Emphasis on the Public Sector
- Public sector undertakings (PSUs) are those undertakings wherein the government possesses ownership and control. In India, an undertaking is said to be governed under the public sector, if the central or state government alone or in total owns more than 51% shares of that undertaking.
- Apart from governance, the government also runs several businesses as well, generally, they are the areas where heavy investments are required or areas that are beneficial for the entire society.
- Prior to independence, only a few public sector undertakings were functioning such as railways, port trusts, posts, telegraph, etc.
- However, after independence, policies made for the development of the country and the public sector were used as a tool for self-reliant growth.
- We can say that till the 1990s, major sectors were reserved for public sector undertakings only, the result of which was the financial crisis in the economy.
- In 1991, a new economic policy was launched which allowed the government to disinvest in certain areas and our investment policies were liberalised and the economy was made open for globalised investments, hence encouraging public sectors to flourish.
Objectives of PSUs
- The main objective of setting up PSUs is to accelerate economic development and create a self-reliant economy.
- Apart from that, PSUs also help in creating an industrial base and developing the infrastructure of the country.
- PSUs also promote exports and reduce imports.
Role of PSUs
Although the private sector is considered important for the development of the economy, the role of public sector undertakings cannot be ignored in any manner. The public sector undertakings help in the development of the country’s economy and perform several roles, such as:
- Employment Generation: One of the main roles of the PSUs is to create jobs and reduce the problem of unemployment in India. Railways is one of the major public sectors which created employment opportunities in large numbers.
- Regional Development: PSUs have started their operations by installing plants in less developed areas so that we can achieve balanced regional development. Steel plants of Bhilai, Rourkela, and Durgapur; fertiliser factory at Sindri, are some of the examples wherein the development of backward regions were undertaken by the PSUs.
- Promotion of Research and Development: As the PSUs get direct fundings from the government, they can afford to spend amounts on research and development activities. Hence, one of the main roles of the PSUs is to promote research and development in the particular area.
- Contribution to Public Exchequer: Apart from generation of internal resources and payment of dividend, PSUs have also made significant contributions to the government’s exchequer by way of payment of taxes and duties.
Issues with the PSUs
After gaining independence, the government has played a major role in the development of our economy by investing in the PSUs, but it was also observed that the main function of the government of any country is to govern and not to do business. Also, it was observed that the policies before 1991 were focusing more on licences and regulations. Apart from that, certain other issues were noticed in the functioning of PSUs, some of them are listed as below:
- Complex policymaking and its execution.
- Over staffing; or under utilisation of capacity.
- Wastage of resources or under utilisation of resources.
- High operating cost.
- Lack of motivation for self-improvement in employees.
- Lack of proper pricing policy.
Privatisation of Banks
- One of the major shifts in the area of PSUs was witnessed when the privatisation of banks was allowed.
- Privatisation is the process where the government ceases to be the owner of the entity and the ownership, property, or business is transferred from the government to the private sector.
- The main aim of privatising banks was to bring more efficiency and objectivity to the company.
Reasons for privatisation
The rationale behind the privatisation of public sector banks is:
- Non-performing Assets (NPAs): At present, the banks are overburdened with NPAs, and the majority of the assets lie with the public sector banks.
- Dual Control: Currently, public sector banks are governed by the RBI and Ministry of Finance. As such, RBI does not have the power to revoke a banking licence and privatisation will allow them to control the banks more effectively.
- Performance issues: It has been witnessed that the public sector banks have failed to perform effectively as compared to private banks.
Benefits of Privatisation
During the last 3 decades, it has been observed that the economy has grown systematically as compared to the regime prior to 1991. One of the major steps taken by the government was to privatise the banks and allow foreign investments. It has achieved various benefits, such as:
- Reducing the fiscal deficit and financing revenue expenditure.
- The government’s intervention is reduced, and the government is able to focus on governance, and creating people-centric, transparent, and sustainable policies.
- A deterrent effect on the staff and management of the public sector banks to perform better.
The expansion of PSUs aims to fulfil goals, such as removing poverty, attaining self-reliance, reducing inequalities of income, expanding employment opportunities, removing regional imbalances, and accelerating the pace of agricultural and industrial development. But these aims were not achieved at the desired rate, hence the government is on a spree of privatisation.