Public sector its role, performance and reforms

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

1. Public Sector its Role, Performance and Reforms 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 I ndustrial 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 Unprofitable pricing Over Staffing Management gaps Under Utilisation of Capacity Inadequate Autonomy High Losses Burden of Sick Units Poor project Planning and Control Bureaucratic Delays Pessimistic Atmosphere

15. Causes of Poor performance of Public Sector Heavy Social Cost Low Priced Products Large Proportion of loans Slow decision Making Oversized Plants Unutilised Capacity Inefficient inventory control Over Regulation and Political intervertion Traditional Audit Old technology 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.

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