Public Sector in India Essay Example

enterprises in six basic industries except those where private sector cooperation would benefit national interests. This led to robust public sectors resulting in successful production expansion and technological advancement even outside core or infrastructure areas following initial government investments. The resolution categorized industries into three groups depending on the level of State involvement with Schedule A composed exclusively of government-managed industries.The state would lead Schedule B enterprises, with private participation permitted to supplement state efforts. Schedule C encompassed all other industries left to the private sector. In 1969, the government nationalized 14 major banks. The Industrial Licensing Policy enforced in 1970 placed limitations on large industrial houses whose assets exceeded Rs 350 mn. This definition was amended in 1973 to include companies with assets over Rs 200 mn for greater control over economic power concentration. The Industrial Policy of 1977 aimed to enhance interaction between agriculture and industrial sectors. The Industrial Policy Statement released in July of 1980 stressed optimal utilization of installed capacity and correction of regional imbalances while promoting economic federalism and improving public sector enterprise efficiency through a time-bound corrective action program unit-by-unit basis. A significant policy initiative, the government unveiled the Statement on Industrial Policy in July 1991, outlining strategic decisions like reviewing public sector investments for technologically advanced and infrastructure sectors while allowing selective access for private sectors without exclusive reservations. Institutions such as the Board for Industrial and Financial Reconstruction (BIFR) addressed sick public enterprises with social security mechanisms established to safeguard worker interests.The government and enterprises signed MoUs prioritizing performance improvements, granting wider powers to enterprise boards. Revisions were made to the MRTP Act, which previously granted exclusivity

over 17 industries to the State since its introduction in 1956. The public sector's new priorities included essential infrastructure goods and services, technology development, exploration/exploitation of oil/mineral resources, and building manufacturing capabilities in areas where private investment is inadequate. These marked significant changes under this policy initiative. Additionally, the public sector would produce items that require strategic considerations such as defence equipment. At the beginning of April 1951's First 5-year plan, five public sector enterprises were established with an investment of Rs 290 mn; by the end of April 1992's Eighth 5-year plan, this number had increased to 246 with a total investment of Rs 1,354 bn. After implementing economic reforms and creating a competitive business environment, state-owned enterprises in India experienced consistent growth in their businesses. A World Bank study conducted between 1992-2005 compared post-reform competitive performance between twenty-five state-owned enterprises and five-hundred eighty-two private companies operating within the manufacturing sector - yielding intriguing findings concerning performance outcomes.During the period of 1995 to 2005, it was found that private sector firms had a higher ROA than state-owned enterprises. Private companies displayed more efficient value output in relation to production costs, whereas government-run businesses incurred high marketing expenses earlier on which subsequently decreased later in the studied timeframe. Indirect taxes were the biggest expense for private companies. However, all companies experienced decreasing efficiency over time regarding ROA and return on sales from peak performances during '93-'96 until worsening between '97-'00 and again from '01-'05 periods. During the Tenth 5-year plan, central Public Sector Enterprises (CPSEs) demonstrated notable improvement in performance with more profit-making companies and fewer loss-making ones. Nevertheless, granting complete autonomy to CPSEs remains

an unfinished agenda for the government; hence Board for Reconstruction of Public Sector Enterprises (BRPSE) was created to address issues such as strengthening, modernising, reviving, and restructuring CPSEs. BRPSE is referred to when a company has accrued losses equal to or greater than 50% of its average net worth during any financial year or is classified as a sick company under the Sick Industrial Companies (Special Provisions) Act of 1985.BRPSE has made recommendations and approved proposals for reviving CPSEs by closing down two others. The government provided Rs.82.8 billion, including Rs.19.5 billion cash assistance and Rs.63.3 billion non-cash assistance for these cases on October 31st, 2007. The mechanisms implemented for public sector plans have undergone significant changes with the introduction of performance-related incentives, special purpose societies and agencies alongside companies assigned specific functions; several organisations have transitioned out of public sectors due to privatisation in recent years.

The country’s share of public investment has gradually declined from being at 35% in Plan Eight to 29% and then 22% in Plans Nine and Ten, respectively.The Planning Commission anticipates that the share will remain constant in the 11th Plan if there is a domestic savings rate of approximately 35%. Public policy is expected to heavily influence agriculture, education, health, infrastructure, and energy sectors.Resource allotments for the Central government level are Rs21,565.7 bn while state governments and Union territories are allocated Rs14,881.5 bn during the 11th Plan period.

The Department of Public Enterprises provides guidance on wage policies and pay scale adjustments for executives in CPSEs as well.These scales are based on either the Industrial Dearness Allowance or Central Dearness Allowance patterns, as mandated by the government's policy for all

employees within CPSEs. Over three decades, per capita emoluments have experienced significant growth with gross emoluments increasing from Rs4,150 mn in FY72 to Rs123.1 bn in FY92 and further to Rs525.8 bn in FY07 for employees within CPSEs. The CAGR of 12% between FY72 and FY92 followed by a CAGR of 13.3% between FY93 and FY07 indicates an increase in employment opportunities and income generated by CPSEs during this time period. In addition, capital expenditure aimed at various developmental activities across sectors such as energy, rural development, education etcetera has doubled from Rs 2,102,030 mn in FY03 to Rs 4,412,850 mn in FY07 within the public sector. Infrastructure investment at both central and state levels accounted for 4.2% of GDP which is expected to reach 6.4% by FY12 according to the Planning Commission.The savings made by the public sector including government departments and enterprises at both central and state levels were a considerable contribution towards the country's overall savings.In fact,Gross Domestic Savings (GDS) increased from23 .6 %inFY03to34 .8 %ofGDPinFIY7 whilepublicsector saving rosefrom3 .3 %to4 %.Before FY03, the public sector saving indicators were negative. However, they became positive due to policy initiatives aimed at enhancing the performance of Public Sector Undertakings (PSUs) and granting greater autonomy through MoUs between the government and firms with evaluations based on agreed annual targets. Nevertheless, over time, MoU ratings for CPSEs have declined.