Development of Public Enterprises in India

In 1947, when India gained independence, there were few public enterprises in India (departmental). These were departmental undertakings and were pertaining to the Railways, Post and Telegraphs, and Defense Production. Over the years, the government and economists worked hard to lay the foundation for the development of public enterprises in India. In this article, we will look at the evolution of the public enterprise landscape in India.

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Pre-Independence Era

The British were not keen on developing public enterprises in India. For that matter, there were very few domains that the British kept within the state. These were:

• Defense Production – To ensure that it remains a closely guarded secret.
• Railways – Since it helped in the extraction of resources on a large scale.
• Post and Telegraph – Since it was important for functional and strategic reasons.

                                                                                                                            Source: archive.india.gov.in

The initial days of Public Enterprises in India

After independence, Prime Minister Jawahar Lal Nehru laid the foundations of strong public enterprises with a focus on the goods-producing sectors in India. The Prime Minister received support and inspiration from the renowned statesmen – Josip Broz Tito (former President of Yugoslavia) and Abdel Gamal Naseer (former President of Egypt). These three farsighted leaders were instrumental in laying down foundations of public sector enterprises in their respective countries.

In 1951, when we started building an Independent India, the total investment in public enterprises was less than half a billion euros. Today, there are around 247 public enterprises with a cumulative investment of around 130 billion euros.

Also, in 1951 when the first five-year plan was launched, the government’s investment in public enterprises was Rs.29 crore. This number rose exponentially to Rs.3,93,057 crore as on 31 March 2006.

Another reason for the evolution of public enterprises in India is the substantial contribution they make to the resources of the Central Government. During 2004-05, public enterprises contributed around Rs.10,599 crore to the central exchequer.

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Importance of Public Enterprises in India

Since independence, public enterprises have been of strategic importance to the Indian economy.

• Being a country with a diverse geographical spread, public enterprises ensure that there is a balance in the regional investment. In India, there are many regions where private enterprises need incentives and concessions to induce them to operate. However, public enterprises have ensured that industries grow and flourish in different parts of the country.
• Unified controls of public enterprises ensure their economic functioning while enjoying economies of scale.
• Indian consumers have also benefitted from the development of public enterprises in India.
• Employees receive a fair deal as compared to the private sector.
• These enterprises have taken the lead to initiate development in the core sector. The core sector is comprised of strategic sectors which provide externalities to the economy as a whole. Public enterprises ventured into the core sector even when the returns were modest or insignificant.
• Further, public enterprises account for nearly 20 percent of India’s Gross National Product.
• They also pay dividends to the government and enhance export earnings and import substitution.
• The public enterprise sector is a major employer. It employs around 1.9 million people whereas the private sector employs around 0.9 million people.

Initiatives to improve the performance of Public Enterprises

Despite public enterprises being important for the Indian economy, the rate of return on capital investment is very low. Hence, the Government of India took several steps to improve the overall performance of public enterprises.

• In July 1991, the Indian Government announced an Industrial Policy to help enhance the portfolio and improve the performance of public enterprises in India. Privatization, liberalization, and globalization of the Indian economy were specifically emphasized. Also, the role of the public sector was refined.
• Further, in July 1997, identified nine central public enterprises (BHEL, BPCL, GAIL, HPCL, IOC, MTNL, NTPC, ONGC, and SAIL) as ‘Navratnas’ and gave them autonomy for:
  • Capital investment
  • Enter into joint ventures
  • Raise capital from the international and domestic markets, etc.
• Also, in October 1997, the government identified 45 ‘Miniratnas’ and granted an enhanced autonomy and delegation of financial power.
• Over the years, the government emphasized on reviving sick and chronically loss-making enterprises. The Board for Industrial and Financial Reconstruction (BIFR) helps these enterprises and prepares appropriate revival or rehabilitation packages.
• The Indian Government also set up a Board for Reconstruction of Public Sector Enterprises (BRPSE) which advises it on proposals of restructuring or reviving sick and loss-making units along with those for disinvestment or sale or closure. As on March 30, 2006, the BRPSE offered recommendations in 31 central public sector enterprises. Of these, the government approved revival plans of 15 cases.

Performance of the Industry

The Index of Industrial Production or IIP is the measure of the industrial performance. IIP registered a growth of 1.2% in the period April-October, 2012 against a 3.6% growth in the same period in 2011. Here is how some sectors performed. Two periods are taken for the sake of comparison – April-October, 2012 and April-October, 2011.

• The manufacturing sector recorded a growth of 1.0% in 2012 against 3.8% in 2011.
• Further, the mining and electricity sector posted growth rates of -0.7% and 4.7% in 2012 against -2.2% and 8.9% in 2011.
• The Capital Goods sectors recorded a growth of -11.4% in 2012 against -0.5% in 2011.
• Consumer durables sector posted a growth of 5.6% in 2012 against 4.5% in 2011.

Solved Question for You

Q1. Name the Navratnas of the public sector enterprises

Answer:

The nine public sector enterprises identified as Navratnas by the government are:

• BHEL – Bharat Heavy Electricals Limited
• BPCL – Bharat Petroleum Corporation Limited
• GAIL – formerly known as Gas Authority of India Limited; now known as GAIL (India) Limited
• HPCL – Hindustan Petroleum Corporation Limited
• IOC – Indian Oil Corporation
• MTNL – Mahanagar Telephone Nigam Limited
• NTPC – formerly known as National Thermal Power Corporation Limited; now known as NTPC
• ONGC – Oil and Natural Gas Corporation
• SAIL – Steel Authority of India Limited