Public sector or public enterprises include all governmental activities including public industrial or commercial enterprises.
Public enterprise occupies a strategic and crucial position in the Indian economy. It is no exaggeration to say that the economy would sink or swim depending upon the efficiency with which these enterprises operate.
The modern Indian economy is the creation of the Congress party and its leaders, Mahatma Gandhi and Nehru, who referred to India as a “Socialist” economy.
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Socialism is largely a misnomer in the case of India, except for Government ownership in industry and commerce. India is still primarily an agricultural country and the distribution of income depends mainly on the distribution of agricultural property.
Although there have been some attempts to distribute land to the poor peasants, land remains unequally distributed and there is evidence that the range of income inequality has been reduced. The tax system continues to be regressive, direct taxes are rarely levied on land and high urban income taxes are marked by evasion.
The pre-tax income distribution figures sum up the failure to establish a more equitable distribution of income. In 1960, the bottom 10 per cent of families accounted for less than one per cent of all income, while the top 10 per cent accounted for over one-third.
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This income distribution is less equitable than in industrialised capitalist countries. Rather than seeking to achieve “Socialist” objectives through income redistribution, the architects of modern Indian economy emphasised State ownership in industry.
The feeling was that socialism could be achieved through State control of industry which would serve as a surrogate for social change.
Public enterprises are expected to be the principal agent for rapid economic and social transformation by developing infrastructure and the core sector and by closing the gaps in the industrial structure.
Its dominant position in the financial field is intended to control and guide the private sector, wherever necessary. Lastly, the economic growth through public enterprise will ensure social justice.
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In developing countries, public enterprises are largely a necessity and not a matter of choice. In India, though the Congress government was clearly committed to expand the public sector, it did not go into areas where private enterprise was operating.
Nationalisation of the existing enterprises has been generally resorted to where the public interest was involved or where it was imperative to put the industry on sound footing and regulation and control were not found sufficiently effective. The vast majority of public enterprises are in areas which were hitherto untouched or unexplored by the private sector.
In the Industrial Policy Statement of 1956 it was emphasised that public enterprise was designed to control the “commanding heights” of the economy. But in recent years the trends towards increasing liberalisation are very much in evidence in India and one gets the impression that private sector is designed to play an important role in the economy in the coming era.
Public sector in the industrial field has expanded rapidly since Independence. In 1951 there were only 5 non- departmental public undertakings with an investment of Rs. 29 crore. On March 31, 1993, the number of public enterprises has risen to 245 with total capital employed therein amounting to Rs. 146,971 crore.