17-04-2013, 03:26 PM
Privatization in Indian Economic
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Division of the Economy into Public and Private Sectors
At the time of Independence, activities of the public or were restricted to a limited field like irrigation, power, railways, ports, communications and some departmental undertakings. After Independence, the area of activities of the public sector expanded at a very rapid speed. To assure the private sector that its activities will not unduly curbed, two industrial policy resolutions were issued in 1948 and 1956 respectively. These policy resolutions divided the industries into different categories. Some fields were left, entirely for. the public sector, some fields were divided between the public and the private sector and some others were left totally to the private sector. A cursory glance at the division of fields of industrial activity into the public and private sectors clearly brings out, that while heavy and basic industries were kept for the public sector, the entire field of consumer goods industries (having high and early returns) was left to the private sector. Outside the industrial field, while most of the banks, financial corporations, railways, air transport, etc., are in the public sector, the entire agricultural sector (which is the largest sector of the economy) has been left for the private sector.
Role of Public Sector in the Indian Economy
Public sector in India has been criticized vehemently by a number of supporters of the private sector who have chosen to shut their eyes towards the achievements of the public sector. Following description should be sufficient to convince one that public sector has played a definite positive role in the economy.
Strong industrial base.
The share of the industrial sector (comprising manufacturing, construction, electricity, gas and water supply) in Gross Domestic Product at factor cost has increased slowly but steadily during the period of planning. The share of the industrial sector in GDP at factor cost rose from 15.1 per cent in 1950-51 to 24.0 per cent in 1980-81 and further to 25.8 per cent in 2008-09 (at 1999-2000 prices). This shows the increasing importance of the industrial sector in the Indian economy. Not only this, the industrial base of the Indian economy is now much stronger than what it was in 1950-51. There has been significant growth in the defense industries and industries of strategic importance.
Import substitution and export promotion.
the foreign exchange problem often emerges as a serious constraint on the programmes of industrialization in a developing economy. This constraint appeared in a rather strong way in India during the Second Plan and the subsequent plans. Because of these considerations, all such industries hat help in import substitution are of crucial importance for the economy. Bharat Heavy Electricals Limited, Bharat electronics Ltd:, Hindustan Antibiotics Ltd., Indian Oil Corporation, Oil and Natural Gas Commission, etc., in the public sector are of special importance from this point of view.
Performance of the Public Sector
It is usual to judge the performance of private sector units by the yardstick of net profit or loss since in their case, maximization of profit is the sole aim. This yardstick fails miserably in the case of public sector undertakings. Such units are frequently started in those sectors where profitability is low and gestation period long. For instance, investment in infrastructure and basic industries is not likely to yield early returns and, accordingly, profits in the beginning are likely to bevery4ow and in some instances, may even be negative. Yet these investments serve important ends since they create the basis for expansion of industrial activities in the future. Investments made by the public sector in the steel industry, fertilizers, power projects, mining, etc., come under this category. Then, in some cases, public sector provides inputs to the private sector (for example, iron and steel to machine building, tools, automobile industry, etc.) It is very easy for it to earn huge profits by merely hiking the prices of its output. However, this is likely to have an adverse impact on the industrial activity in the private sector on the one hand, and push up prices on the other.
Expansion of the Public Sector and its Share in National Production
There has been massive expansion in the public sector after Independence. At the commencement of the First Five Year Plan in 1951, there were only 5 central public sector enterprises with investment amounting to Rs. 29 crore. As on March 31, 2009, there were 246 public sector enterprises with an investment of Rs. 5,28,951 crore. The turnover was Rs. 3,89,199 crore in 1999-2000 which rose to Rs. 10,81,925 crore in 2007-08. According to Economic Survey, 2009-10, the turnover rose further to Rs. 12,63,405 crore in 2008-09. Of the total Rs. 5,28,951 crore investment in the public sector as on March 31, 2009, as much as 46.1 per cent belonged to the. service sector, 26.2 per cent to electricity, 18.1 per cent to manufacturing and 8.8. per cent to mining.
The Question of Profitability
Though we have pointed out earlier that profits are not the criterion for examining the performance of public sector enterprises their financial performance is of wide interest and concern as they are set up at a huge cost to the national exchequer. As is clear from Table 30.1, profit before interest and tax increased from Rs. 42,720 crore in 1999-2000 to Rs. 1,55,000 crore in 2007-08 while net profit after tax increased from Rs. .14,331 crore to Rs. 79,736 crore over the same period. The ratio of profit after tax to turnover rose from 3.7 per cent in 1999-2000 to 7.4 per cent in 2007-08 while the ratio of profit after tax to capital employed rose from 4.7 per cent to 10.4 per cent over the same period.