Relevance of public sector enterprise

The Five Year Plan and other official documents also use the term “Public Sector” in the wider sense to cover all governmental activities, including public industrial and commercial enterprises. The theory that if the government is kept out of the business, it would automatically provide the community with all it desired, without any plan or conscious planning opened the door to the devil has long ago been exploded . Government intervention in the economic system for social and economic reasons is now clearly accepted and has come to stay.

Governments all over the world, particularly in developing countries, have gone far beyond the indicative planning to price, wage, and numerous other controls and to state entrepreneurship. Radical transformation from a purely agrarian economy to en of the important industrialized nations of the world, and demolishing of a regimented structured society to one based on social justice, would not have been possible without the emphasis which has been laid on the growth and development of Pu bill Enterprises.

Public enterprises were created in most countries to accelerate economic and social development.

Yet, increasing evidence indicates that most public enterprises either do not contribute strongly to development or perform their public service functions ineffectively or inefficiently. Policy makers engage in intuition debates over whether or not state-owned corporations contribute to economic and social development, why so many have failed to deliver effectively the services for which they were created, and how their management can be improved. As state earlier, the business units owned, managed and controlled by the central, state or local government are termed as public sector enterprises or public enterprises.

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These are also known as public sector undertakings. A public sector enterprise may be defined as any commercial or industrial undertaking owned and managed by the government with a view to maximize social welfare and uphold the public interest. Public enterprises consist of nationalized private sector enterprises, such as, banks, Life Insurance Corporation of India and the new enterprises set up by the government such as Hindustan Machine Tools (HIM), Gas Authority of India (GAIL), State Trading Corporation (SST) etc.

Government Ownership and Management: The public enterprises are owned and managed by the central or state government, or by the local authority. The government may either wholly own the public enterprises or the ownership may partly be with the government and partly with the private industrialists and the public. Financed from Government Funds: The public enterprises get their capital from Government Funds and the government has to make provision for their capital in its budget. Public Welfare: Public enterprises are not guided by profit motive.

Their major focus is on providing the service or commodity at reasonable prices. Public Utility Services: Public sector enterprises concentrate on providing public utility services like transport, electricity, telecommunication etc. Public Accountability: Public enterprises are governed by public policies formulated by the government ND are accountable to the legislature. Excessive Formalities: The government rules and regulations force the public enterprises to observe excessive formalities in their operations. This makes the task of management very sensitive and cumbersome.

Difference between Private and Public Sector Enterprises By private sector, we mean, economic and social activities undertaken privately by a single individual or group of individuals. They prefer to do business in private sector basically to earn profit. On the other hand public sector refers to economic and social activities undertaken by public authorities. The enterprises in public sector are set up with the main aim of protecting public interest. Profit earning comes next. Besides the difference in the objective, the enterprises in both these sectors also differ in many other aspects.

Forms of Organization of Public Enterprises There are three different forms of organization used for the public sector enterprises in India. These are 1. Departmental Undertaking; 2. Statutory (or Public) Corporation 3. Government Company. Departmental Undertaking form of organization is primarily used for provision of essential services such as railways, postal services, broadcasting etc. Such organizations function under the overall control of a ministry of the government and are financed and controlled in the same way as any other government department.

This form is considered suitable for activities where the government desires to have control over them in view of the public interest. Statutory Corporation (or public corporation) refers to a corporate body created by the Parliament or State Legislature by a special Act, which define its powers, functions and pattern of management. Statutory corporation is also known as public corporation. Its capital is wholly provided y the government. Importance of Public Sector Enterprises There are only some selected areas in which the government establishes its enterprises for a balanced development of the economy and promote public welfare.

There are several areas where huge investment of capital is necessary but the margin of profit is either meager or it can be obtained only after a long period as in case of generation and supply of electricity, machine building construction of dams, etc. The private businessmen hesitate to establish their enterprises in these areas but they cannot be neglected in public interest. As such these enterprises are established and run by the government. Similarly the public enterprises also help in balanced regional development by promoting industries in every part of the country.

Industrial progress is of utmost importance for the development of the country and for this, it is necessary that some basic industries like oil, coal, gas, iron, steel, production of heavy electrical goods, etc. , are to be fully developed. Public enterprises give impetus to the development of these basic industries and also help in the development of the private sector with their products and services. There are some industries which require heavy capital investment on account of technical reasons. Electricity, power, production of gas, heavy machinery tools, production of telephone etc. Are such industries. The development of public enterprises also prevents concentration of economic power in the hands of an individual, or a group of individuals. Not only that, the public enterprises can help in red icing inequalities with the help of various policies like utilizing the earned profits in public welfare activities and by selling raw material to the small scale industries at lower ricers. It is also necessary for the economic progress of a country that industries which can decrease imports and increase exports are only promoted. Public enterprises also ensure promotion of such industries.

The public enterprises ensure necessary resources are made available to all at fair prices. The security of the country is supreme. There should be no compromise in ensuring this. The production of fighter airplanes, arms and ammunition etc, connected with the security of the country is put under the domain of Public Enterprises for this purpose. Thus, public welfare planned economic development of the country, regional balance, import substitution and checking concentration Of economic powers are the major goals achieved through public enterprises.

Role and Rationale of Public Enterprises The public sector has been playing a vital role in the economic development of the country. In fact the public sector has come to occupy such an important place in our economy that on its effective performance depends largely the achievement of the country’s economic and social goals. Public sector is considered a powerful engine of economic development and an important instrument of self-reliance. The main contributions of public enterprises to the country’s economy may be described as follows: 1.

