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Role and significance of the public sector in India's economy
The statement "A government's job is to govern and not to run businesses" is repeatedly heard on different forums all around the world. Is there any merit in this slogan? Or is it the usual strategy of billionaire investors, multinational corporations and the private sector to do away with competition from the public sector and exploit the common people.

The BJP governments under Vajpayee ji and Modi ji have be disinvesting the public sector companies including trying to sell Air India. This article seeks to examine the utility and importance of the public sector in the Indian economy and whether the BJP government’s actions to disinvest profitable public sector units make any sense. 

Public sector in developed countries 

The public sector played a vital role in the reconstruction of Europe after the devastation of the Second World War. The public sector kept on playing an important role in the UK and France till the early 80s until neo-liberal economic policies of President Regan and Premier Margaret Thatcher led to large scale privatization of the public sector companies in Europe. The public sector continues to play a significant role only in France and some Scandinavian countries and also in Singapore. 

The public sector in India 

There were 217 Central Public Sector Enterprises (CPSEs) in India in 2010. These are engaged in a variety of commercial activities like operating banks, public transport systems, oil exploration and refining, mining, producing metals like steel, aluminium and medicines, vaccines etc. These companies are not government departments but limited companies run by professionals in which the government is the majority share holder. CPSEs are also engaged in healthcare, insurance, infrastructure development, operating harbours etc. 

In 2010, the CPSEs were divided into five categories. The Maharatna category have a 3-year average turnover of Rs 20,000 crore and a net annual profit of Rs 5000 crore. They enjoy autonomy to invest up to Rs 1000 crore without government approval; next comes the Navaratna category. These must have a 3-year average turnover of 20000 crore and a net worth of 10000 crore; next come two categories of "Miniratnas" which must have made profit for 3 continuous years or a profit of Rs 30 crore in one of the three years. They have less financial autonomy. The last category consists of others. There are 8 Maharatnas, 16 Navaratnas, 59 Miniratnas and 129 others. 

The government has invested Rs 3,57,849 crore in basic heavy industries (power, steel, coal, fertilizers, etc.), Rs 75,300 crore was invested in the power generation, followed by Rs 34,860 crore in petroleum, Rs 22,932 crore in coal and lignite, Rs 13,710 crore in fertilizers, and Rs 21,608 crore in telecommunication services. On the other hand, the Central government has made very little investment in textiles and consumer goods. It is important to note that a good number of private sector sick industrial units belonging to textiles and consumer goods were taken over by the Central government to protect jobs. Unfortunately, this government is not paying adequate attention to rehabilitating these units by infusion of capital and new technology. At the end of financial year 2010-11, a total of 2.9 crore workers were employed in the organized sector. Of these public sector had 1.75 crore employees and private sector had 1.15 crore. 

Financial performance of CPSEs 

The latest complete data could be found for FY 2009-10. The total investment in the 217 CPSEs was Rs 5,72,790 crore (in comparison, the private sector has a bad debts of over Rs 8,00,000 crore). In other words, the private sector has stolen or destroyed over Rs 8,00,000 crore of taxpayers’ money and public savings kept in banks. The net profit of the profit-making CPSEs (158) stood at Rs 1,08,434.68 crore in 2009-10. The net loss of the loss-making CPSEs (59), on the other hand stood at Rs 15,842 crore during the same period (Nirav Modi alone defrauded Punjab National Bank of over 12,000 crores). This was in spite of large financial under-recoveries by public sector oil marketing companies as they had to keep prices on sale of petroleum products low in the domestic market. The PSEs paid Rs 33,223 crore as dividend, 1,19,529 crores as corporate tax, 35,720 as interest on loans. Thus their net contribution to the Central exchequer was Rs 1,39,000 crore. The foreign exchange earnings of the CPSEs amounted to Rs 77,745 crore during 2009-10. It will be seen that the overall performance of the CPSEs is not bad keeping in mind that many public sector enterprises give greater emphasis to achieving non-financial social objectives like employment generation and environmental protection. The profitability of CPSEs has greatly improved beginning from 1994-95. 

Necessity of public sector companies 

The main usefulness of public sector companies to a country's economy lies in investing in areas of the economy and under developed regions which do not interest the private sector. Numaligarh Refinery at Guwahati and Barauni Refinery, Bhillai and Rourekella Steel Plants are examples of extending industries to underdeveloped areas. 

The only toilets usable by gentle ladies and foreigners on the national highways passing through Rajasthan, Punjab and Haryana were at State Tourism hotels and restaurants till about 2010. Many other states did not have such roadside toilet facilities till recently. Would Airtel, Vodafone or Reliance Jio set up mobile towers or lay broadband cables in unprofitable rural or insurgency affected areas? Will private banks like ICICI or Axis Bank set up branches in large villages? 

