Question

What was the role of the public sector before 1991?

Answer 1

During the initial years of economic planning, particularly in the 1960s and 1970s, the public sector was accorded a pivotal role in the development of industries in India.

The following points highlight the role of the public sector in industrial development in the pre-1991 period.

(a) Infrastructure development:Infrastructure such as communication, transport, energy supply and banking are the basic prerequisites for industrial development. But, because of the requirement of heavy initial investment and long gestation periods (for earning returns on such investments), the private sector lacked the initiative for undertaking infrastructure development projects. In such a scenario, it was only the public sector that could mobilise the huge amount of investment required. Hence, this sector was assigned the role of developing infrastructure.

(b) Maintaining regional balance: During the 1960s and 1970s, India faced acute regional disparities in development. Some regions were comparatively much better developed than other regions. The regional disparities impeded the nation’s growth and development. In order to bring about regional balance, public sector enterprises (PSEs) were set up in backward and rural areas. These PSEs not only provided employment but also encouraged the development of ancillary units (or supporting industries) in these areas.

(c) Economies of scale:Large-scale industries, such as natural gas and petroleum, enjoy economies of scale (benefits derived from them are greater when operated on a large scale). In the years just after independence, the private sector was not big enough to operate these large-scale industries because they required huge capital investments. Operating these industries on a small-scale was not an option as this would have caused losses. Hence, the public sector was required to start and operate these industries.

(d) Import substitution and exports: Attaining self-sufficiency was one of the important objectives of India’s economic planning. The aim was to restrict imports and at the same time maximise exports. Thus, PSEs were established to manufacture heavy machinery and engineering goods domestically, which would restrict imports. Simultaneously, with the aim of expanding exports, PSEs such as the Metals and Minerals Trading Corporation of India (MMTC) and the State Trading Corporation (STC) were established.