Filling of gaps At the time of independence, there existed serious gaps in the industrial structure of the country, particularly in the field of heavy industries. Basic and key industries require huge capital investment, involve considerable risk and suffer from long gestation periods. Private sector concerns do not come forward to establish such industries. Public sector has helped to fill up these gaps. The basic infrastructure required for rapid industrialization has been lilt up, through the production of strategic capital goods.

The public sector has considerably widened the industrial base of the country and speeded up the pace of industrialization. 2. Employment Public sector has created millions of jobs to tackle the unemployment problem in the country. Public sector accounts for about two-third of the total employment in the organized industrial sector in India. By taking over many sick units, the public sector has protected the employment of millions. Public sector has also contributed a lot towards the improvement of working and vying conditions Of workers by serving as a model employer. . Balanced regional development Private industries tend to concentrate in certain regions while other regions remain backward. Public sector undertakings have located their plants in backward and untraced parts of the country. These areas lacked basic industrial and civic facilities like electricity, water supply, township and manpower. Public enterprises have developed these facilities thereby bringing about complete transformation in the social-economic life of the people in these regions.

Steel plants of Bilabial, Rosella and Durra; earthlier factory at Sinned, machine tool plants in Restaurants, precision instruments plants in Kraal and Restaurants, etc. , are a few examples of the development of backward regions by the public sector. 4. Optimum utilization of resources Public enterprises make better utilization of scarce resources of the country. They are big in size and able to enjoy the benefits of large scale operations. They help to eliminate wasteful completion and ensure full use of installed capacity. Optimum utilization of resources results in better and cheaper production. 5.

Manipulation of surplus The profits earned by public enterprises are reinvested for expansion and diversification. Moreover, public sector concerns like banks and financial institutions mobiles scattered public savings thereby helping the process of capital formation in the country. Public enterprises earn considerable foreign exchange through exports. 6. Self reliance Public enterprises have reduced considerably the need for imports by producing new and better products within the country. These enterprises are also earning considerable amount of foreign exchange through exports. 7. Socialistic pattern of society

Public sector is an instrument for realizing social objectives. Public enterprises help to check concentration of wealth and private monopolies. These enterprises can serve as powerful means of economic and social change. 8. Public welfare Public enterprises help in the establishment of a welfare state in the country. These enterprises us apply essential commodities at cheaper rates. A proper balance between demand and supply is created to protect consumers against exploitation by profit hungry businessmen. Public enterprises also protect and promote the interests Of workers. Objectives .

Economic development Public enterprises were set up to accelerate the rate of economic growth in a planned manner. These enterprises have created a sound industrial base for rapid industrialization of the country. They are expected to provide infrastructure facilities for promoting balanced and diversified economic structure of development. 2. Self-reliance Another aim Of public enterprises is to promote self-reliance in strategic sectors of the national economy. For this purpose, public enterprises have been set up in transportation, communication, energy, petrol-chemicals, and there key and basic industries. . Development of backward Areas Several public enterprises were established in backward areas to reduce regional imbalances in development. Balanced development of different parts of the country is necessary for social as well as strategic reasons. 4. Employment generation Unemployment has become a serious problem in India. Public enterprises seek to offer gainful employment to millions. In order to protect jobs, several sick units in the private sector have been nationalized. 5. Economic surplus Public enterprises seek to generate and mobiles surplus for reinvestment.

These enterprises earn money and mobiles public savings for industrial development. 6. Egalitarian society An important objective of public enterprises is to prevent concentration of economic power and growth of private monopolies. Public sector helps the Government to enforce social control on trade and industry for ensuring equitable distribution of goods and services. Public enterprises protect and promote small scale industries. 7. Consumer welfare public enterprises seek to protect consumers from exploitation and profiteering by ensuring supply of essential commodities at cheaper prices.

They aim at stabilizing prices. 8. Public utilities Private sector is guided by profit motive. Therefore, it is reluctant to invest money in public utility services like water supply, gas, electricity, public transport. Therefore, the Government has to assume responsibility for providing such services. 9. Defense Government has to set up public enterprises for production of defense equipment. Supply of such equipment cannot be entrusted for private sector due to the need for utmost secrecy. 10. Labor welfare Public enterprises serve as model employers. They ensure welfare and social security of employees.

Many public enterprises have developed townships, schools, college and hospitals for their workers. Advantages Public sector has come to assume the commanding heights of the economy. It was monopoly in railways, communication and air transport; virtual monopoly in coal mining, power generation and petroleum industry; a predominant share in banking, insurance, shipping, steel and other metals; machine tools, fertilizers, insecticides, and petrochemicals; and share in light engineering industries like drugs; textiles industries; consumer goods form break of electronic new industries, it has also been taking over old opens which became sick. Public Sector has played a significant role in the industrialization Of the country. By establishing the basic and heavy industries and providing the infrastructure, it has enabled growth of innumerable light industries and also taking over old ones which became sick. Public sector has played a significant role in the industrialization of the provided the virtual inputs of ushering the “Green Revolution”. It has also played a pioneering role in dispersing industries in various regions of the entry particularly in the backward area.

It is generally recognized as a “model employer” providing fair wages, good working conditions and amenities, and recognizing the rights of the workers. As a result, industrial relations except in certain units and for some time past are better and the maydays lost are much less than n the private sector. 1. Balanced growth By establishing public sector enterprises, a country can develop its economy in all regions. Thus there is a balanced growth. These enterprises can be developed on economic, social and regional basis.