Public sector also prevents exploitation of consumers. For example; without GAIL and public sector oil companies, Reliance and Essar could have charged our public any price for petroleum products. Without BSNL, mobile service providers could have formed cartels and charged any amount for their services.   

Filling the gaps in availability of capital 

This situation arose in India immediately after independence. India did have a budding but vibrant private sector with groups like Tata, Birla, Hero, Bajaj, Mahindra & Mahindra etc. But their resources were not enough to finance the rapid industrialization of the entire country that was necessary. Thus public sector companies like ONGC, Bharat Heavy Electricals Limited (BHEL), Coal India to name a few were created. 

Generate employment 

Public sector companies have created millions of jobs. The public sector accounts for about two-thirds 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 living conditions of workers by serving as a model employer and preventing exploitation of labour by private corporations. In the United States, the bailing out of General Motors, Chrysler and AGI saved thousands of jobs. Nationalization of the Royal Bank of Scotland in the UK also saved thousands of jobs which would have been lost if the bank had been allowed to fail. Stressed companies can turn profitable with injection of capital and technology as we have seen in the case of General Motors and the Royal Bank of Scotland. They can be subsequently privatized by sale of shares and the taxpayer’s money recovered. 

Reduce concentration of economic power in the private sector 

A vibrant public sector would reduce concentration of economic power in the hands of foreign and Indian multinational companies and investors. This could help make the economy more people and environment oriented. For example, India, with its nationalized banks can ensure that these banks lend at low interest rates to poor farmers, small scale industries and small businesses which private banks with their profit orientation and risk aversion may not be willing to do. This is why neo-liberal economists, large investors and multi-national corporations are always lobbying for privatization of the CPSEs. 

Limitations and abuses by the private sector 

The behaviour and attitude of the some private sector units itself is an important reason for the expansion of the public sector in India. In many cases the private sector does not take up infrastructure or manufacturing projects because of doubtful profitability. Some private sector units resort to many unethical practices like degrading environment, diluting safe practices at the workplace, defrauding banks and investors and exploiting labour. They promote profitable carcinogenic pesticides which are banned in developed countries, adulterate foodstuff, cosmetics and medicines and evade taxes.   

Enable governments to intervene in economy and boost growth 

During the 2008 global economic downturn, the government of India was able through public sector banks infuse capital into the economy in order to boost economic activity. These initiatives of the government helped contain serious after effects of the global economic meltdown of 2008 while keeping a tab on inflation. In the absence of public sector banks, the American government was not in a position to directly assist the economically weaker sections of the society. The governments and central banks of the developed world could only bailout private banks and financial institutions whose greed and unethical or fraudulent actions created the financial meltdown in the first place. The bailout funds did not produce any economic activity or generate employment. They were invested in speculative activities in search of profits. 

Limitations of public sector companies 

Despite their impressive role, public sector companies, the world over, suffer from several problems and shortcomings. Investment decisions in many public enterprises are not always based upon proper evaluation of demand and supply, cost benefit analysis and technical feasibility. Many projects in the public sector have time and cost over runs. Manpower planning is not always effective and many public sector companies have excess manpower. In some cases productivity is low on account of poor materials management or ineffective inventory control. Sometimes there is lack of cost-consciousness, quality consciousness, and effective control on waste and efficiency. But the private sector is not perfect. Corporate greed and fraud also causes considerable turmoil in the economy of a country. The answer is to ensure competent professional management of public sector companies. Privatization is not the answer. 


Public sector companies are anathema to neo-liberal economists, multinational corporations of the developed world, our neoliberal economists, BJP and armchair intelligentsia. Public sector companies do not cheat banks or evade taxes. Since profit is not their primary motive, they do not exploit employees, cheat investors and degrade the environment. Most importantly, they generate employment. There are only 217 CPSEs against over a thousand private companies listed on the stock exchanges. Yet, The CPSEs employ about 60 per cent of the workforce in the organized sector.  

Public sector companies are essential to promote rapid economic activity through creation and expansion of infrastructure; to promote redistribution of income and wealth; to create employment opportunities in backward regions; to encourage the development of small-scale and ancillary industries and to act as an important instrument of self-reliance and economic sovereignty. 

Public sector companies engaged in commercial activities have played a very important role in the growth of developing countries like China and India which enjoy the highest growth rates in the world today. Indian youth need jobs and PSEs create them in large numbers. Indian government should not disinvest CPSEs. They should create new public sector companies to set up cold chains, purchase and distribute agricultural products like Delhi’s Mother Dairy and food processing units to support agriculture and horticulture in the North East and other backward states Like J&K, Himachal and Uttarakhand. 

It also needs to be stressed that all private sector companies are not greedy cheats. Many of them, big and small, pay all their taxes, look after the welfare of their employees and have played a vital role in the growth of the Indian economy. I acknowledge and salute their contribution. 

India is a vast nation. It has space for people of all religions and ethnic groups. It has also space for public sector, private sector and public-private participation to complement each other and thrive.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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