they
will be heading a PSU.
• Despite having capability the concentrated on short term
benefits at the cost of long term sustainability, also resulting
in losses in the long term.
Selection of unsuitable sites:
• Some time for the sake of balanced regional growth,
unsuitable sites were selected which also resulted in losses.

15. Nationalization of Loss Making units:
• To keep employment alive many times Govt.
acquired loss making units but couldn’t turn them
to profit.
• After acquisition, problem of loss was not solved.
Autonomy:
• Lack of autonomy was one of the major reason for
losses in PSUs.
• As the management at PSUs did not have the
autonomy to make decisions, decisions were often
made late.

16. Policy Regarding PSU in Era of Liberalization:
In 1991 liberalization policy took many steps to
improve the condition of PSU by giving them,
More autonomy.
Referring lose making PSU’s to BIFR.
Reduction in Labour force, Privatization and
disinvestment.
Following gives you the steps taken by 1991 policy.

17. Reduction in Reserved Items:
• List of industries reserved reduced from 17 to 8 and further
four more de-reserved and reduced to 4.
• 1994, three areas in manufacturing remained reserved.
• At present, only two items are reserved, they are Railways and
Atomic energy.
Memorandum of Understanding (MOU):
• Introduced in 1988, objective is to reduce the quantity of
control and increase the quantity of accountability.
• Through MOU. More autonomy was given to PSU’s.
• More and more PSUs were brought to increase productivity
by giving autonomy and making them accountable.

18. Referring to BIFR:
• 1991, PSUs have brought under jurisdiction of BIFR.
• 1999, 240 cases of PSUs were referred, out of those 170
were registered and 29 were recommended for winding
up.
National Renewal Fund (NRF):
• Govt. has set up to tackle the situation of resentment
among workers.
• This fund is to be used for retaining and redeployment of
retrenched labour.
• Provide compensation to public sector employees seeking
voluntary retirement.

19. Privatization/ Disinvestment:
 Initiated to bring down the govt. holding in PSUs.
 Major element of public sector restructuring.
 Reducing the govt. stake in public sector.
 Involve conversion of money claims or securities into
money or cash.
 Disinvestments may or may not lead to privatization i.e.
transfer of control in private hands.
 Total realization to the government from various rounds
of disinvestments till 1998-99 was Rs.16,809 crore.

20. Strategic and non strategic classification:
• 16th
march 1999, for purpose of disinvestment.
• Strategic public sector enterprises would be those in the
areas of:
 Arms and ammunitions, defence aircrafts, warships.
 Atomic energy.
 Railway transport.
• All other Public sector enterprises were to be considered
non strategic.
• For non strategic Public sector enterprises reduction of
government stake to 26%

21. Conclusion:
• Journey starts in 1956 with the policy of having heavy
investments in PSUs.
• Hence became the backbone of Indian Economy.
• Engineered the growth of Indian infrastructure and
heavy industry.
• Provided solid base to private entrepreneurs to invest in.
• Gave the country the electricity, the roads, railway track,
canals, steel, bridges, dams etc..