Contribute of Public Sector in the India Economy

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November 24, 2014

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“The public sector is expected to provide specially for the further development of industries of basic and
strategic importance or in the nature of public utility services.” -Indian Planning Commission.

From the pre-independence period, public sector plays an important role for the foundation of the country.
A huge amount of tasks have been allotted to PSUs regarding this context.

The following are some effective contribute of PSUs in the India economy:

(i) Creation of Job Opportunities:

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Public sector is the targets employed organisation sector. Nearly 70 percent of labourers are working in
public sector i.e. out of 235 lakhs labourers, approximately 195 lakh are engaged in the organised public
sector. More than, 1 7 lakhs of people are employing in the Indian railways. After the nationalisation of
banks, i.e., 1969 the performance graph of the public sector units is rising.

(ii) Strong Industrial base:

The contribution of industrial sector i.e., manufacturing, construction, electricity in GDP at Factor Cost has
raised slowly and steadily during the plan periods. It was only 13.3 percent in 1950-51 to 21.6 percent in
1980-81 and further to 24.5 percent in 2 003-04. However, the contribution of agriculture in GDP at Factor
Cost declined from 59.2 percent from 1950-51 to 41.8 percent in 1980-81 to 24 percent in 2003-04.

Hence, industrial base is more better in now, in compare to what was in 1950-51. During the plan period,
most of the industries like iron-steel, heavy engineering, coal, heavy electrical machinery, petroleum and
natural gas chemicals and drugs, fertilizers and defence have increased remarkably.

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(iii) Development of Infrastructure:

Infrastructure is considered as the backbone of the Indian economy. The economic development and
infrastructure are positively co-related. Like agricultural development cannot be possible without irrigation
facility, similarly without proper transportation and communication industrial development is impossible.

Therefore, after pre-independence period the Government had taken several initiative to make the
process of industrialisation technically and financially strong. The large industries are set up with proper
capital formation regarding the development of all types of transport, power and effective resource
mobilisation. The main aim to built all the PSUs to make better economic development in future.

(iv) Capital Formation and Public Sector:

The PSUs are playing a dominant role to channelise savings into regular investment. In the 1st and 2nd
five year plans 54 percent of total investment was in public sector and in 3rd plan it had increased further
to 60 percent. However, thereafter there was tremendous fall in invest rate, i.e., 45.7 percent in 7th plan,
34.3 percent in 8th plan and 29.5 percent in ninth plan.
During last two and half decades the shares of CDs in PSUs were also drastically falling. It was 19.6
percent in 6th plan, 11.1 per cent on 7th plan, 6.6 percent on 8th plan and 5.8 percent on 9th plan. Again,
the share of GDCF in PSUs was 44.6 percent during 6th plan, 31.7 percent during 8th plan and 27.3 on
9th plan. All these imply that the private sectors are getting more importance’s.

(v) Export Promotion and Import Substitution:

The number of PSUs like Bharat Heavy Electricals Ltd. HMT Ltd, Hindustan Steels Ltd., State Trading
Corporations have contributed lot for increasing the foreign exchange reserve had increased from Rs. 35
crores in 1965-66 to Rs. 34890 crores to 2004-05 due to increase in export promotion. On the contrary,
the PSUs like Bharat Electronics Ltd., IOC, ONGC, IDPL etc. are also playing an extra ordinary
performances to save our foreign exchange, with the effective policy of import institution,

(vi) Social Welfare:

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Recording to Prof. Saraceno, “Our objective is not to make steel and cars but to use steel and car making
as a tool for social change and economic progress”. It is the public sector, which always thinks for the
growth and welfare of the weaker sections of the country. Public sector always working with the motive of
social welfare maximisation. Most of public sectors running with the moto of no profit and no loss
ideology.

(vii) Economic Growth:

Prof. Hirsahman’s doctrine of unbalanced growth and Prof. Nurkse balanced growth require huge amount
of investment for the economic growth of the country. Public sector plays a key role to achieve a
sustainable economic development. It makes the country strong and self reliance, with the policy of
export promotion and import substitution.

It also takes huge endeavour to remove regional imbalances with the country. It channelises the complete
banking facility and process of industrialisation not only in the main cities and towns of Indian villages.
Most of the backward areas like Jharkhand, Orissa, Madhya Pradesh, and Rajasthan etc. are all under
the process of industrialisation.

(viii) Positive Check on Monopoly Control:

Public sector has the potentiality to reduce inequalities of income and wealth and concentration of
monopoly power in different ways, like;

(a) Channelise the profits on the social welfare programmes;

(b) Supply the important raw materials at low prices to the small and tiny scale industries;

(c) Increase the minimum wages to the labourers;

(d) Production of socially required necessary goods etc.

(ix) Add Revenues to the Government Treasury:

Public sector units add huge revenue to the Government treasury through excise duty, customs duty,
dividend, profits and other direct taxes. Thus, it will help to increase a bulk amount of resources for a
sustainable planned economic growth. Public sector contributes Rs.7, 600 crores in 1980-81 and then
further raised to Rs. 1, 10,600 crores in 2004-05.

by Taboola
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