When India gained independence in 1947, the public sector was established to play a key role in economic development due to the poor economic conditions and lack of private sector enterprises. The early five-year plans focused on developing core sectors through public enterprises. However, in the 1990s, economic liberalization led to a reevaluation of the public sector role and increased privatization and competition with private enterprises. While public sector enterprises helped develop infrastructure and promote regional growth in the early years, issues later emerged like lack of competition, inefficient management, and overcapitalization of projects, leading to reforms to improve efficiency of the public sector.

1. Introduction
• When India gained independence in 1947, the economic condition of the country
was very poor.
• There were hardly any public sector enterprises other than the Railways and the
Postal Services.
• It was determined that going forward public sector would play a big hand in our
economic development.
• The 1948 Resolution envisaged development of core sectors through the public
enterprises
• And then again in the 1990’s the trend changed again. So let us take a more detailed
look at the changing role of public sector.
• The first few Five Year Plans were all designed to promote and safeguard the public
sector.
• But then came the era of privatization and globalization in 1991.
• The role of public sector companies was reevaluated. Now the public sector was to
actively participate in a competitive market with the private enterprises
• In India, a government-owned corporation is termed as a public sector undertaking
(PSU).
• This term is used to refer to the companies in which the government (either the
federal, Union Government or the many state or territorial governments, or both)
own a majority (51 percent or more) of the company equity.

2. The Public sector can be classified into:-
Departmental
Undertaking
• The production unit which are owned and run by the department and
the ministry of Government. E.g. Railways, Posts, Doordarshan, etc.)
Non-
Departmental
Undertaking
• The production unit which are functionally independent but are funded
by the Government. E.g. Air India, Indian Air Lines, IOCL
Financial
Institution
• Financial institutions hold a broad range of business operations within
the financial services sector. E.g. SBI, UTI, LIC

3. Objectives
of Setting
up Public
Sector Unit
(PSU)
To create an
industrial base in
the country
To generate a
better quality of
employment
To develop basic
infrastructure in
the country
To provide
resources to the
government
To reduce
inequalities and
accelerate the
economic growth
and development
of a country

4. Why the
PSEs (Public
Sector
Enterprises)
Public
enterprise
help in rapid
economic
growth
It creates the
necessary
infrastructure
for economic
development
To generate
employment
opportunities
.
To assist
the develop
ment of
small-scale
industries
To earn
foreign
exchange for
the economy.

5. Importance of the Public Sector
Developing Infrastructure:
In a newly independent
country, with a nascent
economy, it is not suitable for
private enterprises to invest
huge capitals into
infrastructure projects. So
this responsibility falls to the
public sector. And the
development of infrastructure
is absolutely essential for the
development o an economy.
For example, all the rail, road,
and air transport projects were
carried out by public sector
undertakings in the post-
independence era.
Regional Balance:
Private sector companies tend
to focus on industrial areas.
This results in the backward
areas and the smaller towns
and villages to be excluded
from economic growth. But
the government can ensure
that growth happens
throughout the country in a
balanced manner. Public
sectors set up units and
factories in backward areas
bring employment
opportunities and economic
development to such areas
Check on the Concentration
of Economic Power:
When the private sector
sometimes the wealth gets
concentrated in the hands of a
few. This may lead to
monopolistic tendencies and
concentration of economic
power. The public sector
helps keep this in check. The
income generated by a public
enterprise is shared by a large
number of employees and
also the public at large. this
helps restore some
economic equality.

6. Need for Public Sector Reforms
• Lack of competition: In Public Sector Enterprises, the level of profit is low as
compared to the private sector, this was due to lack of competition and over
protection to PSEs.
• Long gestation period: For the completion of any project, the Public Sector
Enterprises normally takes much more time than expected.
• Over capitalization: In many cases, the actual cost of the planned project
exceeds the original cost due to mismanagement and Bureaucratic hurdles.
• Inefficient management: Lack of management and planning in Public Sector
Enterprises has created many issues and challenges for Public Sector
Enterprises.
• Lack of efficient and trained staff: Lack of skilled manpower in the Public
Sector Enterprises is also one the important issue due the which the production
and efficiency have decreased
• Employment Opportunities: Too provide the employments to the people