B.Com (Hons) students, B.A. Economics Public Sector Role, Objectives, performance, problems in india

1. Prof. Mahendra Kumar Ghadoliya

2. Public sector
 Industrial Policy resolutions 1948 and 1956 divided industries into
different categories. Some fields were left for public sector whereas
some were divided between public and private sectors and some
others were left only for private sector.
 Public sector consists of all the industrial and commercial enterprises
which are owned by the government and managed either by
government or any other authorised body on behalf of the government.
 Government funded universities, colleges, hospitals, schools are part of
public sector but are not PSEs because these organizations lack
commercial orientation.

3. Objectives of Public Sector
 To attain commanding heights of the economy
 It creates the necessary infrastructure for economic development
 To earn return on investment and generate resources for development
 To promote redistribution of income and wealth
 To generate employment opportunities
 To promote balanced regional development
 To assist the development of small-scale industries
 To earn foreign exchange for the economy

4. Role of Public sector Enterprises (PSEs)
1. Employment Generation-
 Full employment is the most cherished goal of economic policy of the
government.
 Gov. Of India and state government are making contribution to
employment generation both directly and indirectly.
 Indirect Employment generation is through public investment in Anti-
unemployment programme.
 Direct employment generation is through expansion of its
administration department and economic enterprises.
 More than 20 lakh of people are employed in Indian Railways.

5. 2. Contribution to Capital Formation
 These industries require huge capital investment and involve long-
gestation.
 Public sector contributed in collection in savings and investing them
during the planned era.
 During the first and second plans, 54% of the total investment was in
public sector and remaining in the private sector.
 The share increased to 60% in the Third Five Year Plan before declining to
45.7% in the Seventh Plan.
 After 1990 it declined sharply to less than 24% in eleventh plan and nearly
20% now.

6. 3. Development of infrastructure Infrastructure should develop at a rapid rate for the
development of underdevelopment countries.
 Irrigation, power and energy, rail road network, transport
and communication, heavy machinery and machine tools
are the back bone of a nation.
 Private sector lacks resources and motive to build
infrastructure because of long gestation period and lack of
profit.
 Public sector have resources and enabled economy to
develop strong infrastructure for future growth.

7. 4. Strong Industrial base
The share of industrial sector in GDP has been
accelerated by public sector.
In I five year plan it was 16.6 % it increased to 24% in
1970-71 and 27% in 1990-91. Then it remained
stagnant and till 2011-12 it was 27%.
Public sector units add huge revenue to government
budget through various taxes.

8. 5. Economies of Scale-
 In the case of those industries where fore technological
reasons, the plant has to be large requiring huge
investments to get economies of scale the investment can
be made by public sector.
 It stops concentration of economic power in private hands.
 Balanced Regional Development
 Balanced Regional Growth- development of backward areas
and removal of regional disparities
 Public sector industries are set up in backward areas to
promote balance regional growth.

9. 6. Import substitution and Export Promotion
The foreign exchange problem often emerges as a
serious constraint on the programme of
industrialization in developing economy.
Public sector played an important role in import
substitution after second five year plan.
Public sector also played important role in export
promotion

10. Growth and performance of Public Sector
Plan Number of PSU
First Plan 5
Second Plan 21
Third Plan 48
Fourth Plan 85
Fifth Plan 122
Sixth Plan 186
Seventh Plan 221
Eighth Plan 237
Ninth Plan 238
Tenth Plan 240
Eleventh Plan 242

11. Growth of Investment in CPSE's
As on March 31 No. of Units Total (in Crores)
Investment
1951 5 29
1961 47 950
1980 179 18,150
1990 244 99330
2001 242 274198
2007 247 421089
2008 214 763815
2009 213 793096
2010 217 908842
2014-15 298(in operation 235) 1096057
-
Source: Public Enterprises Survey 2014-15

12.  Contribution to the Government Resources- Total income of all CPSEs
during 2014-15 stood at Rs. 19, 65,254 crore compared to Rs. 20,
56,336 crore in 2013-14, showing a reduction in income of 4.43%.
 Total investment (equity plus long term loans) in all CPSEs stood at
Rs. 10,96,057 crore as on 31.3.2015 compared to Rs. 9,92,096 crore as
on 31.3.2014, recording a growth of 10.48%.
 Capital Employed (Paid up capital plus reserve & surplus and long
term loans) in all CPSEs stood at Rs. 18,67,730 crore on 31.3.2015
compared to Rs. 17, 39,090 crore as on 31.3.2014 showing a growth of
7.40 %.
 Total turnover/gross revenue from operation of all CPSEs during
2014-15 stood at Rs 19, 95,902 crore compared to Rs. 20, 66,057 crore
in the previous year showing a reduction in turnover of 3.40 %.

