Public Sector

 Public sector enterprises are those industrial institutions which are owned, managed and
controlled by the government. Promote social welfare along with earning profits.
 PSUs were established as a part of the Industrial Policy of 1948. Industrial policies of
1956, 1977 and 1980 further led to the expansion of the public sector. In 2014-15, there
were 235 working public sector enterprises with a capital investment of Rs 18,34,050
crores. As on 31st March 2019, there were 249 working PSEs out of which 178 PSEs
showed profit during 2018-19, 71 PSEs incurred losses.
 Profitability: In 2018-19, out of 249 working PSEs, 178 were making profits and 71
incurred losses. The net profit of these enterprises was Rs 1.43 lakh crores.

Role of Public Sector

 Capital formation: In the eleventh plan, contribution of public sector is 21.9%.

 GDP: share of public sector has increased from 14% in 1992-93 to 20.4% in 2012-
13.
 Basic Industries: large scale industries like iron and steel, heavy machinery, arms
and ammunition etc can be established under public sector.
 Infrastructure: also called social overhead costs which serve as a pre condition for
growth of other sectors
 Import substitution: public sector is producing various goods indigenously which
were earlier imported like medicines, electronic goods and railway equipments.
 Export promotion: it has helped in promoting exports in the country. State Trading
Corporation (STC) and Minerals and metals trading Corporation (MMTC) are
helping in export promotion.
 Less Regional disparities: by setting up enterprises in the backward regions of the
country. 3 big steel plants have been established in backward regions Bokaro,
Rourkela, Durgapur, Bhilai.
 Promote Employment: provided employment to a large number of people in the
country. Out of 2.9 crores in the organized sector, 1.7 crore people are employed in
the public organized sector.
 Establishing a socialistic pattern of society by checking concentration of economic
power in hands of private sector. Also controlling inequalities in the distribution of
income and wealth.

Defects of the Public Sector

 There is lack of efficiency in this sector as compared to the private sector. Managers
and workers in the public enterprises fail to work with responsibility. This also
happens due to Red- tapism where decisions and their implementation take a lot of
time.
  Lack of Good Management is another drawback. Politicians and Bureaucrats are
given to managerial positions which they are unable to handle with efficiency and
only promote their political interest.
 Most public sector enterprises are large scale and capital intensive and have a long
gestation lag. This leads to higher costs and lower profits.
 Public enterprises are largely established in the backward regions due to which lot of
construction expenditure is involved in construction of residential houses for
workers and managers. This again reduces profits for them.
 Industrial disputes are quite common in these enterprises which adversely affect the
production efficiency and lower output.
 Lack of competition is an obstacle in the growth of public sector enterprises. Healthy
competition helps improve the quality of products and stability of prices.
 Irresponsible staff is a problem where workers are dishonest and corrupt in these
enterprises. Job security provided here makes them irresponsible resulting in low
productivity.
 Public Enterprises mainly work for social welfare and do not have profit
maximization as their sole objective. Due to this, they have to sell their products at
reduced prices to help the poorer sections of the society. Low prices lead to low
profitability of these enterprises.
 Over staffing and over capitalization adds to the problems of these enterprises due to
high wage bill and low productivity. Also over capitalization adds to huge liability
of interest payments without corresponding returns.

Public sector Reforms

 In the industrial policy of 1956, there were 17 industries reserved for the public
sector which were the reduced to 8 under the New Economic Policy of 1991. These
were further reduced in a phased manner and at present only 2 industries are
exclusively reserved for the public sector- atomic energy and railways. Remaining
15 sectors have been de reserved and thrown open to investment by the public
sector.
 Shares of public sector have been disinvested and sold to private sector to help
generate profitability.
 Sick public sector enterprises will be revived just as it is done for the private sector.
BIFR (Board for Industrial and Financial reconstruction) was set up in Jan 1987
estd under SICA 1985, to determine the sickness of companies and assist in
reviving those that may be viable. In 1991, SICA was amended to include public
sector enterprises in its purview. On 1st Dec 2016, Modi Govt dissolve BIFR and
refereed all proceedings to National Company Law Tribunal(NCLT) and National
Company Law Appellate Tribunal(NCLAT).
 To generate more capital and resources, the shares of public sector enterprises are
listed on stock exchanges. 45 Central Public Sector Enterprises are listed on
domestic stock exchanges. Shares of MTNL are listed on New York Stock
Exchange and shares of GAIL & SAIL are listed on London Stock Exchange.
 Maharatnas and Navratnas: These are statuses given to PSEs.
Maharatna Companies are provided financial & managerial autonomy, benefits for
investment whereby it raises a company's investment ceiling from Rs. 1000 crore to
Rs. 5000 crore. They are free to decide investments upto 15% of their net worth in a
project. As on January 2020, there are 10 Maharatna companies in India
1. Bharat Heavy Electricals Limited
2. Bharat Petroleum Corporation Limited
3. Coal India Limited
4. GAIL (India) Limited
5. Hindustan Petroleum Corporation Limited
6. Indian Oil Corporation Limited
7. NTPC Limited
8. Oil & Natural Gas Corporation Limited
9. Power Grid Corporation of India Limited
10. Steel Authority of India Limited
Navratna Companies are those that can invest upto Rs 1000 crore without any
explicit govt approval. As on January 2020, there are 14 Navratna companies.
1. Bharat Electronics Limited
2. Container Corporation of India Limited
3. Engineers India Limited
4. Hindustan Aeronautics Limited
5. Mahanagar Telephone Nigam Limited
6. National Aluminium Company Limited
7. NBCC (India) Limited
8. NMDC Limited
9. NLC India Limited
10. Oil India Limited
11. Power Finance Corporation Limited
12. Rashtriya Ispat Nigam Limited
13. Rural Electrification Corporation Limited
14. Shipping Corporation of India Limited
Mini Ratna Status with an investment limit of upto Rs 500 crores. As on January
2020, there are 74 Miniratna companies.