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Development of Public Enterprises in India

Last updated date: 23rd Apr 2024
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Public Enterprises in India

There were only a few public enterprises in India when the country gained independence. These were departmental undertakings and were related to the Post, Telegraphs, Railways, and Defense Production. With the passing time, economists and the government worked hard to increase the development of public sector enterprises in India. Learn how the country observed an evolution of the public enterprise landscape. 

Foundation of Public Sector undertakings in India

In the era of British Colonialism, there were few public sector units in India, namely, Defense Production, Railways, Post, and Telegraph. The role of Defense Production was to ensure that the nation maintained a strictly guarded border, Railways helped in the transport of resources, and Post and Telegraph were crucial for functional and strategic reasons. 

However, after independence, Jawaharlal Lal Nehru, the first Prime Minister of India laid the foundations of public enterprises in India. Josip Broz Tito and Abdel Gamal Naseer supported the Prime Minister in their decision. The total investment in 1951 in the public sector was less than half a billion Euros. In today’s time, there are about 247 enterprises with a growing investment of around 130 billion Euros. 

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The above picture describes how rapidly public enterprise businesses are expanding in the country.

The substantial contribution that government enterprises in India make to the resources of the Central Government serves as one of the major reasons for their evolution. 

What is the Importance of the Public Sector in India?

  • India is a country with a varied geographical spread, and hence public sector enterprises ensure that there is a balance in the regional investment. There are several regions where public sector enterprises in India require concessions and incentives to persuade them to operate. It ensures that multiple industries grow and flourish in various parts of the nation. 

  • Combined controls of public enterprises in India ensure proper economic functioning along with effective scales of economics. 

  • In comparison to the private sector, employees can receive a fair deal in the public sector. It employs nearly 1.9 million people as compared with the private sector employing nearly 0.9 million people. Thus, the development of public enterprises in India benefits consumers as well as employees.

  • The importance of public corporations can be seen from the fact that public enterprises account for nearly 20% of India’s GDP. It is because the sector enhances export earnings as well as import substitution by paying dividends to the government. 

Role of Public Sector Enterprises In-Country Development

The public sector initiated several jobs to tackle the problem of unemployment in the nation. It has contributed a lot towards the improvements in working conditions, as well as in the living conditions of workers. The public sector enterprises in India have taken the lead to initiate development in the strategic sectors that provide externalities to the economy. It has arranged a robust and wide base for self-reliance in the field of maintenance, technical know-how, machinery, cultured industrial plans, and more in the country. 

Public sector undertakings in India have located their different branches in the various parts of the nation. By bringing about a comprehensive change in the socio-economic life of workers, public enterprises have settled certain facilities. 

Initiatives are taken to improve the performance of the Public Sector in India

Public enterprises are crucial for the Indian economy as the rate of return on capital investment is very low. That is why the Government took various steps to enhance the overall performance of the public sector liberalization and to enhance the portfolio as well as performance, the Indian Government announced an Industrial Policy in July 1991. Liberalization, Privatization, and Globalization of the Indian economy were explicitly stressed. 

  • In July 1997, nine central public enterprises, namely BPCL, BHEL, HPCL, GAIL, SAIL, IOC, ONGC, MTNL, and NTPC, were identified as ‘Navratnas’. All these enterprises got sovereignty for capital investment, raised capital from domestic or international markets, and entered into joint ventures.

  • Further in October 1947, the Indian Government identified 45 Miniratnas as public enterprises in India and granted an allocation of financial power. 

  • Over many years, the Indian Government stressed on stimulating the loss-making enterprises. BIFR, Board for Industrial and Financial Reconstruction helps them to prepare appropriate renewal packages.

  • The Government of India created a Board for Reconstruction of Public Enterprises. It aims to offer advice on proposals of restructuring loss-making sector units along with those for closure. 

  • The expansion of the public sector in India aims to fulfill the national goals such as a reduction in income inequalities, removal of poverty, and more. It not only promotes research and development but also contributes to promoting export and foreign exchange earnings in India. 

FAQs on Development of Public Enterprises in India

Q1. What do the Public Enterprises in India provide?

A1. Public enterprises are also known as state-owned enterprises. These enterprises are under public ownership that works as self-financing commercial enterprises. Thus it provides goods and services for sale purposes. Also, many operate on a commercial basis. In the public sector, you will have both public enterprises and public services.

Q2. What does disinvestment in Public Sector Enterprises state?

A2. As the term suggests, disinvestment defines dilution. In the case of public sector enterprises, it is dilution for the stake of the Government. However, in most of the disinvestment programs, the government keeps 51 or more percent with itself for the total equity capital. It is all to make sure that management and control go hand in hand. Thus with this, the government reduces the burden on the exchequer with disinvestment.