13. Contribution Towards Foreign Exchange Earnings- Foreign exchange
earnings through exports of goods and services decreased
from Rs 1,45,196 crore in 2013-14 to Rs 1,03,071 crore in 2014-
15, showing a reduction of 29.01%.
Profit of profit making CPSEs stood at Rs. 1, 30,363 crore during 2014-15
compared to Rs 1,49,636 crore in 2013-14 showing a decline in profit of
12.88%.
Loss of loss incurring CPSEs stood at Rs.27, 360 crore in 2014-15
compared to Rs 21, 341 crore in 2013-14 showing a increase in loss by
28.20 %
Overall net profit of all 235 CPSEs during 2014-15 stood at Rs 1,03,003
crore compared to Rs 1,28,295 crore during 2013-14 showing a decrease in
overall profit of 19.71%.
Source-The Public Enterprises Survey (2014-15) placed in parliament on 26 Feb., 2016

14. Problems of Public Sector
1. Unprofitable pricing
2. Over Staffing
3. Management gaps
4. Under Utilisation of Capacity
5. Inadequate Autonomy
6. High Losses
7. Burden of Sick Units
8. Poor project Planning and Control
9. Bureaucratic Delays
10.Pessimistic Atmosphere

15. Causes of Poor performance of Public Sector
1. Heavy Social Cost
2. Low Priced Products
3. Large Proportion of loans
4. Slow decision Making
5. Oversized Plants
6. Unutilised Capacity
7. Inefficient inventory control
8. Over Regulation and Political intervertion
9. Traditional Audit
10.Old technology
11.Unfavourable Government Policies

16. Remedial Measures for Improving the performance of the public Sector:
 Allowing Managerial Autonomy
 Performance-based Accountability through Memorandum of understanding
(MOU) System
 Manpower Rationalization
 Professionalism in Management
 Introduction of competition
 Transparency in Operations of PSEs
 Revival and Restructuring of Sick PSEs
 Allowing PSEs to Enter Capital Market
 Modernization
 Disinvestment and Privatization
 Public Sector Reforms-Liberalization, areas reserved for public sector reduced,
structural reforms, Disinvestment, sick units policy, autonomy and
accountability.

17. Policy towards Public Sector since 1991
 1. De-reservations- In industrial Policy 1956 Total 17 industries were reserved for
the public sector. The 1991 Industrial Policy the number reduced to 8.
 Arms and ammunitions
 Atomic energy
 Minerals related to atomic energy
 Coal and lignite
 Mineral Oils
 Mining of iron ore, Manganese ore, Chrome ore, Gypsum, sulphur, Gold and Diamond
 Mining of Copper, lead, zinc,
 Rail Transport
 After 2001 the number reduced to only 3 atomic energy and minerals related to it and Rail.
Now Railway has also been opened for the private sector. Thus reducing this number to
only 2

18.  Dis-investment of Shares- Government has decided to reduce its share in public
sector by selling its share to private sector.
 Navratnas, Maharatnas,and Miniratnas – incurring capital expenditure, entering
into joint ventures, effecting organisational restructuring, and raise capital from
domestic and international market. Navratans: nine major public sector
undertaking were declared as Navratans by the govt. in July 1997. Till 2009 the
Government has declared 16 Navratnas, 8 Maharatnas and 61 Miniratnas
in category –I and 15 miniratnas in category –II.
 Sick public sector enterprises will be subject to the same policy as private
 Public sector enterprises will be made more efficient through the medium of
memorandum of understanding. sector enterprises.
 Board for reconstruction of Public Sector Enterprise (BRPSE) to suggest
measures for reconstruction and revival of PSE.

19. 