Changing Role of Public Sector

Bookmark added to your notes.
View Notes
×

Role of The Public Sector

The role of the public sector has changed a lot from where it was in the early 1990s. In 1947, due to poor economic conditions, India was unable to establish a strong industrial base and was still dependent on the agricultural sector. Soon, the government started encouraging public sector enterprises since they had the required wherewithal and financial capacity to get into heavy industries that could bring more revenue. Over the years, their roles have changed from helping in accomplishing price stabilization to competing with global countries. 


Importance of Public Sector

Industrial development took a big leap towards success with the help of several public sector enterprises in independent India. In 1991, their roles were reconsidered, and several instances of inefficiency and unproductive behaviour were noticed in the management of public sectors. There were incidents of companies facing huge losses due to incompetence and lack of organization. However, for a long time, public sectors have managed several key areas that were responsible for improving India's economic condition. 

Here's A Brief Overview of The Reasons Why Public Sectors Were Important

  • Development of Infrastructure

Due to a lack of financial support, private sectors were not able to invest a huge chunk of money in infrastructure projects. Therefore, public sectors played a big role in providing infrastructure to industries like steel plants, railways, civil aviation, etc. They also made sure that there is no shortage of money, advanced technology, or even workforce. 

  • Generation of Employment

Unemployment has been the biggest drawback in the development process, and the role of public sector in India was to fulfill the requirement of creating sufficient jobs. Workers were also benefited from government assistance both in working and living conditions. 

  • Maintaining Regional Balance

While private sectors emphasized the development of industrial areas, public sectors kept their focus on maintaining the regional balance. Small towns and all the backward areas where people were far behind the economic growth were still in poor condition. A country's economic development comes when both the rural and urban areas begin to see improvement. The role of private sector was visible in providing facilities like water supply, electricity, workforce, etc. to the backward places. Even though these played important roles in restoring the economic power which was lacking initially, with several new government policies, the changing role of public sector was visible. 


Change in Government Policy

Both the Indian economy and industries saw a significant change in government policies in 1991. However, the process started with the Industrial Resolution of 1956, where around 17 industries were under the public sector. Later, that number was reduced to 8 in 1991. Some other changes are as follows.

  • Disinvestment

Disinvestment was the process of selling equity shares of public sector enterprises to the private sector. There was a positive impact of this as the role of private sector was to bring about efficiency and better financial discipline to achieve long-term goals. The process helped the government to keep extra funds for social programs and public health and sanitation. Additionally, it also allowed consumers to get products at lower prices. 

  • Memorandum of Understanding

The government introduced this system to provide the public sector units with an opportunity to recover their performance. The criteria were to meet specific targets set by the government, and achieving them would help those industries to regain their positions.

  • Closure of Sick Units

Under this new policy, it was decided that the Board of Industrial and Financial Reconstruction would be reviewing all the public sector units and their condition. The focus was to check whether they will be able to recover from the damaged condition or to be collapsed permanently. Soon it was noticed that those units could not be restructured; hence the workers got a safety net for losing their jobs. 

With all these new policies set by the government, people begin to notice the role of private sector in Indian economy. Even though a major portion of industrial development has been achieved with the help of public sectors, private sectors are taking a big part in expanding them. With a wide range of services, common people have managed to get rid of unemployment issues. From transportation to retail industries, a prominent role of private sector can be witnessed in our economy. 

While talking about the importance of private sector in India, the agricultural industry deserves a mention that has been improved drastically. Being the most dominant sector of India, it has got a copious amount of benefits by getting advanced materials, technology, engineering, and electrical goods, etc. 

The expansion of the public sector has fulfilled the national goals such as removing regional imbalances, contributing to the public exchequer, developing small industries, etc. However, with the changing role of public sector and new policies, things have changed for the better, such as removing inefficiency and financial hazards. 

FAQ (Frequently Asked Questions)

1. Has the role of the public sector changed over the years?

The industrial policy of 1991 brought several changes, and the role of public sector was changed along with that. A group of industries was reserved for the public sector, which later got reduced. The shares were sold to private sectors, and also the government reviewed the performance of sick units. To achieve better review and improve an overall economic condition, all industries went through privatization which later helped in coping with the market competition.

2. Why are both public and private sectors important for the Indian economy?

The basic infrastructure and core industrial base have been established with the help of public sectors. On the other hand, private sectors have made sure that the main focus remains on revenue, and that does not get compromised to fulfill other requirements. 

With a wide number of Indian private banks and financial services, software companies, etc., private sectors have maintained the economic contribution as well as efficiency. Here the role of public and private sector in Indian economy comes into the picture since both of them have played their roles in bringing financial growth.

3. What was the role of public sectors before 1991?

The public sector was limited to Railways, Port Trusts, Telegraphs, and Posts, and also a few enterprises such as Government Salt Factories, Quinine Factories, etc. Later, with economic development and new trends, the role of public sectors started changing. 

From investing a decent amount of money in manufacturing industries to handling big projects, the public sector got it all covered with a heavy capital flow. Even the government was relying on them to accomplish significant goals like the development of townships and infrastructure.